Q2 2023 TaskUs Inc Earnings Call

Good afternoon, and welcome to the task of second quarter 2023, Investor call. My name is John and I will be your conference facilitator today at this time all lines have been placed on mute to avoid any background noise. After the speakers' remarks, there'll be a question and answer period, if anyone should require operator assistance during the conference. Please press star zero.

And now I would like to introduce Alan Katz, Vice President of Investor Relations. Thank you Allen you may begin.

Yeah.

Good afternoon, and thank you for joining us for the task of second quarter 2023 earnings call. Joining me on the call today are Brian Maddock, our co founder and Chief Executive Officer, and biologists Tucker, our Chief Financial Officer.

Full details of our result, and additional management commentary are available in our earnings release, which can be found on the Investor Relations section of the website at IR Dot task Dot Com. We've also posted supplemental information on our website, including an investor presentation, and an excel based metrics file.

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

Before I 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.

Management's expectations and plans for the business. These statements are not 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 these forward looking statements can be found in our annual report on Form 10-K, which was filed with the SEC on March 6th 2023.

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

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

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

I will now turn the call over to Bryce Murdoch co founder and Chief Executive Officer of Tosca Rice.

Thank you Alan good afternoon, everyone and thank you for joining us in the second quarter, we outperformed both our revenue and adjusted EBITDA guidance ranges, we delivered $229 $2 million in revenue compared to the top end of our guidance range of $228 million.

We delivered adjusted EBITDA of $54.7 million for an adjusted EBITDA margin of 23, 8% also above our guidance of a 23% margin.

These results were once again stronger than our expectations. This is the result of the tireless efforts of our global team.

Similar to other players in our industry a number of our clients in the tech space has continued to focus on driving efficiencies, thereby reducing volume expectations for the remainder of the year.

As a result of this reduction and it continues like many of our sales pipeline our revenue outlook for the remainder of the year has decreased we've updated our guidance range to reflect this.

Given the lower revenue outlook and the investments that we're making to drive growth. We returned our adjusted EBITDA guidance to 23% for the full year in.

In line with our initial guidance.

Our team has made great progress on our efficiency program, which is protected our margins. Despite top line headwinds I'll spend some time going through the details of our Q2 performance in signings and we'll then discuss in more detail some of the investments that we're making to drive our three strategic growth initiatives followed.

He will then walk through our financials as well as our updated guidance ranges for Q3 and the remainder of 2023.

Starting with growth with our current clients revenue from our top 20 clients declined by 12% year over year in Q2 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 we exclude those three clients our largest 17.

Clients grew 7% year over year.

Revenue from clients outside the top 20 also grew by 7% year on year.

Looking at our service offerings digital customer experience revenue declined by nine 9% compared with Q2 of 2022 as expansions with existing clients and new client signings were more than offset by the decline in revenues from crypto and equity trading clients and the impact of lower volumes from certain other claim.

In.

These major D C signings, we're winning business from the competition and are continuing to see internal volumes from certain client shift to us to drive cost savings in.

In Q2, we had strong wins in the retail space, we signed VCX deals with two large well known global retail clients for the first client a global sports brand will be providing Spanish language support for their Latin American customers from our site in Cali, Colombia. This.

This major brand ultimately chose to work with us because of our ability to support Spanish at scale, our heavy focus on driving volume to digital channels and our ability to effectively help customers, while driving revenue through commercial conversations.

We will be providing support for another high end retail brand out of our operations in Mexico. We won this business due to our ability to enhance the overall learning experience for the frontline and we expect to deliver significant cost savings for this client without sacrificing the quality of service.

We continue to see strong demand for our near shore solutions. In fact revenue from this region has increased by approximately 70% year over year.

Based on this demand we opened our newest site in Medici in Colombia, and launched our first client in that site last month.

We also signed two new Dcs contracts with clients in the health Tech space.

First our fast growing non emergency medical transportation service was experiencing high levels of attrition and inconsistent quality with their prior provider.

He turned to task us as an experienced near shore supplier with mature operational capabilities to stabilize and grow their member experience operations.

The second client is a disruptive mental health start up that helps patients connect with their peers. They can afford.

This is supporting patient eligibility and provider of verification services and will soon be adding other operational support services.

This client selected tasked us to help streamline current operations. So they can scale more efficiently.

We were selected based on our reputation as a provider that leverages innovative technologies and data driven insights for our clients.

Moving on to trust and safety revenues in this service offering declined by two 4% compared with Q2 of 2022, driven by the impact of our largest clients moving work to our locations in the Philippines and India.

However, our volumes in the trust and safety be service offering continued to grow in Q2.

The number of trust and safety teammates at task has increased 31% year over year as volumes grew across our clients.

This quarter, we signed a contract with a leading web browser to provide content moderation out of the Philippines for their upcoming social media platform launch they signed with US based on our expertise and content moderation in industry, leading wellness program.

We won additional work from one of the worlds, leading multichannel social communications platforms. We started working with this client about a year ago and have already expanded into additional service lines and geographies.

Now moving our trust and safety work into Malaysia, after delivering strong performance for them from the Philippines expansion into Malaysia will allow us to support a group of Asian languages, as well as provide alternatives for low cost English support.

We also signed an expansion with a client in the Fintech space for dispute support.

Adding to the D. C X work that we already do for that.

We won this business based on our ability to drive cost savings, while improving performance.

Decline has told us that our performance has consistently been the highest out of all of their outsourcing partners.

Moving onto our AI service offering revenue grew 1% in Q2, compared with Q2 of 2022, driven primarily by growth with new clients, including those in degenerative space.

This quarter, we began working with a leading measurement data and analytics provider.

By data training and in a patient support and Spanish Portuguese and French will be providing these services out of India, which has become a very attractive location for tagging worked across multiple languages, we see the opportunity to expand with this client to provide Korean German and Japanese support in the near future.

We've also been leveraging our task force platform to bring in specific talent for degenerative AI space, finding nuance experts in certain fields is a unique capability that positions us to win against competitors.

This past quarter. We also combine the task force platform with task G. P T to streamline their research and Copywriting process at one of our clients.

This is a great example of how our investments in the new technologies are positioning us to win share and drive savings and our clients.

We also highlighted the launch of task G. P. T. This quarter with our inaugural client money like.

This is a great partner a fast paced forward thinking fintech that is looking to leverage our expertise and technology to drive efficiency and augment our teammates performance.

Integrated Kashi P T to expand and enhance our customer service capabilities across this claims business.

Before I move on to our verticals given the impact across our service offerings I wanted to discuss our largest client relationships.

Our relationships here remains strong and we believe we are continuing to take share from our competitors.

That said, we've seen a continued focus on cost savings and efficiency.

In addition, we've also seen a continued shift away from certain R&D projects, leading to additional impacts on our projected revenues from this client.

We have multiple opportunities with this client in the pipeline, but as of today, we would expect to show a double digit revenue decline from that in 2023 and likely a more modest decline in 2024 revenues given the annualized nation of the changes we're currently making.

Turning to our industry verticals, we're seeing particular strength from our technology vertical which grew at 50% year over year.

This was largely driven by our continued traction with some of the worlds largest technology companies.

We're also seeing strength in our entertainment and gaming vertical which grew in the mid teen percentages year over year.

Our work with the leading multichannel social communications platform that I mentioned earlier as well as growth with our largest gaming and streaming media clients is driving this traction.

In terms of other trends last quarter I highlighted our margin expansion at one of our large clients, where we use an outcome based pricing model.

We continue to make progress this quarter driving process improvement.

These process improvement initiatives drove lower teammate counts and revenues in the near term, but drove improved service level performance for the client, while expanding our margins, which positions us well to keep or even take share from our competitors.

As a result of the efficiency gains as well as lower volumes from certain clients. We ended Q2 with 47000 teammates up by 4% compared with Q2 of last year, but down slightly from the prior quarter.

At the start of this year, we discussed three areas of focus to return to revenue growth.

Expanding with our large technology and enterprise accounts, serving increasingly global clients in new geographies and focusing on our specialized services. Let me discuss some of the investments that we're making to support these growth initiatives.

First in terms of expanding with our global technology and enterprise accounts, we've made significant progress over the past year, we highlighted signings with some of the largest global tech companies and some of the world's largest retailers since that time, we've expanded with these clients. For example, one of these clients typically has increased seasonal.

Volumes around the holidays, we would've expected them to reduce volumes in the first half of this year.

Not only were we able to maintain volumes, but this client has grown with us every sequential quarter since we signed them.

For another client one of the worlds largest technology companies, we have a multi year partnership to provide highly skilled Barney experience services out of the U S, including instructional design graphic design work anymore.

Recently, we expanded this partnership to the Philippines, while keeping the work that we do in the U S.

In terms of investment we've built out our client service and engagement team, bringing on additional talent to manage client relationships and some of the largest global tech and retail companies in the world. These individuals are uncovering new opportunities to add value to our clients.

Second we've continued to expand to serve clients in new geographies, we're seeing particularly strong traction in Latin America, where we have increased revenues by 70% year over year, we opened operations last year in Malaysia, and we're seeing strong demand for this region to cover Asian languages. We also continue to grow our operations in Greece.

In Croatia, providing European language services to our global clients.

We're expanding our go to market talent in key geographies and our investment here is beginning to pay off.

We've seen a number of European clients increased by approximately 30% compared with Q2 of last year.

Lastly in terms of specialized services, we're seeing traction across our offerings.

We're working with our clients to build generative AI into their workflows to drive efficiencies, we've already launched with a number of clients, including Moneyline, which I mentioned earlier, we expect to see this technology embedded in additional client processes this quarter as.

As I mentioned, we have continued to expand our learning experience services with some of the biggest technology companies in the world turning to us for instructional design and LMS maintenance. We also continue to see global demand for our trust and safety work expanding into Malaysia to support one of the world's leading multichannel social communication apps. Furthermore.

In fact trust and safety are fraught and investigations work has continued to gain traction over the past several quarters. This past quarter, we signed an expansion with an e-commerce client for fraud and investigations. Marc we started working with this client less than a year ago through tier one spot work their tier two risk and chargeback work has been.

Done by internal teams in the U S and Japan as well as another outsource partner.

But given our strong performance they've centralized all this work with us.

In terms of investment we've launched our technology and innovation Center in Chennai, India. This office is our hub for generative AI talent to support past G. P T.

Also within our sales organization, we continue to bring on talent with specific expertise selling AI services.

Our progress on these growth initiatives is encouraging and I am confident they will drive revenue growth overtime.

However, we no longer expect to return to growth by the end of 2023 and have lowered our revenue outlook for the remainder of the year.

We now expect that revenue for the full year will be between $900 million and $910 million at the top end of our range, we would expect to see a stabilization and sequential revenues by year end.

In terms of margins, we're continuing to focus on our cost structure and have made very good progress on this front, our multiyear efficiency program is more than offsetting the impact of lower revenue.

However, we are also focused on making investments to get back to growth.

Given these investments our adjusted EBITDA margin for the year is now approximately 23% we would expect to return to higher margins as revenues stabilize and we returned to growth.

Our outlook on free cash flow has not changed we continue to expect to deliver greater than $100 million of free cash flow at any point in our guidance range, excluding the earn out payment associated with a hello acquisition.

Optimizing working capital and balancing capex investments with current growth needs.

In this environment, we are very focused on using our cash to drive shareholder value as I discussed our first priority is to invest in the business to drive growth. We continue to see M&A as a potential use of cash to drive value in the future. However, we've not seen private market valuations match.

With public market realities.

Given our low leverage ratio of just half a turn we're well positioned to move quickly on M&A when the valuations look more attractive.

Given the current public valuation of task us, we see repurchases as the most attractive use of cash today.

As of quarter end, we repurchased almost five 3 million shares since the start of our share repurchase program.

We were much more active in the market during the second quarter driven by our dynamic repurchase plan that allows us to purchase more shares at lower prices.

We see repurchasing our stock is a very attractive use of capital and believe that as growth returns our repurchases at these levels will result in significant value creation.

We remain focused on executing against our strategic initiatives and investing for growth while at the same time, we remain diligent on our cost structure with that said I'll hand, it over to biology to go through the Q2 financials in a bit more detail and provide our outlook for Q3 and the year ahead.

Thanks, Mike and good afternoon, everyone.

I'm going to discuss financial results for the second quarter of 2023.

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

The 11th reconciliations are attached to the press release, we shoot on yesterday.

In the second quarter or beyond.

Total revenues of $239 $2 million.

A decrease of 7% compared to Q2 of 2022.

We always performed.

So our guidance as a result of revenue from new client signings coming in slightly stronger than expected primarily because they just don't cause somebody expedient service Tonight.

In the second quarter, although you see us offering Jim data as Harlan 50 by $9 million.

For the year over year decline of nine 9% driven by the impact of lower revenue from our largest client and keep doing it.

Could you try and isolate the impact of process improvement I can outcome based client.

Although trust and safety business declined by two 4% compared to Q2 of 2022.

The other thing and $45 $2 million total revenues.

This decline was.

The incentive of the geography mix shift from our largest client moving volumes offshore.

Lower volumes from wonderful what do you predict trading clients.

Alright, Yes services business grew one first thing here what are your core revenues of $3 million as a result of expansion with both existing and new clients.

This should be offset by the geography mix shift from our largest client moving volumes offshore.

Our client base has continued to diversify in Q2.

Although our revenue concentration with our largest client loss of approximately 19% down from 22% in Q2 'twenty to 'twenty two.

But I didn't need driven by the shift from onshore to offshore.

Our top 10 and top 20 clients accounted for 55 first thing and <unk>.

The 9% down from 58% and 73% in Q2 of last year.

In the second quarter, we generated 55% off over revenues in the Philippines, 16% of our revenues in the United States, 13% of our revenues in India, and 16% of our revenues from that if something like that.

We saw particularly strong growth in Latin America and Asia.

Our cost of service.

As a percentage of revenue was 58 point people or something in the second quarter compared to 58 by Cooper in.

Two of the prior year.

The increase was due to wage inflation and return to office expenses as well.

More people back into the office.

Last year.

This was partially offset by the gain from the stronger dollar in the current quarter.

Q2 of 2022.

Transition of work from onshore to offshore locations.

Have a lower cost of service.

In the second quarter.

G&A expenses were $58 $2 million or 25, 4% of revenue.

This compares to Q2 of 2022 of $68 $9 million or 28% up revenue.

The impact of severance cost the Oh, no accrual associated with the acquisition.

Stock based compensation for the quarter.

G&A as a percentage of revenue would have been 18, 6%.

The impact of our cost optimization and other efficiency efforts will continue to drive improvement in our G&A expense.

Oliver asked to invest in sales and marketing to drive growth and we see the impact of lower revenues.

Total is DNA as opposed to VEGF revenue could be you could ease in the back half of the year.

In the second quarter of 2020 P. V earned adjusted EBITDA of $54 $7 million, but 23, 8% margin compared to $55 $7 million and $22. Six first thing in the second quarter of 2022.

Mainly driven by the cost optimization initiative in G&A that I just discussed.

He came in higher than about our guidance for the quarter driven by a higher than expected revenues and operational efficiency gains.

Adjusted net income for the quarter was $31 $8 million and not just go to earnings per share was 32 cents.

By comparison in the year ago period, we earned adjusted net income of $38 $7 million and adjusted EPS of <unk> 38.

The decline in adjusted net income was primarily due to higher financing expenses compared to last year.

Due to the impact of higher interest rates.

And a higher accrual for taxes due to increased income before taxes.

Now moving onto the balance sheet.

Cash and cash equivalents were $153 $6 million as of June 30, we deeply threep compared with December 30, plus 22 need to balance off harness that before many of the others.

In the quarter, we utilized approximately $38 million of share repurchases.

Buying back approximately three 2 million shares.

Average price of $11.76.

As of quarter end, we're about <unk>.

<unk> hundred $34 8 million authorization left on our plan.

Our net leverage ratio continues to be healthy.

Ralph.

Five times as of quarter end.

Cash generated from operations was 38.

$8 $5 million.

For the second quarter of 2023 as compared to statistics behind $1 million in Q2 of 2022.

Although capital expenditure decreased in the second quarter of 2020 $398 million compared to $11 $6 million in Q2 of 2022.

The decrease was primarily driven by lower technology and facilities related expenses as employees have returned to the office.

We now expect capex to be $35 million for the year.

Yeah.

Free cash flow was $27 million or $52 $6 of adjusted EBITDA.

Given our outlook for Capex spend and working capital, we expect to see a slightly lower conversion rate.

The remainder of the year.

Year to date, we have generated $67 $2 million of free cash flow, representing 61, 1% conversion rate from adjusted EBITDA.

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

Okay.

We now anticipate full year 'twenty 'twenty total revenue to be in the range of 900 million to $910 million.

We expect on a full year 2023, adjusted EBITDA margin of approximately 23%, which aligns with our outlook at the start of the year.

And we expect to deliver greater than $100 million of free cash flow at any point in our guidance range. Excluding the earn out payment associated with the Halo acquisition, which implies a conversion rate of 45% to 50% of adjusted EBITDA.

Yeah.

For the third quarter.

We expect revenue to be in the range of 220 million to $222 million and we expect our adjusted EBITDA margin to be approximately $22 four person for the partner.

This adjusted EBITDA margin guidance for the third quarter.

Full year is based on cutting rates, so any change to cut in few days would impact dollar margin.

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

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

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

Next month passed US, we'll celebrate our 15th anniversary one of the most meaningful parts of our incredible journey has seen our teammates grow here at task us.

Almost as long as task has been around I've worked with faith colonial.

He has been with us for over 13 years.

She began her journey of the teammates in the Philippines right. After graduating from college over.

Over the years <unk> demonstrated strong skills and a dedication to her work leading to a promotion to team leader.

And today faith as an operations manager for our brand new site in Malino, Philippines, which we call greenhouse she's doing a tremendous job.

One of the things that makes me most proud is how task is supported face personal journey at.

As a single mom take was among the first recipients of our task of scholars program and for the past seven years, we've paid almost 100% of her son's tuition fees at private school.

As part of our commitment to fostering even greater impact, we recently announced the expansion of the program for our 15th anniversary aiming to provide tuition support to 1500 students worldwide.

Faith story shows the potential of our people first culture, and creating rewarding lives and careers for our teammates.

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

Thank you Sir we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the queue. You May press star two if you'd like to remove a question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.

We ask that you please limit yourself to one question and one follow up thank you.

One moment, while we poll for questions.

And the first question comes from the line of Puneet Jain with J P. Morgan. Please proceed with your question.

Yeah, Hi, Thanks for taking my question a quick question on the guidance Scott.

So first what gives you confidence that the worst is behind you and there.

Should not be any.

Going to surprise us.

That's yes, and also given the exit rate implied for Q4 and high single digits or maybe a low double digit decline.

Can you shed qualitative comments on next year's growth rate.

Good afternoon. Thanks, so much for the question. So clearly over the past 18 months, we've seen our clients shift their focus to cost reduction many of our clients have laid off internal employees and they have cut their outsourcing budgets.

Driven efficiency into their outsourced relationships by shifting work from high cost to low cost geographies.

In some cases, improving their own product and process to contain more contacts.

And finally deciding to simply stop supporting certain non critical workflows.

That our claims have been a headwind to revenue growth and they've also slowed our sales as companies, reducing spending are less likely to introduce new vendors with that being said there is a limit to how much of these efficiency improvements can dry volumes down there remain millions of customer interactions to respond to millions of pieces of content to moderate in <unk>.

To exciting new investment areas, like creating and reading content regenerative AI applications.

So while I'm not ready to predict exactly where we're at in this cycle of efficiency I do believe that we're closer to the end than the beginning and while we're not providing guidance for 2024 at this stage I do feel confident we will return to growth next year.

Oh, that's fine and then of your largest customers.

That stems from content moderation Muslim what was it like some other initiatives that you had been working on for that client and the clarification like biologics comments like about.

And can you just offshore mix there I'm, assuming that's a year on year, our teams and not necessarily on sequential basis.

So let me take the first question and then I'll hand, the second question to biology.

At our largest client we continue to have a very strong relationship we have more people supporting our largest client.

It currently than we did at this stage last year, so we've seen volume growth.

The revenue decline has been driven primarily by moving work from high cost onshore markets to low cost offshore markets.

Which we obviously described.

And I apologize I have yet jumping on that the next question.

Yeah, you're right so the.

Why that is.

You don't want to have a comparison of therefore, the largest plant maybe they're approximated 19% when compared to 22% in Q3 deep linking.

Got it so on a sequential basis.

Well there is there was no incremental.

Okay, then low cost labor mix.

Yes.

Because that is.

I'll, let you know as of last quarter.

Yeah lots of other moving parts.

What's been the person.

Quite a bit.

Gotcha, Okay. Thank you.

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

Thank you.

Hum.

The.

Volume's you know.

Can you help us translate that into what kind of visibility you have into the guidance that you put put out yeah, what kind of factors specifically are impacting those volumes and then are you assuming on the sort of recovery in the back half.

Yeah, so and as we've demonstrated in the past we've got very strong visibility into the current quarter given that we're already more than halfway through the year and halfway through Q3, we've got less potential variability in our range than we had when we guided at the start this year.

We have incorporated every main risks from a client perspective into our forecast and have embedded further conservatism into our expectations around new sales and around client volumes.

We feel.

Reasonably confident in our visibility into client volumes headed into 2024 as well.

And then can you give us an idea of how you're viewing.

In terms of the opportunity and threat from a more granular level like across your different surface mines that national will be different impacts there.

Yes, we ultimately believe degenerative AI is going to be a net positive for us.

We launched pass GPT, which is our generative AI Egypt assist tool.

That's based on open as GPT for API.

Integrating past GPT into client workflows driving efficiency gains that we're sharing with clients and we believe that our progress on this front is increasing our competitiveness.

We do believe that.

Certain digital customer experience work flows are likely to be further automated however.

However, our customer support work is mostly complex involving real time interactions with multiple systems and changing variables and we believe that this work is less likely to be automated in the near term. Additionally.

Additionally, we believe strongly that chat GPT and.

And generative AI in general is going to create significant demand for trust and safety services, it's hard to imagine all of the workflows that are gonna be created as a result of this but when you think about the.

Mount of content, both image video and tax data is going to be generated using these generative AI tools.

Yeah.

Potential here is massive.

We also believe that we're going to continue to see growth in demand for AI services to support the development of each generative AI models. So ultimately we're very aware of degenerative AI automate some of the work that we do today, but we believe it has the potential to create a lot more work as well.

Thanks Bryce.

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

Hey, Thanks for taking my question I wanted to double click on the lowered outlook one more time I guess regarding the demand environment, where would you say things have moved incrementally worse since last earnings in terms of service offerings and verticals and as the softer client volumes concentrated more in.

Certain larger clients or is it more of a broad based not and haven't seen across the general client base.

Yeah, Let me comment on this and I'll have biology add any color.

Ultimately.

The lower outlook is being driven by lower volumes at existing clients and a slowdown in our overall sales pipeline.

The size of the pipeline remains robust, but the velocity is sick.

It can be slower than it was at this stage last year.

We're seeing existing clients really push the boundaries of how they can drive efficiency.

We've gone through a wave of moving work from high cost Geos to low cost yes.

We have worked with clients to automate certain workflows and Paulo client constructions on not supporting certain non critical workflows.

As I said I do believe that we're closer to the end of this efficiency cycle than we are to the beginning.

But those are the things that have driven the review the revised guidance.

Apologies if you have anything you want to add to that.

No I was just kind of reiterate what Bruce mentioned just from a forecasting process perspective.

So one is that we do have very strong liquidity in the current quarter. So far this year, we are halfway through the you're halfway through Q3. So we have less potential variability and also in terms of NIM, we don't get to a NIM at the client level and then further into the expectations are on both client volume side of your sale from our whole customers.

Okay.

Got it and then on your U S delivery have you seen any incremental client reductions away from the U S. Beyond the client you kind of called out last quarter.

Is there any change to your expectations in terms of U S delivery falling to 10% in terms of what's embedded in the outlook.

Yeah. So between last call on this call there hasn't been a material change in our expectations for U S deliberate.

This revision in guidance has been driven more by volume reductions.

Across clients to global scale.

We would still expect the U S to represent 10% or perhaps more of our revenues at the end of the year and into next year.

Got it thank you.

And the next question comes from the line of Matt Vanvliet with P. T. I G. Please proceed with your question.

Yeah. Good afternoon. Thanks for taking the question just wanted to dig in a little bit on on the health Tech vertical.

An area that has been emerging for you and I'm curious what you're seeing in terms of trends there.

Really kind of outside of the bigger tech realm, but I'm curious on how much you're seeing you called out the mental health startup, but any other commentary that you can have to to give us some directionality on that group.

Yes, <unk> has been a huge driver of growth for us.

In the past year.

We've seen a lot of demand from mental health startups.

Both counselors and psychiatrist.

That are available remotely to patients and we've developed a real expertise in that area as well as across the health Tech space more generally.

Right now what we need to do is use our credentials in health Tech space.

Get into the enterprise health care space.

We've been making solid progress, but have yet to close any material deals in that area I think that represents a potential upside as we continue to expand into more enterprise customers.

And then I guess on a similar vein earlier or over the last several quarters, you've talked about getting into kind of newer areas of our newer business units across more traditional enterprise customers.

And then any updates on maybe a potential new business or at least pipeline generation.

Trying to get into traditional enterprise that are looking to be a little more disruptive or a guard against other disruptors coming into their space.

We've made really good progress on the retail front here.

We signed a true enterprise class retailers in this past quarter.

Both to deliver out of our Latin American operations, and we see meaningful upside there.

Right now healthcare is an area, obviously that is very interesting for us yet to make significant progress in terms of closing deals, but have a strong pipeline and we're also interested in more traditional banking and financial services, we're making investments to bring on sales leaders who have enterprise expert.

And we expect that to accelerate our sales pipeline going forward.

Alright, great. Thank you.

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

Great. Thanks, a lot I wanted to ask in terms of the efficiency programs et cetera in and Bryce I understand that the comments that we may be nairobian, particularly for those that have been undertaking that for the last few quarters, but how are you feeling about the broader <unk>.

Segment of clients that you have and where they're at and those processes end and do you think that there like what are the things that you are looking forward to that may be indicators that they may want to start to undertake their own efficiency programs et cetera.

Yes. So you know the bulk of the efficiency programs have been at our largest clients and as we said in the past. So we've gone on a journey with many of our clients from venture funded startups to publicly traded enterprises.

Yes.

There is a chapter in that journey as they shift their focus from growth at all costs to being more efficient and profitable.

And so.

At this stage.

We have seen.

Seen early signs of demand reviving its certain of our larger clients.

We are actively in discussions at most of them about new exciting opportunities in areas of potential expansion.

Clearly.

In the in the near term we've seen a decline just as a result of the three factors I mentioned earlier.

Got it got it and then.

Interesting comments, there on outcome based pricing.

Can you breakdown percentage of contracts, maybe that are our outcome base right now versus time and materials and and just kind of help us think through what the potential trajectory is for outcome based pricing and the impact that could have on the business and what kind of timeframe.

Yeah, as we said we've got one large client that we have on an outcome based agreement and over the past two quarters, we've seen material improvements in their margins as we've driven additional efficiencies into the business. This has resulted in lower top line revenue, but expanded margins.

And our strong relationship with the client.

At this stage, we've got a low double digit percentage of our revenues that are derived from outcome based contracts, but in an environment in which our clients are so focused on efficiency. We continue to have lots of conversations about making the shift.

We believe that the future of the business will be more outcome based agreements supported by <unk>.

Tech enabled talent.

Got it got it got it great appreciate that.

Yes.

And the next question comes from the line of Cathy Chan with Bank of America. Please proceed with your question.

Hey, guys. Thanks for taking my questions. So first I just wanted to ask a little bit about geography, you guys mentioned this is Sean.

Countries in Latam in Europe for example, Colombia, you know I guess, how much and then at the same time you guys mentioned in your head Count declined 700 about 700000, a 47 K. So two part question.

First is how much of that is net versus gross voluntary versus involuntary and an expectation for head count in the back half of the year and then the second is related to that offshore and geography pieces or how big is offshore in terms of your total global delivery model now yeah.

And are you expecting any margin impact from Covid.

Oh, sorry.

Yes, Kathy thanks, so much for the question. So clearly the Latin American Nearshore region has been a huge driver of growth over the course of the last year, we grew revenues by approximately 70% there.

The.

Slight decrease in head count over the course of the last quarter.

It was driven mostly.

In the United States.

Although we had seen.

I would say.

Modest.

Flattening of growth in our offshore regions.

Your Philippines, and India continue to be the bulk of our business and that's good because we make higher margins in those geographies and feel like we've got a more robust product to sell them.

But in recent quarters, we've seen our clients really more interested in buying and near shore product pushes the offshore product.

And so we'll have to keep an eye on on that going forward.

Okay, and then switching gears I saw that you guys also launched housekeeping with Moneyline I think that that's a new that's exciting can you just give us a little bit of insight about how that partnership has been going yeah, who initiated that conversation initially and are you guys able to maybe take that as the initial use case and then easily implement that with.

Other customers are you seeing.

Some interest in that as well thank you.

Yes, so the product is.

It's totally applicable to other customers in fact, we launched with a number of other clients, but we've made great progress with money why and increasing the efficiency and accuracy of the teammates that we have supporting their clients.

So we're very excited about that and we expect to see similar results across our other clients.

Okay. Thanks, guys.

There are no further questions at this time I would like to turn the floor back over to Bryce for any closing comments.

Thanks, so much and closing I wanted to thank everyone of our incredible teammates around the globe in the face of challenges. This team has continued to work tirelessly to return task is to growth.

We look forward to updating you on our progress towards that goal on our next earnings call.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.

Okay.

[music].