Q3 2023 TaskUs Inc Earnings Call
Good evening and welcome to task, that's third quarter 2023 and that's your call. My name is Sherry 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 will be a question and answer period.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Now they can change just trend slash senior Vice president of corporate development and interim head of Investor Relations.
You may begin.
Good afternoon, and thank you for joining us for the task US third quarter 2023 earnings call.
Joining me on today's call are Bruce <unk>, our co founder and Chief Executive Officer, and Biology, Secor, our Chief Financial Officer.
Full details of our results and additional management commentary are available in our earnings release, which can be found on the Investor Relations section of the website at IR Dot tasked us dot com.
We have also posted supplemental information on our website, including an investor presentation.
Excel based metric style.
Note that this call is being simultaneously webcast on the IR section of our website.
Before we start I would like to remind you that the following discussion contains forward looking statements within the meaning of the federal Securities laws.
Clothing, but not limited to statements regarding our future financial results and management's expectations and plans for the business.
These statements are neither promises or 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 six 2023.
This file is accessible on the Sec's website and on our website at IR Dot task that dot com.
It may be supplemented with subsequent periodic reports, we file with I can see.
Any forward looking statements made on today's conference call, including responses to questions are based on current expectations as of today and tasked us 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.
A reconciliation of each of these non-GAAP financial measures to the most directly comparable GAAP metric. Please see our earnings press release, which is available in the IR section on our website.
Now I will turn the call over to Brian Somatic <unk> co founder and Chief Executive Officer.
Right.
Thank you Troy and good afternoon, everyone and thank you for joining us in the third quarter, we outperformed both our revenue and adjusted EBITDA margin guidance, we delivered $225 $6 million in revenue compared to the top end of our guidance range of $222 million.
In terms of margins, we delivered adjusted EBITDA of $52 $9 million for an adjusted EBITDA margin of 23, 5% a.
110 basis points above our guidance for a 22, 4% margin.
I am so proud of our global team, which continues to work tirelessly despite a challenging macroeconomic backdrop.
As a result of these efforts were increasing our revenue guidance for the full year to between $915 million and $917 million in revenue up from a midpoint of $905 million.
Despite this improvement the environment remains challenging in the face of these challenges. Our team has continued to focus on maximizing cash generation by optimizing our G&A and capex spending while continuing to invest in our regenerative AI initiatives, along with sales and marketing to drive growth.
As a result, we generated $32 $2 million in free cash flow in the third quarter, excluding the impact of our <unk> acquisition earn out payment.
As a result, we're increasing our full year free cash flow guidance for more than $100 million to more than $115 million, excluding the earn out payment.
I'll spend some time going through the details of our Q3 performance and signings and we'll then discuss in more detail. Some of the results of our strategic growth initiatives Biology will then walk through our financials as well as our updated guidance ranges for the remainder of 2023.
Starting with our current clients total revenue declined by 2.8% on a year over year basis.
Revenue from our top 20 clients declined by 7% year over year in Q3 as the top 20 continued to be impacted by the optimization of our largest clients delivery model as well as operational efficiency initiatives at certain other clients.
Revenue from clients outside of the top 20 grew by 8% year over year.
Revenue from U S delivery declined by 33, 9% in Q3 year over year, while revenue from all other geographies grew by approximately 6% demonstrating the strength of our offshore business.
Looking at our service offerings, the number of clients, who use more than one of our specialized services increased by nearly 28% year over year, demonstrating our ability to cross sell into our base.
Focusing first on digital customer experience revenue declined by three 6% compared with Q3 of 2022 as expansions with existing clients and new client signings were offset by declines in revenues from our largest client as well as cost optimization initiatives and declines in <unk>.
<unk> had a few other clients.
In terms of major DCF signings, we are winning business from the competition and are continuing to see internal volumes from certain client shifts to us to drive cost savings.
We've seen opportunities emerge as clients look to diversify their partner networks. Following a recent industry consolidation.
In Q3, we saw returns on our investments in providing services to clients and degenerative AI and health care spaces as well as expanding our D. C X engagements with current clients to include sales and customer acquisition services.
We signed an expansion of our relationship with the world's leading large language model developer in Q3 with this expansion of our specialized support services. We're now supporting this client across all three of our service lines for multiple delivery geographies within healthcare, we signed a multi year contract supporting the.
Open enrollment activities of our company, providing transformative cloud based technology and services to the Medicare market.
This win with its seasonal peak in Q4 contributes to our confidence in raising our full year revenue expectations.
We also signed an expansion of services to a provider of mental health technology solutions, where we're providing credentialing charting and coding services.
We've seen an increase in demand for our sales and customer acquisition services as our clients continue to invest in growth.
Our largest signing for the quarter came from one of our top three clients. This client of food delivery App.
Task us to replace a large incumbent provider and expanded our new merchant acquisition activation and Onboarding services to cover multiple larger geographies. After we prove ourselves in smaller markets.
We now provide these services to multiple clients.
On demand travel and transportation.
We also added additional sales and customer acquisition work for clients in our retail and E Commerce and technology verticals during Q3.
These global brands continue to choose task is because of our ability to support their complex multi lingual needs at scale and our tech forward approach to solving their most challenging support and growth needs.
Moving onto trust and safety revenues in this service offering increased by 10, 9% compared with Q3 of 2022, largely driven by the continued growth in our large on demand travel and transportation clients as well as certain clients into social media and Fintech markets.
This growth more than offset the volume declines we saw from our largest equity trading clients.
As a reminder, in addition to content moderation or trust and safety services. Also include the work of our risk and response teams, which deliver financial compliance risk and fraud detection services.
While we don't separately report this offering we're pleased that our Q3 risk and response revenue growth was accretive to the overall growth rate of the trust and safety vertical.
This is another clear demonstration of our success selling highly specialized services to our client base.
Demand for all of our trust and safety services continues to grow.
The number of clients using our trust and safety solutions increased by 42% year over year.
If we exclude our largest client which was impacted by onshore to offshore mix changes.
Preston safety revenue grew by 22% annually in the quarter.
We expanded our relationship with one of the world's largest technology companies were providing complex work to authenticate invalidate submissions from their developer community to their App marketplace. We won this work from a competitor with a client was unsatisfied with due to a lack of innovation. This win represents an important.
Entry point for trust and safety solutions to our client with massive addressable spend.
We also signed a contract to implement our proprietary shield technology for the worlds, leading multichannel social and gaming communications platform expanding our relationship for a fifth quarter in a row.
Shield is a proprietary tool we developed deliver user safety and content moderators safety all in one platform is.
He is a wellness tool designed to reduce the emotional impact of reviewing offensive content.
What form includes a variety of wellness interventions with flexible deployment options, notably this client now is using shield not only for the work delivered by task us, but also for the work done by their internal teams. This is a great example of task as his continued leadership and commitment to the health and wellness.
<unk>, who protect all of us from harmful online content.
Moving onto our AI service offering revenues declined approximately $5.8 million or 15, 7% on a year over year basis here.
Here, we simultaneously been impacted by contractions at our largest overall client and our largest autonomous vehicle client.
We continue to have very strong relationships with both clients and task is continues to be one of their largest providers of AI services.
In response to the reduced outsource spend on AI services, we've implemented new processes and leverage our global footprint to achieve greater efficiencies on behalf of both clients.
Despite these large client dynamics, we continue to see an expansion in the number of clients utilizing our AI services.
In Q3, we had 16% more task as clients utilize our AI services versus the same quarter a year ago.
While some of these clients that started with small engagements are a project based work we expect to expand these relationships in the future.
Additionally, our AI services pipeline, particularly in the generative AI and autonomous vehicles segments remain strong.
During the quarter, we signed new business supporting an autonomous vehicle technology providers vehicle safety operations. This is an expansion of our complex work troubleshooting vehicles in the field.
We will now take over the critical response operations in the event of technology related safety issues affecting our clients riders. We're excited for this new real time service supporting AI in the field.
We also saw expansion at a leading advertising data and analytics provider, which we launched with earlier this year.
As well as a number of new AI service projects and our largest client.
Last quarter, we highlighted our implementation of task G. P T for our client money line.
Our teammates are using task G P T to quickly and accurately respond to customer questions.
We also recently completed the implementation and rollout of past G. P. T in support of a large e-commerce marketplace for unique and creative goods.
In both cases cash D. P. P has demonstrated a meaningful improvement in average handle times for both chat and voice support while improving customer satisfaction.
Our sales and client service teams continue to see demand from new and existing clients interested in leveraging past G. P. T through both outcome and subscription based pricing models.
From a head count perspective, we ended Q3 with 47000 teammates a decrease of 3% compared with Q3 of last year and flat 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 from new geographies and focusing on our specialized services.
Let me discuss some of the results we're seeing from the investments we are making to support these growth initiatives.
First we continue to expand our relationships with the worlds largest technology companies.
This holiday season, we're once again ramping a large team for a global e-commerce retailer.
Throughout the year, our operations team has continuously improved versus this clients appropriately high service expectations landing us in the top quartile of their partners in just 12 months.
We will double the size of our holiday staff versus 2022 and then look to expand into additional services and geographies with this client over time.
We also signed our first trust and safety engagement with another one of the worlds largest technology companies here, we're doing complex work to review and approve submissions to their developer appstore.
Finally, we expanded our scope of work with the autonomous vehicle Division of one of these companies, we will providing vehicle safety operations from the U S.
Amongst enterprise clients, we've made solid progress in health care and retail and E Commerce.
In our health care vertical we signed a provider of technology and services to the Medicare market and a provider of technology for Americans seeking mental health assistance.
In our retail and e-commerce vertical we continue to ramp our support of multiple clients, including a provider of technology solutions to brick and mortar businesses are well known international house of fashion brands and one of the world's best known athletic apparel and footwear brands.
We continue to invest in our sales and client service teams to drive growth across new and existing clients.
Second we've continued to expand to serve increasingly global clients for new geographies.
We're seeing particularly strong traction in Latin America, where we again grew revenue by more than 70% year over year.
This quarter, we signed a new client, where we will provide multichannel bilingual support large global provider of governance risk and compliance software solutions for many in Colombia.
We expanded our work with one of our top three clients from Cali, Colombia.
And we successfully cross sold Spanish language support services to one of the clients. We brought on as part of the <unk> acquisition.
This German based provider of remote desktop management software will now be supported from our operations in both Croatia and Columbia.
We've seen growth in Japan, Malaysia, and Taiwan for the delivery of Asian language services revenue from these global delivery geographies grew by nearly 35% year over year in Q3.
This quarter, we also expanded our support of the world's leading audio streaming platform and one of our large on demand travel and transportation clients from Malaysia.
We also signed a contract to provide Japanese language support to a global provider of integrated financial technology Commerce and payment solutions.
We also continued to grow our revenue in Greece, where we launched a new site recently and Croatia, providing European language services to our global clients.
Lastly in terms of specialized services, we continue to see traction across our offerings.
Mentioned, the significant growth we've seen in our trust and safety offering our industry, leading position was once again highlighted by the Everest group as they ranked tasked us a leader in their augmented intelligence the future of trust and safety is humans plus AI report during Q3.
We continue to believe that generative AI synthetic data and the overall growth in user generated content will lead to long term growth opportunities in the trust and safety market.
And we've made great progress in the area of generative AI this quarter.
First we expanded our relationship providing support services to the leading large language model provider.
Additionally, we deployed more instances of task GPT for clients and has seen significant improvements to both productivity and client satisfaction as a result of these implementations.
Our progress on these growth initiatives is encouraging and I'm confident they will bring us back to revenue growth in time.
As I mentioned at the start of the call. The tireless efforts of our team have led to an increase in our full year revenue guidance between $915 million and $917 million up from $905 million at the midpoint of the guidance range, we provided last quarter.
We expect to generate 225 million to $227 million in revenue in the fourth quarter. This.
This includes between 4 million and $6 million in the seasonal revenue.
In addition to losing these seasonal volumes, we expect to see some continued volume reductions given the impact of ongoing macroeconomic uncertainty.
As a result, we expect Q1 'twenty 'twenty four revenue to decline from Q4 of this year.
We will provide our full year 'twenty 'twenty four revenue guidance on our annual earnings call early next year.
Given the uncertain growth environment, our team has been hyper focused on improving margins and cash flow.
In terms of margins, our ongoing focus on cost optimization process improvement and technology, driven automation continued to pay dividends in Q3, resulting in Q3 adjusted EBITDA margins of 23, 5%.
We now expect to deliver adjusted EBITDA margins of 23, 3% for the full year of 2023 compared with our prior guidance of 23%.
In light of our Q3 performance our outlook on free cash flow has been revised upward.
We now expect to deliver more than $115 million of free cash flow at any point in our guidance range, excluding payments associated with the acquisition.
In this environment, we are very focused on using our cash to generate shareholder value.
As I discussed our first priority is to invest in the business to drive growth.
We also continue to see M&A as a potential use of cash to drive value in the future how.
However, we have still not seen private market valuations align with the public market.
Given our low leverage ratio of just <unk> seven times, we are well positioned to move quickly on M&A when valuations improve.
As noted in Q2, given the public valuation of task as we see continued share repurchases as an attractive use of cash today.
As of the end of Q3, we had repurchased more than 9.8 million shares since the start of our share repurchase program.
We were much more active in the market during the third quarter driven by our dynamic repurchase plan that allows us to purchase more shares at lower prices we.
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.
In closing, we remain focused on executing against our strategic initiatives and investing for growth while at the same time remaining diligent on our cost structure and driving value for shareholders.
With that I'll hand, it over to biology to go through the Q3 financials in more detail and provide our outlook for Q4.
Thanks, Beth and good afternoon, everyone.
I'm going to discuss our financial results for the third quarter of <unk> 23.
Please note.
But some of these items our non-GAAP measures.
The relevant reconciliations are attached to the press release, we issued earlier today.
In the third quarter, we own total revenues of 202, new $5.6 million.
Once again, beating our guidance range of Dorian 20 to 22 million in revenues.
Revenues decreased by two 8% compared to Q3 of 2022.
We outperformed compared to our guidance.
The third new client signings and existing client volumes, both of which came in stronger than expected.
In the thirdquarter other D CX offering generated higher than $46 million for yoga. What are your decline of 3.6 dollars thing driven by the impact of lower revenue from our largest overall client as well as cost optimization initiatives.
Declines in volume from a few other clients.
This was partially offset by expansions with existing clients and new client signings.
For Trust and safety business grew by 10.9 per cent compared to Q3 of 2022.
And $48 $7 million up revenue.
This increase was the result of continued growth in our large on demand travel and transportation side.
So lets clients in the shooshan media and Fintech market.
Offset by the yoga, what your impact from our largest equity trading flight.
Our air services business declined by 15, 7% year over year for revenue of $31 million as a result of the contraction that the largest ward outlined under the largest autonomous vehicle client.
Our client base has continued to diversify in Q3.
Although our revenue concentration with our largest client was approximately 19% down from 22% in Q3 of 'twenty two.
But I believe the same thing from the cost optimization efforts.
Our top 10, and top 20 clients accounted for 55% and 67% respectively.
<unk> from 56% and 70% in Q3 of last year.
We continue to see strength from our clients outside of our top 20, which grew 8% year or what have you.
In the third quarter, we generated 56% of our revenues in the Philippines, 14% of our revenues in the United States, 13% of our revenues in India, and 17% of our revenue from the rest of the world.
We saw particularly strong growth in Latin America.
Although cost of services as a percentage of revenue was 57, 7% in the third quarter.
Compared to 58% in Q3 of the prior to go.
The decrease was due to the gain from operational cost efficiency and geography mix shift.
Partially offset by wage inflation and the.
Impact of the weaker dollar in the current quarter compared with Q3 off money too.
In the third quarter, our SG&A expenses were $57 $1 million or 25, 3% about revenue.
This compares to SG&A in Q3, 2022 of 60 $253 million or 26, 9% up anymore.
Stock compensation expenses.
He was the one $9 million compared to the previous year.
Adjusted G&A, which excludes stock based compensation expense was 19 point Piper said public Walker.
The impact of our cost optimization and other efficiencies, but we'll continue to drive improvement in our G&A spend.
However, as we continue to invest in our generative yeah initiatives, along with sales and marketing to drive growth.
Expect total SG&A as a percentage of revenue.
Putting pretty slightly in Q4 of 2023.
In the third quarter of 'twenty to 'twenty, three we earned adjusted EBITDA of $52 $9 million or 23.5% margin compared to $55 $5 million and granted three 9% in the third quarter of <unk> 22.
We were able to offset most of the impact of lower revenue.
Through lower cost of service and our cost optimization initiative in journey.
We came in higher than our guidance for the current quarter, primarily driven by higher than expected revenues.
And continued operational efficiency gains.
Adjusted net income for the quarter was $30 million and adjusted earnings per share was 32 cents.
By comparison in the year ago period, we earned adjusted net income of $35 $8 million and adjusted EPS of <unk> 35 cents.
The decline in adjusted net income was primarily due to higher financing expenses.
Prior 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 heartened $14.6 million as of September 32023.
Paired with a December 31st 'twenty, 'twenty, two balance of Heartland and $34 million.
In the quarter, we utilized approximately $48 $3 million for share repurchases buying.
Buying back approximately $4 5 million shares at an average price of $10.62.
As of quarter end, we had approximately $76 $5 million of authorization left on our plan.
Our net leverage ratio continues to be healthy and Voss.
Seven times as of quarter end.
Cash generated from operations was $21 $7 million for the third quarter of 2023 as compared to $41.5 million in Q3 of 2022.
In the current quarter, we had oh, no compensation payment related to the <unk> acquisition of $18 million.
We don't this theme in cash for operations would have been $14 million.
Although capital expenditure increased in the third quarter of $2 23 to seven $9 million compared to $6 $7 million in Q3 of 2022.
We now expect capex to be approximately $35 million.
Free cash flow was $13 $8 million or 26, 1% of adjusted EBITDA for the quarter.
Excluding the impact of the payments related to the <unk> acquisition.
Free cash flow was $32.2 million and 68% of adjusted EBITDA.
As a reminder.
Italy have employee related statutory payment happened in Q4, which impacts free cash flow.
Year to date, we have generated $81 million of free cash flow.
The same thing a 49, 7% conversion rate to adjusted EBITDA.
Excluding the impact of payments related to the new acquisition.
To date free cash flow was $99 $3 million and 61% of adjusted EBITDA.
Along with managing of our cost structure. We've also ensure that we continue to deliver on our cash flow goods.
In terms of our financial outlook for the remainder of the year, we've updated our guidance.
I anticipate full year 2023 total revenues to be in the range of $915 million to $917 million.
We expect to earn a full year 2023 adjusted EBITDA margin of approximately 23 point D personally, we just higher than the outlook, we provided last quarter.
We've increased our free cash flow guidance, and now expect to deliver more than $115 million of free cash flow at any point in our guidance range, excluding the earn out payment associated with this new acquisition.
This implies a conversion rate of almost 50% from adjusted EBITDA.
Today's demand, reaching all of our financial discipline during challenging times.
For the fourth quarter.
We expect revenue to be in the range of $225 million to $227 million and we expect our adjusted EBITDA margin to be approximately 22, 5% for the quarter.
As a reminder, Q4 has higher cost of service due to certain seasonal expenses such as holiday pay.
This adjusted EBITDA margin guidance for the fourth quarter.
And full year is based on current Forex rates.
So we need changes to currency rates will impact our margins.
As a reminder, the majority of our revenue is built and collected in U S. Dollars. So we do not see the impact of U S dollar fluctuation in our revenues.
I will now hand, it back to Brian before we take your questions.
Thank you <unk>.
Before we open for questions I wanted to share another task as teammates story.
This month, we officially opened our new site in beautiful Thessaloniki, Greece.
Which I visited last July.
It was amazing to see teammates from dozens of different countries and cultures, all working together in one building.
Our teammates here speak more than 30 different languages.
One of these teammates Valerie Saab Luke is a trust and safety professional providing multi lingual content moderation services.
Valerie moved to Greece in March of 2022, as a Ukrainian war refugee.
It was not easy for him at first but he started to make new friends in the Ukrainian community in the city.
And that's where he first heard about task us Julie.
Drew as new friends were already task as teammates and the encouraged him to apply.
We met Valerie at one of our career days and he impressed us with his Russian Ukrainian and English language skills. Today. He is a valued member of our content moderation team and doing extremely well he takes great pride in ensuring a safer online world monitoring for everything from offensive images to Po.
Litteken misinformation.
Valerie story is just one example of the impacted Pascoe has on people and communities all around the world.
With that I'll ask our operator to open our lines for our question and answer session operator.
If he would like to ask a question. Please press star one on your telephone keypad. Your confirmation tone will indicate your line is in the question. Kim You May Press Star two if he would like to remove your question from the queue for participants using speaker equipment may be necessary to pick up the handset before pressing the star he is.
Our first question is from Maggie Nolan with William Blair. Please proceed.
Thank you and congrats on the results.
I was hoping you could expand on a comment that you had made about your top 20 clients you referenced some efficiency efforts from clients outside of your top clients can you just elaborate on you know what those are and whether you expect that trend to improve or worsen or be stable in the coming quarters.
Yeah, Maggie thanks, so much for the question. So what we've seen amongst our top 20 clients is the vast majority of them continue to grow revenue year over year and invest more with task US. However, there have been a few pockets where clients have used them.
Contact deflection and.
In other forms of automation to drive down volumes. We've also seen a few move work from onshore to offshore.
At this stage, we think that the trend is closer to the end than the beginning.
If we take the example of our largest client we have seen a decrease in revenue there this year, but at this stage, we would expect revenues to stabilize next year given all the conversations that we're having with them.
So we feel we feel good about where were at despite obviously, having a challenge in 2023.
Thank you and then in the past you've mentioned some success at moving clients Kim outcome based pricing.
Or are those conversations that you are still engaging in with existing clients and are they coming up with some of the new clients that you're signing and any kind of notable progress on that in the quarter.
Yeah, well really the automation.
Automation efforts that we've been making with task GPT have increased the number of conversations we're having about outcome based pricing.
We've seen clients become much more interested in fixing your unit economics, and really kind of baking in savings.
And we think that the investments we're making in generative.
<unk> well to be able to deliver there.
Yeah.
Thanks Bryce.
Our next question is from Ryan Potter with Citi. Please proceed.
Hey, Thanks for taking my question and congrats on the good quarter.
Yeah. So just looking at the outlook, you're guiding <unk> to be flattish on a sequential basis, which would be a nice bounce back from the sequential declines you see in the last few quarters. So what's driving this confidence in improving sequential performance I know you mentioned some seasonal volumes there, but our clients also communicate.
Increasing volumes overall in their own businesses to you or do you believe you're also taking some wallet share here.
Yeah, I think it's a combination of all three we've definitely seen them.
Real success in selling into certain seasonal volumes. This year I gave the example of our large e-commerce client, where we've seen that.
Very significant seasonal ramp as well as the first open enrollment clients that we've signed and in the U S.
Proving the.
Health care business I think we're also seeing clients in.
In some cases increase kind of our base business and we've seen some success selling into.
Clients selling new services that the clients were looking to reduce costs.
Got it.
Diving more into the health care vertical I mean, you know you mentioned you signed a large enrollment quiet there but is the strength youre seeing in terms of the fourth you ramp or just overall there from just a couple of clients or is it kind of multiple clients, who signed over recent quarters and what kind of opportunity do you see overall in the vertical going forward.
<unk>.
Yeah, well, we've made great progress this year signing up a number of health care clients and we've got a very active pipeline of healthcare opportunities. I think this will be a really big growth area for us as we head into 2024.
Yes.
Got it thanks again.
Our next question is from Puneet Jain with J P. Morgan. Please proceed.
Hey, Thanks for taking my question. So I wanted to ask about margins are so for the full year. The guidance is 22.3, yet you are going to be below that in Q4.
Or are there any seasonal headwinds to margins that you expect in Q4 and how should we think about next year is 23 point see that rate base.
For margins next year, given like we've been hearing pricing pressure, but not from a group of nurses.
Yeah. Thanks, Toni for the question. So in Q3, you're right. We came in higher than our guidance of inject who began to have worsened and the full year guidance has been revised to 23, 3%.
That implies that Q4 is that that would be two 5% and the reason is because we do incur seasonal expenses as an example holiday fee typically in Q4 and this is something that we see a big yard. So that is factored into these numbers. So while we're not providing guidance for 'twenty 'twenty four what we what I can say is that we can.
Continue to optimize.
Thank you to gain additional leverage from our offshore geography by basements and yeah, we're growing those geography and not just continuing to grow our specialty product lines.
Got it got it and then on top line price you mentioned that you expect like a sequential decline from Q4 to Q1, given there is some seasonal benefits that you expect in Q4.
But how should we think about our sequential trends beyond Cuba next year like is the business the incoming business as well as the existing book of business at a point that we shared.
We can see growth next year beyond Q1.
Yeah, I mean getting back to growth as the number one priority of the business. Our team has done an excellent job capturing incremental share and new opportunities, which is what allowed us to.
Revise our guidance range up obviously, we'll provide more detailed guidance on 2020 or on the next earnings call, but we're focused on this three part growth strategy selling into enterprise clients Big Tech clients selling into new clients in Europe, and Asia and cross selling our specialized services to our <unk>.
Portfolio of clients and that strategy does seem to be working.
Okay. Thank you.
Our next question is from Dave Koning with Baird. Please proceed.
Yeah, Hey, guys. Thanks, so much and Ah Yeah nice results.
Hum.
Then when we think about you gave your your employee count 47000, maybe.
And maybe just reflect a little on morale.
You know just given the backdrop right now just maybe talk a little bit about wage.
Whether inflation or you know, how how payers going but just kind of the whole feeling of of employees and.
Yeah, you know how how that's all going right now.
Yes.
Start with our frontline teammates which is the.
Primary focus of everybody in our business, we want to make sure that we've got the best experience for our employees around the globe.
The experience here I think really varies based on the geography, we've got some geographies where we're growing.
70% or more year over year like our near shore geographies in Mexico and Colombia.
And so it's very easy in that type of environment, I think to have positive employee morale and lots of opportunities for upward mobility.
I think that our offshore business continues to be one where employees are very satisfied very engaged in our onshore business, we definitely have challenges and these challenges.
Just from the fact that we've seen a substantial decline I mentioned nearly 34% decline in revenue over the course of the last year and that's that's led us to.
I have to say goodbye to a lot of really great talent in the U S. So that does make for a challenging environment.
Environment, and then I think more broadly from our leadership team's perspective.
It has been a challenging 18 months theres no doubt about that.
But the team has stuck together and I'm incredibly.
We are proud of the work that they had done.
Yeah, no great things here that could get us upon.
Yes.
The biggest strategic I'll touch upon the big inpatients with somebody who had so we did see significant wage inflation that we didn't want to do but this is a return to more normalized levels in 2023 in terms of share of onshore business is expected to be lower the impact of wage inflation would be mostly an offshore location, which has been offset by the mix shift.
It is margin dilutive as we work more work more from onshore to offshore locations and second is we do have caught up but we haven't quantified that but we've been enforcing this year.
Gotcha, Okay, Thanks, and maybe just as my follow up within the content business.
How do you see the next several months kind of going with the political cycle like maybe how much of that business is political how much visit other stuff just kind of how the backdrop might be for that the next few quarters.
Yeah, So I mean, clearly our trust and safety business continues to grow.
And this is being driven both by risk and response work in the financial space as well as content moderation.
For a variety of different companies, including social networks.
As we head into 2024, we do expect them to have more work.
In the political realm.
And I think we're well positioned to capture growth that comes from that.
I would just sort of moderate expectations, though and just say that.
We have a team today I think that staff to handle.
Everything that we're expecting amongst our current clients, but we also have a lot of opportunity to use amongst large social media video streaming companies that are tasked with clients today in that realm.
Gotcha. Thanks.
That's on the great margins too.
Yeah. Thanks, so much.
Our next question is from James Faucette with Morgan Stanley. Please proceed.
Thank you I wanted to follow up on the margin question, Bollinger, who kind of loud and clear that the December quarter, yet met and a pressure just given the nature of the calendar, but we.
With as much growth as you guys are seeing overseas in a new delivery geographies in particular, how can we think about that as a birth of F. N a as well as capex on a on a go forward basis or are we at the point, where we can get good leverage on on those operations already.
Yeah, no. So Jim in terms of margins for next year like like I said that they are not providing any guidance there, but we will continue to optimize on G&A you know so.
Still opportunities for us to continue to optimize and that's something that I feel like the team there is really good work.
In terms of the EBITDA margin guidance for the full year. It could be three buying me I feel like it's one of the industry, leading margins currently and Oh I'm B. So we can continue to optimize DNA and secondly, we will continue to gain additional leverage from all sorts of all of these but you'll also see the impact of wage inflation getting into next year. So some of this or this.
That will get will be an offset to the wage inflation and then the third is continue to grow our specialized service lines, which we believe is one of them.
And then again from a Capex perspective, if you kind of look at what the.
The year to date Capex has been about three 3% of revenue and then for the full year at about $35 million would probably be I can work pretty foggy person. So we will continue to invest back into the business. Both in terms of opex and in sales and <unk>.
And also from a capex perspective, but in terms of expansion, but I gave you have been very mindful that we are in terms of babies have been invested which is leading to Keystone XL predictions.
Got it got it I appreciate that and then.
I want to go back to something you talked about you talked about some of the engagement you have around generative AI and large language model training et cetera, how are.
Are you thinking about the type of investment that task I need to make.
Over you know at the next step and and the cycle of generative AI development I'm training you know it seems like if the perked up but but what comes after that and how can we think about the ways that you'll look to pursue that investment.
Yeah, I mean, we've been we've been investing pretty heavily in.
Building a technology organization, that's capable of building a platform.
In the form attached G. P. T. We also have a team of experts that lead our AI services line.
I think that those investments will increase as we go into next year, we expect to invest more in general today I am as.
As well as more in sales and marketing to drive growth.
And then I would I would just say also that there's a huge opportunity for us to grow revenue.
Through the training of large language models and the trust and safety services that these image generation on language models are going to acquire.
Got it I appreciate that.
Our next question is from William Mcnamara with B P. I G. Please proceed.
Hi, This is bill on for Matt with the support of autonomous driving that is currently in use is there a number of agents per car are we should we should be thinking about or is it too early to know for vehicle safety operations and kind of how large do you think this can become for task.
Yeah. Thanks, so much for the question Bill So I think that at this point, it's very early days in the autonomous vehicle space, but we're very well positioned we support a number of.
Of the lending.
Makers of autonomous vehicles.
And.
This vehicle safety operation that we launched this quarter is an incredibly exciting expansion of that work at this stage, we're seeing clients.
Look for ways.
To make sure they are ready to deliver safety for their coal cars and writers in the field.
But to do so in a way it's a bit more cost efficient we mentioned one of our large autonomous vehicle clients cutting spend on certain AI surfaces in the last quarter.
So it's early days to figure out exactly what that per <unk> and per car ratio to agents would be.
But I think we're really well positioned as the space continues to grow.
Great. Thanks for taking my question.
Our final question is from Cathy Chan with Bank of America. Please proceed.
Hi, I just wanted to dig in a little further on your comment on Wednesday, 20, or should we expect you know like a modest sequential decline quarter over quarter basis quite here similar to try and decide to May 23, and also on a year over year basis could you just clarify because they just see maybe further year over year deceleration as well.
The you know call it down 7% based on the guidance you gave her for Ikea. Thank you.
Cathy thank so much for the question. So I think that's right. We were talking about the reversal of those seasonal volumes and the risk of some incremental churn given the macroeconomic environment.
At this point, we're really satisfied with the results that we were able to deliver this quarter and we hope to deliver similar results going forward, but given given the more challenging comp in Q4 and in Q1 of next year the year over year decline may be slightly larger.
Got it that's helpful. Thank you.
This concludes our question and answer session and this will conclude our conference you may disconnect. Your lines at this time and thank you for your participation.
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