Q4 2023 TaskUs Inc Earnings Call

Operator: Good afternoon, and welcome to the Taskus fourth quarter and full year 2023 earnings call. My name is Liz, and I will be your conference facilitator today. At this time, all lines have been placed on mute to avoid background noise.

Good afternoon, and welcome to the Tesco fourth quarter and full year 2023 earnings call.

My name is Liz and I'll be your conference facilitator today.

At this time all lines have been placed on mute to avoid background noise.

Operator: After the speaker's remarks, there will be a question and answer period. To ask a question during this session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising that your hand is raised.

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

To ask a question. During this session you will need to press star one one on your telephone.

You will then hear an automated message advising your hand is raised to.

Trent Thrash: To withdraw your question, please press star 1 1 again. I would now like to introduce Trent Thrash, Senior Vice President of Corporate Development and Investor Relations. Trent, you may begin. [inaudible] Joining me on today's call are Bryce Maddock, our co-founder and chief executive officer, and Balaji Sekar, our chief financial officer. Full details of our results and additional management commentary are available in our earnings release, which can be found in the investor relations section of the website at ir.taskus.com. We have also posted supplemental information on our website, including an investor presentation and an Excel-based financial metrics file.

To withdraw your question. Please press star one again.

I would now like to introduce Trent Rasche, Senior Vice President of corporate development and Investor Relations.

You may begin.

Good afternoon, and thank you for joining us for the task is fourth quarter and full year 2023 earnings call.

Joining me on today's call are Brian <unk>, our co founder and Chief Executive Officer, and Biology, Schaeffer, 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 is dot com.

We have also posted supplemental information on our website, including an investor presentation.

And excel based financial metrics file.

Trent Thrash: Please note that this call is being simultaneously webcast on the investor relations section of our website. Before we start, I would like to remind you that the following discussion contains forward-looking statements within the meaning of the federal securities laws, including, but not limited to, statements regarding our future financial results and management's expectations and plans for the business. These statements are 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 statement.

Please note this call is being simultaneously webcast on the Investor Relations 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.

<unk>, 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 they 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.

Trent Thrash: 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 6, 2022. This filing is accessible on the SEC's website and our website at ir.taskus.com and may be supplemented with subsequent periodic reports we file with the SEC. We expect our 2023 10K to be filed with the SEC no later than March 15,

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 filing is accessible on the Sec's website.

And our web site at IR Dot task Dot com in.

And may be supplemented with subsequent periodic reports, we file with the SEC.

We expect our 2023 10-K to be filed with the SEC No later than March 15 of 2024.

Trent Thrash: Any forward-looking statements made on today's conference call, including responses to questions, are based on current expectations as of today, and Taskus 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 these non-GAAP financial measures to the most directly comparable GAAP metrics. Please see our earnings press release, which is available in the IR section of our website. Now, I will turn the call over to Bryce Maddock, our co-founder and chief executive officer. Bryce.

Any forward looking statements made on today's conference call, including responses to questions are based on current expectations as of today.

And task this assumes no obligation to update or revise them, whether as a result of new developments or otherwise except as required by law.

The following discussion contains non-GAAP financial measures.

Installation of these non-GAAP financial measures to the most directly comparable GAAP metric.

Please see our earnings press release, which is available in the IR section of our website.

Now I will turn the call over to Bryan <unk>, our co founder and Chief Executive Officer.

Bryce.

Bryce Maddock: Thank you, Trent. Good afternoon, everyone, and thank you for joining us. I want to start by expressing my deep gratitude for our Taskus teammates around the globe who have worked tirelessly over the holidays and into the new year to deliver for our clients and our shareholders. As a result of their efforts, we outperformed the top end of our revenue and adjusted EBITDA guidance for the fourth quarter. We delivered $234.3 million in revenue compared to guidance of between $225 and $227 million. In terms of profitability, we delivered $59 million in adjusted EBITDA for an adjusted EBITDA margin of 25.2%. 270 basis points above our guidance of 22.5%.

Thank you.

Good afternoon, everyone and thank you for joining us.

Want to start by expressing my deep gratitude for our task as teammates around the globe worked tirelessly over the holidays and into the new year to deliver for our clients and our shareholders.

As a result of their efforts, we outperformed the top end of our revenue and adjusted EBITDA guidance for the fourth quarter.

We delivered $234 $3 million in revenue compared to guidance of between 225 and $227 million.

In terms of profitability, we delivered $59 million and adjusted EBITDA for an adjusted EBITDA margin of 25, 2%.

270 basis points above our guidance of 22, 5%.

Bryce Maddock: For the calendar year 2023, we delivered $924 million in revenue and $220.8 million in adjusted EBITDA, representing an adjusted EBITDA margin of 23.9%, compared to guidance of 23.3%. Finally, we delivered $131 million in free cash flow in 2023, excluding acquisition-related payments, well above our guidance of more than $115 million. While I'm pleased with our team's efforts and results, we are not satisfied.

For the calendar year 2023, we delivered $924 $4 million in revenue and.

$228 million and adjusted EBITDA, representing an adjusted EBITDA margin of 23, 9%.

Compared to guidance of 23, 3%.

Finally, we delivered $131 million in free cash flow in 2023, excluding acquisition related payments well above our guidance of more than $115 million.

While I'm pleased with our team's efforts and results we are not satisfied.

Bryce Maddock: 2023 was a challenging year, and we did not deliver anywhere near the top line growth rates that we have historically. In 2024, we're determined to do better and to return to consistent year-over-year revenue. While it is still early in the year, 2024 is off to a solid start.

123 was a challenging year, we did not deliver anywhere near the topline growth rates that we have historically.

In 2024, we're determined to do better and to return to consistent year over year revenue growth.

While it is still early in the year 2024 is off to a solid start.

Bryce Maddock: Despite a macro backdrop that remains challenging, we've continued making investments in technology, sales, and marketing. We're pleased with the dividends that those investments are producing and have seen increasingly strong demand in the first quarter. I'll recap some of the highlights from our Q4 and full year 2023 performance before discussing our 2024 outlook. Balaji will then walk through our financials and 2024 guidance in greater detail.

Despite a macro backdrop that remains challenging with continued making investments in technology sales and marketing.

Pleased with the dividends that those investments are producing and have seen increasingly strong demand over the first quarter of the year.

I'll recap some of the highlights from our Q4 and full year 2023 performance before discussing our 2024 outlook Biology will then walk through our financials and 2024 guidance in greater detail.

Bryce Maddock: Q4 revenues were $234.3 million, a 3.3% decline on a year-over-year basis, consistent with Q3's rate of decline and ahead of our expectations. On a sequential basis, Q4 revenue increased by 3.8%, largely as a result of seasonal volume. As anticipated, revenue from our top 20 clients declined 10% year-over-year in Q4 as a result of certain clients' cost optimization and offshore migration efforts, including those by our largest. These top 20 revenue headwinds were partially offset by growth from new and existing clients that moved into our top 20 for 2020. Year-over-year revenue growth from customers outside the top 20 accelerated to 13% in Q4 versus 8% in Q4. We expect to continue to grow clients outside of our top 20 at a faster rate than our largest clients in 2024, as we continue to diversify our client base and expand our business in new areas like healthcare and banking and finance. In terms of delivery geographies, on a year-over-year basis, revenues from U.S. delivery declined 35% in Q4, while revenue from all other geographies grew by 5%, demonstrating the strength of our global TwoFour again saw rapid growth in Latin America; revenue from the region grew approximately 78% year over year.

Q4 revenues were $234 3 million a.

A three 3% decline on a year over year basis, consistent with Q3's rate of decline and ahead of our expectations.

On a sequential basis Q4 revenue increased by three 8% largely as a result of seasonal volumes.

As anticipated revenue from our top 20 clients declined 10% year over year in Q4, as a result of certain clients cost optimization and offshore migration efforts, including those by our largest client.

These top 20 revenue headwinds were partially offset by growth from new and existing clients that moved into our top 20 for 2023.

Year over year revenue growth from customers outside the top 20 accelerated to 13% in Q4 versus 8% in Q3.

We expect to continue to grow clients outside of our top 20 at a faster rate than our largest clients in 2024, as we continue to diversify our client base and expand our business in new areas like healthcare and banking and financial services.

In terms of delivery geographies on a year over year basis revenues from U S delivery declined 35% in Q4, while revenue from all other geographies grew by 5% demonstrating the strength of our global delivery model.

Q4 against our rapid growth in Latin America.

Revenue from the region grew approximately 78% year over year.

Bryce Maddock: At the end of 2023, approximately 96% of our total headcount was outside the United States. We ended the year with approximately 48,200 global teammates, an increase of approximately 1,200 teammates quarter over quarter. As noted in Q3, we continue to make progress on our strategy of cross-selling our specialized service. In Q4, we saw a 30% year-over-year increase in clients utilizing more than one of our services. We also continue expanding our presence in new markets, including adding notable use cases for enterprise clients in the healthcare and banking and financial services spaces, as well as fast-growing technology clients in the autonomous vehicle and generative AI markets. In addition to supporting clients in the generative AI space on the development and support of their technology, we are integrating generative AI into our core service offering.

At the end of 2023, approximately 96% of our total head count was outside the United States.

We ended the year with approximately 48200 global teammates and increase of approximately 200 teammates quarter over quarter.

As noted in Q3, we continue to make progress on our strategy of cross selling our specialized services.

In Q4, we saw 30% year over year increase in clients utilizing more than one of our service lines.

We also continued expanding our presence in new markets, including adding notable use cases for enterprise clients in the healthcare and banking and financial services spaces as well as fast growing technology clients in the autonomous vehicle and generative AI markets.

In addition to supporting clients in degenerative AI space on the development in support of their technology, we are integrating generative AI.

Bryce Maddock: In 2023, we launched Past CPT, our Gen AI platform with multiple clients. We continue to believe that these tools will yield the greatest returns when trained on client-specific data and utilized by talented teammates to ensure efficient, consistent, and secure results. In line with this, we're excited to announce Assist AI, our knowledge assistant built on the TaskGPT platform. Assist AI is custom-trained on our clients' knowledge bases, training materials, and historical customer interaction. Our teammates chat with assist AI to answer customer questions more efficiently and accurately in our digital CX business or to ensure they're utilizing the latest policy when taking action on a piece of content in our trust and safety.

Our core service offerings.

In 2023, we launched passed GBP, our Gen AI platform with multiple clients. We continue to believe that these tools will yield the greatest returns when they're trained on client specific data can utilized by talented teammates to ensure efficient consistent and secure results.

In line with this we are excited to announce assist AI our knowledge assistant built on the task GPT platform.

AI is custom trained on our clients' knowledge bases training materials and historical customer interactions are.

Teammates chat with assist AI to answer customer questions more efficiently and accurately in our digital CX business or to ensure they are utilizing the latest policy when taking action on a piece of content in our trust and safety business.

Bryce Maddock: We are offering Assist AI to all Taskus clients as an integrated part of our service offering. Going forward, we will deliver a well-trained combination of technology and talent to support our clients, protect their brands, and deliver for their customers. During 2023, we also made continued progress on our internal cost efficiency programs in order to maintain our strong margin and free cash flow performance in the face of our clients' own cost optimization efforts. We remain vigilant on cost in the business, not as a one-time optimization program but as an ongoing fundamental discipline to ensure we remain competitive. Shifting to sales, 2023 was characterized by slower decision making and an intensified focus on cost reduction compared to the prior year.

We are offering a fifth AI all task as clients.

Integrated part of our service offering.

Going forward, we will deliver a well trained combination of technology and talent to support our clients.

Their brands and deliver for their customers.

During 2023, we also made continued progress on our internal cost efficiency programs in order to maintain our strong margin and free cash flow performance in the face of our clients own cost optimization efforts.

We remain vigilant on cost in the business not as a onetime optimization program, but as an ongoing fundamental discipline to ensure we remain competitive.

Shifting to sales 2023 was characterized by slower decision, making and an intensified focus on cost reduction compared to prior years.

Bryce Maddock: Despite this, our sales team delivers. We added 47 new clients, the most in any year since 2008. Partially as a result of this success, we have further improved our client concentration. In Q4, clients outside the top 20 drove 34% of our revenue versus 29% in Q4 2022. We ended 2023 with 97 clients who we billed $1 million or more for services, up from 86 in 2022. In Q4, sales were again driven largely by bookings from existing clients, which accounted for approximately 70% of total new business.

Despite this our sales team delivered.

We added 47, new clients the most in any year since 2018.

Partially as a result of the success, we have further improved our client concentration in.

Q4 clients outside the top 20 drove 34% of our revenue versus 29% in Q4 2022.

We ended 2023 with 97 clients, who we build $1 million or more for services up from 86 in 2022.

In Q4 sales were again, driven largely by bookings from existing clients, which accounted for approximately 70% of total new business signings.

Bryce Maddock: We ended the year with a strong pipeline of opportunities with both new and existing clients. We're encouraged by the size, quality, and depth of pipeline opportunities across our service lines at the end of 2023, and we continue to see improved sales momentum in 2024. Turning to our service lines, in Q4, digital customer experience revenue declined by 4.4% compared with Q4 of 2022.

We ended the year with a strong pipeline of opportunities with both new and existing clients.

We're encouraged by the size quality and depth of pipeline opportunities across our service lines at the end of 2023, and we've continued to see improved sales momentum in 2024.

Turning to our service lines in Q4 digital customer experience revenue declined by four 4% compared with Q4 of 2022.

Bryce Maddock: Consistent with prior quarters, expansion with existing clients and new client signings was offset by the decline in revenues from our largest client, as well as cost optimization and volume declines in other clients. On a sequential basis, our DCX revenues were up by 4.1%, inclusive of seasonal revenues. In Q4, we saw strong signing activity from existing DCX clients in the technology and on-demand travel and transportation spaces, as well as with non-crypto fintech and enterprise financial services clients. We also continue to be encouraged by the increase in opportunities we're seeing to provide sales and customer acquisition services to clients across multiple vertical markets. We signed a DCX contract leveraging the capabilities of our Helu team to support a European-based financial services client. We also want a competitive bid process to provide support from our U.S. operations to a leading credit union.

Consistent with prior quarters expansion with existing clients and new client signings was offset by the decline in revenues from our largest client as well as cost optimization and volume declines in other clients on.

Our sequential basis, our <unk> revenues were up by four 1% inclusive of seasonal revenues.

In Q4, we saw strong signings activity from existing <unk> clients in the technology and on demand travel and transportation spaces as well as with non crypto Fintech and enterprise financial services clients.

We also continue to be encouraged by the increase in opportunities, we're seeing to provide sales and customer acquisition services to clients across multiple vertical markets.

We signed the <unk> contract leveraging the capabilities of our <unk> team to support a European based financial services client.

We also won a competitive bid process to provide support from our U S operations for a leading credit Union.

Bryce Maddock: This win is a direct result of the 2023 investments we made in banking and financial services expertise in order to provide balance to our core fast-growing technology. This type of work in regulated industries is a great example of U.S.-based delivery services that we believe are likely to remain onshore, regardless of the economic environment. We also see the U.S. continuing to be a key geography for delivering specialized services to health care. Our trust and safety service line continued to perform well in Cuba.

This win is a direct result of the 2023 investments we made in banking and financial services expertise in order to provide balance to our core fast growing technology clients.

This type of work in the regulated industries is a great example of U S. Based delivery services that we believe are likely to remain onshore regardless of the economic environment.

We also see the U S continuing to be a key geography for delivering specialized services healthcare clients.

Our trust and safety service line continued to perform well in Q4.

Bryce Maddock: Trust and Safety growth further accelerated in the quarter, growing 23.5% year over year and 7.3% quarter over quarter. Hugh Forrest's growth was largely driven by the continued growth in our large on-demand travel and transportation clients, as well as certain clients in the social media technology and FinTech firms. This growth, again, more than offsets the volume declines we saw from our largest equity trading client, which will cease to provide difficult year-over-year growth comparisons after Q2 2020. Our trust and safety service line includes both our content moderation offerings and the work of our risk and response teams, which deliver financial compliance, risk, and fraud detection.

Trust and safety growth further accelerated in the quarter growing 23, 5% year over year, and seven 3% quarter over quarter.

Q4, <unk> growth was largely driven by the continued growth in our large on demand traveling transportation clients as well as certain clients in the social media technology and Fintech verticals.

This growth again more than offset the volume declines we saw from our largest equity trading client, which will cease to provide difficult year over year growth comparisons after Q2 2024.

Our trust and safety service line includes both our content moderation offerings and the work of our risk and response teams, which deliver financial compliance risk and fraud detection services.

Bryce Maddock: While we don't separately report this offering, we're pleased that our Q4 risk and response revenue growth was again accretive to the overall growth rate of the Trust and Safety Service. Speaking of our risk and response team, I'm proud to announce that we were named a leader in Everest Group's Financial Crime and Compliance Operations Services Peak Matrix for 2023. Demand for all of our trust and safety services continues to grow.

While we don't separately report this offering we're pleased that our Q4 risk and response revenue growth was again accretive to the overall growth rate of the trust and safety service line.

Speaking of our risk and response team I'm proud to announce that we were named a leader in Everest group's financial crime and compliance operations services peak matrix for 2024.

Demand for all of our trust and safety services continues to grow in Q4, we saw a notable win with the Deca corn startup into graphic design space. We now provide multi lingual content moderation to this client.

Bryce Maddock: In Q4, we saw a notable win with a DecaCorn startup in graphic design. We now provide multilingual content moderation to the company. We also began supporting a provider of consumer credit building and financial education solutions with both our DCX and risk and response services. This is another clear demonstration of our success in cross-selling highly specialized services to both new and existing clients. AI service revenues declined 26.5% in Q4 compared with Q4 of 2022, driven primarily by a mid-2023 decision to offer certain US-based work by our largest autonomous vehicle client and a reduction in US-based delivery at our largest.

We also began supporting a provider of consumer credit building and financial education solutions with both our <unk> and Chris can response service line.

This is another clear demonstration of our success in cross selling highly specialized services to both new and existing clients.

AI service revenues declined 26, 5% in Q4, compared with Q4 of 2022, driven primarily by a mid 2023 decision to offer certain U S based work by our largest autonomous vehicle client.

And a reduction in USB delivery at our largest client.

Bryce Maddock: As discussed in Q3, the health of these two large client relationships remains very strong. In fact, we won exciting new projects at both clients in Q4 and early Q1 that will ramp up in 2024. We anticipate existing AI services revenues from these clients to stabilize on a sequential basis in 2024 and the difficult year over year comparisons within our AI service line to lapse by. Despite the revenue decline, we're selling our AI services to a greater number of clients. The number of clients using our AI services grew by a double digit percentage year over year in 2020. In line with this, we're seeing growing demand for AI services from large language model and multimodal generative AI providers. Here, our teams are performing expert response writing, ranking, and scoring, prompt review, adversarial testing, and trust and safety evaluation.

As discussed in Q3, the health of these two large client relationships remains very strong in fact, we won exciting new projects at both clients in Q4 and early Q1 that will ramp in 2024.

We anticipate existing AI services revenues from these clients to stabilize on a sequential basis in 2024, and the difficult year over year comparisons within our AI service line to lapse by year end.

Might the revenue decline, we're selling our AI services to a greater number of clients.

A number of clients using our AI services.

Grew by a double digit percentage year over year in 2023.

In line with this we're seeing growing demand for AI services from large language model and multimodal generative AI providers.

Here our teams are performing expert response, writing ranking and scoring.

Pumped review adversarial testing and trust and safety evaluations.

Bryce Maddock: We expect these clients and new opportunities to become an increasingly larger portion of our AI services revenue over the course of 2020. Speaking of 2024, let's move to our Q1 and full year 2024 revenue outlook and growth strategy. In Q1, we expect to deliver revenues between $222.5 million and $224.5 million, a decline of approximately 5% year-over-year and quarter-over-quarter.

We expect these clients and new opportunities to become an increasingly larger portion of our AI services revenue over the course of 2024.

Speaking of 2024, let's move to our Q1 and full year 2020 for revenue outlook and growth strategy.

In Q1, we expect to deliver revenues between $222 $5 million and $224 5 million a decline of approximately 5% year over year and quarter over quarter.

Bryce Maddock: The year-over-year decline is primarily driven by U.S.-based projects that concluded at the end of Q1 2023 for our largest client and other client cost optimization decisions made throughout 2023, while the quarter-over-quarter decline is primarily driven by Q4 seasonal revenue. We expect to deliver full-year 2024 revenue of approximately $925 million, at the midpoint of our guidance range of between $900 million and $950 million in revenue. The improved momentum we saw in Q4 and early Q1 gives us confidence that we can return to year-over-year growth in the back half of 2020, delivering revenues that are roughly flat to 2023 for the full year and accelerating growth rates as we now believe that the material revenue had created by 2022 and 2023 onshore to offshore shifts are largely behind. As noted last year, we work closely with our clients as part of their annual budgeting processes.

The year over year decline was primarily driven by U S. Based projects that concluded at the end of Q1 2023 for our largest client and other client cost optimization decisions made throughout 2023.

While the quarter over quarter decline is primarily driven by Q4 seasonal revenues.

We expect to deliver full year 2020 for revenue of approximately $925 million at the midpoint of our guidance range of between $900 million and $950 million in revenue.

The improved momentum we saw in Q4 and early Q1 gives us confidence that we can return to year over year growth in the back half of 2024, delivering revenues that are roughly flat to 2023 for the full year and accelerating growth rates as we exit 2024.

We now believe that the material revenue headwinds created by 2022, and 2020 Three's onshore to offshore shifts are largely behind US as noted last year, we worked closely with our clients as part of their annual budgeting processes.

Bryce Maddock: As a result of these conversations, our strong Q4 results, and the progress made in early Q1 across sales, hiring, and new program ramps, we are cautiously optimistic. While revenue declined in 2023 at a few of our largest clients, we expect revenues at these same clients to be flat to slightly up year over year in 2023. However, clients continue to look for ways to reduce costs by leveraging automation technologies and global delivery.

As a result of these conversations are strong Q4 results and the progress made in early Q1 across sales hiring of new program ramps, we are cautiously optimistic.

While revenue declined in 2023 at a few of our largest clients. We expect revenues at these same clients to be flat to slightly up year over year in 2024.

All of our clients continue to look for ways to reduce cost by leveraging automation technologies and global delivery models. We believe this will continue in 2024, but that for a variety of reasons, including regulatory and privacy concerns and the complexity of certain work approximately 10% of our revenue will be derived.

Bryce Maddock: We believe this will continue in 2024 but that for a variety of reasons, including regulatory and privacy concerns and the complexity of certain work, approximately 10% of our revenue will be derived from the U.S. for the long term. As a frame of reference, we delivered approximately 14% of our revenue from U.S. delivery in Q4 of 2023, down from 21% in Q4 of 2022. As our U.S. revenue stabilizes, we believe that our international footprint will continue to be a driver of future revenue growth. For 2024, we're focused on four initiatives to accelerate revenue growth. First, we will take share from our competitors. Whether it's an existing or new client, we continue to see meaningful opportunities where we are under penetrated from a wallet share perspective. This includes an increased focus on some of the biggest technology companies in the world, as well as traditional enterprise clients. Many of these clients and prospects, who have annual outsourcing budgets in the hundreds of millions of dollars, are only spending a few million dollars with Taskus.

From the U S for the long term as a frame of reference we delivered approximately 14% of our revenue from U S delivery in Q4 of 2023 down from 21% in Q4 of 2022.

As our U S revenues stabilize we believe that our international footprint will continue to be a driver of future revenue growth.

For 2024, we're focused on four initiatives to accelerate revenue growth.

First we will take share from our competitors.

Whether it's an existing or new client, we continue to see meaningful opportunities, where we are underpenetrated from a wallet share perspective.

This includes an increased focus on some of the biggest technology companies in the world as well as traditional enterprise clients.

Any of these clients and prospects with annual outsourcing budgets in the hundreds of millions of dollars are only spending a few million dollars with past us today.

Bryce Maddock: Recent large-scale industry consolidation has created opportunities for Taskus to capture incremental share to help clients better diversify their partners. So we are doubling down on our investments in sales and client services to grow these relationships. Our solid performance in the second half of 2023 in the face of significant challenges gives us confidence that our team can compete with anyone and win. Next, we will continue to focus on diversifying our client base by landing enterprise clients in banking and financial services and healthcare. These clients' more consistent spending patterns will create a stable ballast of revenue.

Recent large scale industry consolidation has created opportunities for task is to capture incremental share to help clients better diversified their partner networks.

So we are doubling down on our investments in sales and client services to grow these relationships.

Our solid performance in the second half of 2023 in the face of significant challenges gives us confidence that our team can compete with anyone and win.

Next we will continue to focus on diversifying our client base by landing enterprise clients in the banking and financial services and health care spaces. These.

These clients more consistent spending patterns will create a stable ballast of revenues, while our continued leadership in servicing high growth technology clients will enable rapid growth in the years to come.

Bryce Maddock: While our continued leadership in servicing high-growth technology clients will enable rapid growth in the years to come, we built teams of experts in both enterprise verticals and have seen solid early progress. Third, we will continue to successfully cross-sell our specialized services to our clients. Whether it's a trust and safety client utilizing our AI services to help develop their latest generated AI tool, or a risk and response client bringing in our instructional designers to overhaul their training curriculum, we will continue to expand our client relationships by selling more of our specialized services to our existing clients. And finally, we aim to lead the industry in the deployment of generative AI tools to support the delivery of services to our clients and their customers. We are very excited to offer our Assist AI tool to all Taskus users. This tool improves the accuracy and efficiency of our teammates across digital customer experience, trust and safety, and risk and response work.

We built teams of experts in both enterprise verticals and are seeing solid early progress.

Third we will continue to successfully cross sell our specialized services for our client base, whether it's a trust and safety client utilizing our AI services to help develop their latest generated AI tool or a risk in response client, bringing in our instructional designers to overhaul their training curriculum, we will continue to expand our.

Client relationships by selling more of our specialized services to our existing clients.

And finally, we aim to lead the industry on the deployment of generative AI tools to support the delivery of services to our clients and their customers. We are very excited to offer our assist AI tool to all task as clients. This tool improves the accuracy and efficiency of our teammates.

Across digital customer experience trust and safety and risk and response workflows.

Bryce Maddock: We believe the future of this industry will require companies to deliver well-trained teammates and technologies to solve client challenges, and with the launch of Assist AI, we're making strong progress toward that. By executing on these initiatives, I believe that we will achieve our 2024 goals and return to accelerating year-over-year growth in the back half of the year while maintaining industry-leading adjusted EBITDA margins and free cash flow generation. With that, I'll hand it over to Balaji to go through the Q4 financials and our 2024 guidance in more detail. Thank you, Bryce, and good afternoon, everyone.

We believe the future of this industry will require companies to deliver well trained teammates and technologies to solve client challenges and with the launch of assist AI, we're making strong progress towards this vision.

By executing on these initiatives I believe that we will achieve our 2024 goals and return to accelerating year over year growth in the back half of the year, while maintaining industry, leading adjusted EBITDA margins and free cash flow generation.

With that I'll hand, it over to biology to go through the Q4 financials and our 2024 guidance in more detail.

Thank you, Brian and good afternoon, everyone.

Balaji Sekar: I'm going to focus my remarks primarily on our fourth quarter, but I will reference a few key Fourier metrics. Please note that some of these items are non-GAAP measures, and the relevant reconciliations are attached to the press release we issued earlier. The fourth quarter was another quarter of both top line and bottom line performance that exceeded expectations. Well, revenue declined by 3.3% year over year to $234.3 million, becoming higher than the midpoint of our guidance of $226.3 million. Adjusted EBITDA of $59 million and adjusted EBITDA margin of 25.2% came in higher than our guidance of 22.5%, primarily due to better than forecasted revenues, as well as lower than expected seasonality.

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

Reference a few key full year metrics.

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

Reconciliations are attached to the press release, we issued earlier today.

The fourth quarter was another quarter of both topline and bottom line performance that exceeded expectations.

Revenue declined by three 3% year over year to $234 $3 million with gaming higher than the midpoint of our guidance of Jordan $36 million.

Adjusted EBITDA of $59 million and adjusted EBITDA margin of $35 two person gaming higher than our guidance of 32, 5%, primarily due to better than forecasted revenues as well as lower than expected seasonal costs.

Adjusted EBITDA margins improved by 130 basis points compared to Q4 of the previous year.

For full year 'twenty fee revenue declined by two 8% to $924 $4 million, but came in above the salt based off of our guidance range of $917 million.

Balaji Sekar: We achieved adjusted EBITDA of $220.8 million for an adjusted EBITDA margin of 23.9%, again, above our guidance of 23.3%. The strong revenue performance in the fourth quarter compared with guidance was driven primarily by volume risks that we expected not materializing along with strong seasonal revenues that we discussed in our Q3. The stronger than expected results also reflected our ability to ramp and consistently deliver on key metrics for our Moving on to our service. In the fourth quarter, our digital customer experience offering generated $151.9 million, for a decline of 4.4%.

We achieved adjusted EBITDA of $203 8 million.

For an adjusted EBITDA margin.

90% again above our guidance of 3%.

The strong revenue performance in the fourth quarter compared with guidance was driven primarily by volume risks that we expected not materializing along with strong seasonal revenues that could be discussed in our Q3 call.

The stronger than expected results also reflected our ability to ramp and consistently deliver on key metrics one of our clients.

Moving on to our service offerings.

In the fourth quarter still customer experience offering generated $51 $9 million for a decline of four 4%.

Balaji Sekar: Our trust and safety business grew 23.5% to $52.2 million, and AI Services declined 26.5% to $30.1 million. In Q4, we continue to see the diversification of our revenue. Our revenue concentration with our largest client was 19%, consistent with Q3, but down from 22% in Q4 of 2020. Our top 10 and top 20 clients accounted for 55% and 66% of our revenue, respectively, compared to 58% and 71% in the prior year, as our consistent march towards a more diversified revenue base continued. In the fourth quarter, we generated 56% of our revenues in the Philippines, 14% of our revenues in the United States, 12% of our revenues from India, and 18% of our revenues from the rest of the world, mainly driven by our operations in Latin America and Europe.

Our trust and safety business grew 23, 5% to $52 2 million.

And AI services declined 36, 5% to $30 1 million.

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

Our revenue concentration with our largest client was 19%.

So stupid that you would be.

But down from 52% in Q4 of 2022.

Our top 10, and top 20 clients accounted for 55, first lien and 66% of our revenue respectively compared to 58% and 71% in the prior year as sort of a consistent march towards a more diversified revenue base continues.

In the fourth quarter, we generated 56% of our revenues in the.

14% of our revenues in the United States and 12% of our revenues from India at 18% of our revenues from the rest of the world, mainly driven by our operations in Latin America and Europe.

Balaji Sekar: Cost of service as a percentage of revenue was 58.6% in the fourth quarter, compared to 57.5% in the prior year. The year-over-year increase was driven by depreciation of the U.S. dollar against some of the currencies in our major delivery geographies, wage inflation, and expenses associated with our return to the office, which was partially offset by the geographic mix of revenues and operational efficiency. In the fourth quarter, SG&E expenses were $48.9 million, or 20.9% of revenue, compared to $64.5 million, or 26.6% of revenue in the prior year. This decrease was driven by our disciplined cost efficiency program, as well as the $4.8 million reduction in our EARNOTE expense associated with the HILU acquisition.

Cost of services as a percentage of revenue was 58, 6% in the fourth quarter compared to 57, 5% in the prior year.

The.

The increase was driven by depreciation of the U S dollar against some of the currencies in our major geographies wage inflation and the expenses associated with a return to the office, just partially offset by the geography mix of revenues and operational efficiency gains.

In the fourth quarter, G&A expenses were $48 9 million or 29% of revenue compared to $64 $5 million or 26, 6% of revenues in the prior to go.

This decrease was driven by our discipline cost efficiency program as well as a $4 $8 million reduction nordics.

<unk> expense associated with the <unk> acquisition.

Balaji Sekar: And a decrease in stock compensation expense from $13.3 million in Q4 of 2022 to $9.8 million in Q4 of 2021. We earned adjusted EBITDA of $59 million and a 25.2% margin in Q4, compared to $57.9 million and a 23.9% margin in the fourth quarter of last year. The reduction in revenue and increased cost of service was more than offset by savings in. For the full year, we achieved $220.8 million in adjusted EBITDA and an adjusted EBITDA margin of 23.9%, above our guidance. Unknown Attendee, Bryce Maddock, Puneet Jain, Alan Katz, Balaji Sekar, Jinli Chan, Trent For the full year, adjusted net income was $126.5 million, and adjusted EPS was $1.32.

Please and stock compensation expense from $13 3 million in Q4 of <unk>.

To $9 8 million in Q4 of <unk>.

We earned adjusted EBITDA of $59 million under 35, 2% margin in Q4 compared to $57 $9 million, but.

Three 9% margin in the fourth quarter of last year.

The reduction in revenue and increased cost of service was more than offset by savings in SG&A.

For the full year, we achieved $228 million in adjusted EBITDA, and adjusted EBITDA margin of principally by 9%.

Our guidance range.

Adjusted net income for the quarter was $32 $2 million and adjusted EPS was <unk> 35.

For the full year adjusted net income was $126 $5 million in it.

Adjusted EPS was $1 32. This compares to adjusted net income of $33 3 million.

Balaji Sekar: This compares to adjusted net income of $33.3 million and adjusted EPS of $0.33 for the fourth quarter of 2022 and $142.8 million in adjusted net income and $1.39 in adjusted EPS for the full year 2022. Adjusted EPS in 2023 benefited from a lower number of weighted average shares outstanding as a result of our share repurchase. [inaudible] Free cash flow was $31.7 million in Q4. For the full year, pre-cash flow excluding payments for earner consideration was $131 million, exceeding our guidance of greater than 115.

And adjusted EPS of <unk> 33.

For the fourth quarter of 2022.

142 by $8 million and adjusted net income and $1 39.

Adjusted EPS for full year 2022.

Adjusted EPS in 2023 benefits.

From a lower number of weighted average shares outstanding as a result of our share repurchases.

Now moving onto our cash flow and balance sheet.

Free cash flow was $31 7 million in Q4.

For the full year free cash flow, excluding payments for earn out consideration was $131 million.

Exceeding our guidance of greater than $150 million.

This represents a conversion rate of 59, 3% of adjusted EBITDA for the full year.

Balaji Sekar: This represents a conversion rate of 59.3% of adjusted EBITDA for the full year. Cash and cash equivalents were $125.8 million as of December 31, 2023, compared with the September 30th balance of $114.6 million. [inaudible] For the full year, CapEx was $31 million or 3.4% of revenue compared with $43.8 million or 4.6% of revenue in 2020. This Fourier Decrease was driven largely by optimizing CapEx spend and better utilization of existing investments. We maintained our disciplined capital allocation program. As you will recall, this year we allocated an additional $100 million towards our buyback program, bringing the total authorization to $200 million. In the quarter, we bought 2 million shares at an average cost of $9.66 per share for $19.2 million. For the year, we repurchased 10.1 million shares at an average cost of $11.02 per share for $111.8 million.

Cash and cash equivalents Harman will be $5 8 million as of December 31, 23.

And with the September 30th balance of $146 million.

Our capital expenditures you could even through the fourth quarter to $8 1 billion or <unk>, 5% of revenue compared to $7 7 million or three 2% of revenue in the prior year.

For the full year, Capex was $31 million or two 4% of revenue.

With $43 8 million or four 6% of revenue.

This decrease was driven largely by optimizing capex spend and better utilization of existing investments.

We maintained our disciplined capital allocation program.

Remember this year, we allocated an additional $100 million towards our buyback program, bringing the total authorization $200 million.

In the quarter, we bought 2 million shares at an average cost of $9 six per share for $19 2 million.

For the year, we repurchased $10 1 million shares at an average cost of $11 <unk>.

For sure for Heartland, 11 8 million.

Balaji Sekar: Over the life of the program, we bought back 11.8 million shares and spent $142.7 million at an average cost of $12.10 per share. We will continue to allocate capital to our buyback program on a programmatic basis in accordance with our, we maintain low leverage. Ending the year with 0.6 times net debt to adjusted EBITDA, our priority remains investing for growth. To this end, we are increasing our investment in sales and marketing. Given the strength of our balance sheet, we have ample capacity for these growth investments while preserving our ability to take action on any M&A opportunity that meets our investment criteria or to return capital in the form of shared. In summary, we built more efficiency into our global operating model and leveraged automation and shared As a result, in 2023, we delivered adjusted EBITDA margins and free cash flows that we believe are among the best in the industry. At this point, I will outline our financial outlook for the full year and first quarter of 2021. We anticipate full year 2024 total revenues to be in the range of 900 to 950 million dollars.

For the life of the program, we bought back 11 8 million shares and spent the heartland $42 7 million.

<unk> cost of rebate dollars and cents per share.

We will continue to allocate capital to our buyback program on a programmatic basis.

With our plan.

We maintain low leverage.

In the Europe.

<unk> six times net debt to adjusted EBITDA leverage ratio.

Our first priority remains investing for growth.

And we are increasing our investment in sales and marketing.

Given the strength of our balance sheet with ample capacity for these growth investments, while preserving our ability to take action on any M&A opportunity that meets our investment criteria or to return capital in the form of share repurchases.

In summary, we are.

More efficiency into our global operating model and leveraging automation and shared services, resulting in millions of dollars of steaming while letting us invest in strategic growth.

With marketing and technology.

Asset integrity.

<unk> three we delivered adjusted EBITDA margins and free cash flows that we believe are among the best in the industry.

At this point I will outline our financial outlook for the full year and first quarter off particularly before.

We anticipate full year 2024, total revenues to be the range of $900 million to $950 million.

Balaji Sekar: We expect to earn a full year 2024 adjusted EBITDA margin of approximately 22% to 23%. And we expect to achieve $120 to $130 million in free cash flow for 2020-2020 for 2020-2020 for 2020-2020 for 2020-2020 for 2020-2020 for 2020-2020 for 2020-2020 for 2020-2020 for 2020-2020, Our profitability guidance takes into account the impact of typical wage inflation that we see on an annual basis, and the investments that we are making in strategic. As a result, in the first quarter of 2024, we anticipate revenues to be in the range of $222.5 million to $224.5 million. And we expect to earn an adjusted EBITDA margin of approximately 22%. [inaudible] The partial quarter impact of annual wage increases and our investments in sales, marketing and tech.

We expect to on a full year 'twenty 'twenty four adjusted EBITDA margin of approximately 22% to 23%.

We expect to achieve $103 million to $130 million in free cash flow for 2024.

Our profitability guidance takes into account the impact of typical.

<unk> that we see on an annual basis, and the investment that you're making in strategic growth areas.

I thought it was in the first quarter of 2024.

<unk> revenue used to be in the range of $222 5 million to Jordan $34 $5 million.

And we expect to own an adjusted EBITDA margin of approximately 42%.

The adjusted EBITDA margin for Q1 will be impacted by lower revenues.

Partial quarter impact of annual wage increases and investments in marketing and technology.

Balaji Sekar: This adjusted EBITDA margin guidance for the quarter and full year is based on current forex rates, so any change to currency rates would impact us. 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 fluctuations in our revenue. I will now hand this back to Bryce before we take your questions. Thank you. Thank you, Balaji. Before we open up for questions, I want to share another Taskus teammate story.

This adjusted EBITDA margin guidance for the quarter and full year is based on current Forex rates. So you need to change to currency the impact of 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 of U S dollar fluctuation in our revenues.

I will now hand, it back to Brian before really gives us sense. Thank you.

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

Bryce Maddock: At the end of last year, Taskus' senior leaders gathered in the Philippines for our 2024 Strategy Session. In addition to planning, it was critical for me to bring leaders together from across the globe so that everyone could experience the magic of our sites and the culture of our people in the Philippines. During one of our site visits, we met with Desiree O'Mealy. I know Desiree well because she started with Taskus 12 years ago as a transcriptionist when we were still a very small operation. Back then, I still knew everyone's first name.

At the end of last year ask us as senior leaders gathered in the Philippines for our 2024 strategy session.

In addition to planning it was critical to me to bring leaders together from across the globe. So that everyone can experience the magic of our sites and the culture of our people in the Philippines.

During one of our site visits we met with Deseret Amelia.

Deseret well because she started with task US 12 years ago as a transcriptionist, but we're still a very small operation.

Back then it's still new everyone's first name.

Bryce Maddock: Desiree originally trained to become a nurse. However, when she graduated, the Philippines job market for nurses was very tough. So she took a job with Taskus. Today, Desiree is a senior wellness and resiliency coach working directly with our content moderator. She received extensive training from Taskus and now teaches teammates everything from the importance of positive self-talk to the power of music and how to better regulate their emotions. Thanks, Taskus, says Desiree. You've changed my life.

<unk> originally trained to become a nurse. However, when she graduated the Philippines job market for nurses was very tough. So she took a job with task us instead.

Today Desert right as a senior wellness and resiliency coach working directly with our content moderators. She received extensive training from task us and now teaches teammates everything from the importance of positive self talk to the power of music how to better regulate their emotions.

Thanks Task US says desk right you've changed my life.

Bryce Maddock: I get to make a difference one wellness session at a time. End quote. Reconnecting with Desiree was a powerful reminder for me and our senior leaders of the positive impact Taskus has on the lives of our teammates across the globe. With that, I'll ask the operator to open the line for our question and answer session. Operator. As a reminder, to ask a question, dial 1 1 on your telephone, and wait for your name to be announced. To withdraw your question, please press star 1 1 again.

Get to make a difference one wellness session at a time.

And to quote.

Reconnecting with Deseret was a powerful reminder, for me and our senior leaders of the positive impact <unk> has on the lives of our teammates across the globe.

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

As a reminder to ask a question that is star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again please.

Operator: Please stand by while we compile the Q&A roster. Our first question will come from the line of Puneet Jain with J.P. Morgan. Hey, thanks for taking my question. So I wanted to ask, like, for 2024, what could be the incremental headwinds that you expect relative to Q4 of this year? I know that there is seasonality in the fourth quarter, but adjusted for that, like, are there any incremental headwinds that you expect? Asking this because the guidance implies an exit rate of around mid single digits to high single digits based on where you end in the guidance in that range for the full year. So how should we think about long-term growth beyond this year for the company? Yeah, thanks, Puneet.

Please standby, while we compile the Q&A roster.

Our first question will come from the line of Puneet Jain with J P. Morgan.

Hey, Thanks for taking my question so wanted to like so for 2024.

Sure.

What could be like the incremental headwind that you expect.

Relative to Q4 of this year I know there is seasonality.

Fourth quarter.

Adjusted for that like are there any incremental headwinds that you expect asking this because the guidance implies.

Like the exit rate of around.

<unk> mid single digits high single digits based on video and.

And that guidance.

That range for the full year.

How should we think about like the long term growth beyond this year.

Sure.

Bryce Maddock: So this year, our number one goal is to return to year-over-year growth, and given the strong performance in Q4 and the performance we've seen at this point in Q1, we're cautiously optimistic that we're going to be able to do that. So essentially, you know, I think the numbers you're outlining there are at the midpoint of our guidance range, and our goal was to try to drive revenues towards the top end of our guidance range. And to do that, we need to execute on the four elements of our growth strategy.

Yeah. Thanks, Puneet. So this year our number one goal is to return to year over year growth and given the strong performance in Q4 and the performance. We've seen at this point Q1, we're cautiously optimistic that we're going to be able to do that.

So essentially.

I think the numbers youre outlining there.

It happened at the midpoint of our guidance range.

And our goal is to try to drive revenues towards the top end of our organic guidance range and to do that we need to execute on the four elements of our growth strategy, we need to get aggressive and take share from our competitors, we need to continue to grow our relationships with enterprise healthcare and banking and financial services clients.

Bryce Maddock: We need to get aggressive and take share from our competitors. We need to continue to grow our relationships with enterprise, healthcare, and banking and financial service clients. And we need to successfully cross-sell our specialized services. And finally, we have to lead the industry in the deployment of generative AI tools in our service delivery.

And we need to successfully cross sell our specialized services and finally, we have to lead the industry on the deployment of generative AI tools in our service delivery.

Bryce Maddock: At this stage, things are trending well on all of these fronts. We've seen increased sales velocity and a reduction in cost optimization discussions that may lead to reduced volumes. And we have successfully targeted and taken share from our competitors. And so we're very, very excited about what is going to come in 2024. As we look ahead, you know, obviously, we're not providing guidance.

Liberate.

At this stage things are trending well on all of these fronts, we've seen increased sales velocity and a reduction in cost optimization discussions that may lead to reduced volumes.

And we successfully targeting taking share from our competitors.

And so we're very very excited about what is going to come in 2024.

As we look ahead, obviously, we're not providing guidance, but at this stage. We believe we will be able to return to year over year revenue growth in the back half of 2024.

Bryce Maddock: But at this stage, we believe we will be able to return to year-over-year revenue growth in the back half of 2024, and we would hope to sustain that into 2025. Got it, got it.

We would hope to sustain that into 2025.

Got it got it.

Balaji Sekar: And then your free cash flow guidance, like for despite like the revenue headwinds, and margin headwinds this year, like the free cash flow remains solid, even though revenues are down relative to two years ago, but free cash flow is not. So going forward, like if there are like continued revenue headwinds, what should we expect for free cash flow? Are there more levers that you have to protect free cash flow from to continue to grow free cash flow?

And then.

Free cash flow guidance.

So despite the revenue headwinds margin headwinds this year like the free cash flow remains.

Salt Lake.

Even like our revenue is down relative to years ago, but free cash flow is not so going forward.

Four.

Lake continued revenue headwinds.

What should we expect for free cash flow are there more levers.

That you have to protect free cash flow to continue to grow free cash flow.

Balaji Sekar: Yeah, so, thanks Puneet for the question. So, like you said, we delivered very strong free cash flow despite a very challenging macro environment in 2023. And as a reminder, we delivered $131 million, close to about 60% of adjusted EBITDA conversion, which excludes payment for the HALU activities. And the way we did this is due to the proactive multi-year efficiency effort that we announced pretty early in 2023. And we kind of reacted pretty early in terms of the changes that we saw from a macroeconomic perspective. We continued to optimize cap expense by leveraging existing investments.

Yes. So thanks for the question. So like I said, we delivered very strong free cash flows despite the challenging macro environment in <unk> and as a reminder, we delivered $131 million goes towards 60% adjusted EBITDA conversion, which excludes payment for the Halo acquisition.

And we did that.

Due to the proactive might be your efficiency efforts that we are nodes video opinion, particularly pleased and we kind of reacted pretty early in dose of <unk>.

James is that we saw from a macroeconomic perspective.

Continue to optimize capex spend by leveraging existing investments and gross activity cyclical manage our working capital, including like a new invoicing process. So like Brian said earlier. This is an ongoing activity just not part of the DNA of the business. So there's not like one time project is something that we're going to continue to do so via <unk>.

Balaji Sekar: And we have also actively started to manage our working capital, including a new invoicing process. So, like Bryce said earlier, this is an ongoing activity which is now part of the DNA of the business. So it is not like a one-time project.

Balaji Sekar: This is something that we're going to continue to do. So we are confident that we'll continue to generate strong free cash flows despite any changes that we might see in the business event. Our next question will come from Maggie Nolan, with William Blair.

That will continue to generate strong free cash flows despite any changes that we might see in the business environment.

Got it thank you.

Our next question will come from the line of Maggie Nolan with William Blair.

Bryce Maddock: Thank you for taking my question. I wanted to expand on something that Bryce, you briefly touched on in your prepared remark. You mentioned the focus on enterprise clients, and I wanted to kind of understand your progress there, maybe how you've adjusted the go-to-market versus when you were more historically focused on maybe tech clients or more kind of emerging disruptive clients. Yeah, thanks so much for the question, Maggie.

Hi, Thank you for taking my question.

Wanted to expand on something that Bryce you briefly touched in your prepared remarks.

You mentioned the focus on enterprise clients and I wanted to kind of understand your progress there maybe how you've adjusted the.

The go to market versus when you are more historically focused on maybe tech clients are more kind of <unk>.

Emerging disruptive clients.

Yes. Thanks, so much for the question Maggie So we continue to expand our sales and client service teams over the course of 2023, we've recruited.

Bryce Maddock: So we continue to expand our sales and client service teams. Over the course of 2023, we've recruited a number of industry veterans who've got deep experience selling into the enterprise space. I mentioned on the call that we successfully signed a leading credit union in Q4.

Number of industry veterans, who have got deep experience selling into the enterprise space.

<unk> on the call that we successfully signed leading credit Union in Q4, and I think that's one of many examples of the success, we've seen selling boats.

Bryce Maddock: I think that's one of many examples of the success we've seen selling both into banking and financial service clients and more traditional enterprise healthcare clients. This is obviously one of the four important growth levers for us as we continue into 2024. And we really see the enterprise as forming a much more stable ballast of revenues that, you know, may not be ripe for exponential growth, but they're also not going to see the decline that we've seen in certain pockets of the high growth tech space. So that will pair that strategy with continuing to be a leading provider in the high growth technology space. And the combination of those two things will lead us back to growth. Okay, that's helpful. Thanks. And then, can you just talk a little bit more about within that context of that last comment you made, leading you back to growth, the second half in particular, it seems like you feel a little bit more optimistic about it. Can you talk about your visibility levels during the second half?

Banking and financial service clients in more traditional enterprise healthcare clients.

This is obviously one of the four important growth levers for us as we continue into 2024, and we really see the enterprise is forming a much more stable balanced of revenues that.

There may not be right for exponential growth, but they're also not going to see the declines that we've seen in certain pockets of the high growth Tech space.

So that will carry that strategy with continuing to be a leading provider in the high growth technology space.

The combination of those two things will lead us back to growth.

Okay. That's helpful. Thanks, and then can you just talk a little bit more about within that context with that last comment you made leaving you back to growth. The second half in particular, it seems like you feel a little bit more optimistic about.

Can you talk about your visibility levels into the second half maybe talk about what level of optimism.

Bryce Maddock: Maybe talk about what level of optimism is just driven by year over year calm versus some of the initiatives you were just outlining and any others. Thank you. Yeah, Maggie.

It's driven by year over year comp.

Versus some of the initiatives you were just outlining and any others. Thank you.

Bryce Maddock: So the So the first half of the year, we've got very strong visibility into. Historically, we've always demonstrated an ability to accurately forecast our quarterly revenues. And this is based on the strength of our relationships with our clients and the contractual terms that we've got in place to protect us against any major volume fluctuations. As we look into the second half of the year, our confidence is really based on the budget conversations that we've been having with our clients. And I'll give you just an example of our top three clients. Last year, their revenue declined by a double-digit percentage.

Yes, Thanks Maggie.

The first half of the year, we've got very strong visibility into.

Historically, we've always demonstrated an ability to.

Accurately forecast our quarterly revenues and this is based on the strength of our relationships with our clients and the contractual terms that we've got in place to protect us against any major volume.

Fluctuations.

Looking to the second half of the year, our confidence is really based on the budget conversation that we've been having with our clients and I'll give you just an example.

Of our top three clients.

Last year, our top three clients revenue decline by a double digit percentage.

Bryce Maddock: When you combine the three of them, and you know, this is led by our largest client where we saw massive shifts of volume from onshore to offshore. And this year, we are forecasting that that group will grow by a single digit percentage. So we're, you know, going from a pretty substantial decline back to fairly modest growth. That gives us confidence that the base of the business will be a lot more secure in 2024. And that the strong sales momentum that we've seen in the first quarter will get us back to growth. That was really helpful. Thank you. Our next question will come from the line of Dave Koning with Baird. Yeah, hey, guys.

When you combine the three of them and this was led by our largest client where we saw massive shifts to volume from onshore to offshore.

And this year, we are forecasting that that group will grow by a single digit percentage. So we're going through a pretty substantial decline back to.

It's fairly modest growth.

That gives us confidence that the base of the business, there's a lot more secure in 2024.

And.

The strong sales momentum that we've seen in the first quarter will get us back to growth.

That was really helpful. Thank you.

Okay.

Our next question will come from the line of Dave Koning with Baird.

Balaji Sekar: Thank you. I guess my first question is, your margins have held up extremely well despite, you know, some volatility and revenue. And I know part of that is the offshore shift. And now that you're pretty fully out of the US, you won't get the kind of incremental benefit to margins, but, you know, is there some other offset, or could margins come down, or how do you see that now that you might not get that kind of incremental benefit from the shift? Yeah, so hey, Dave, I'll take the question, and I'll have Bryce to add more color if required.

Yes, Hey, guys.

Q.

I guess my first question your margins have held up extremely well despite some volatility in revenue and I know part of that is the offshore shift.

Now that you're pretty fully out of the U S.

You won't get the kind of the incremental benefit to margins, but is there some other offset or.

I mean could margins come down or how do you see that now that you might not get that kind of incremental.

Kind of benefit from the shift.

Yes, So hey, David I think the personnel.

And to add more color if required. So so if we did see benefit from our from our offshore mix shifting 20, threes, but some of the drivers.

Balaji Sekar: So, we did see benefit from an offshore makeshift in 2023. But some of the drivers that we can focus on are one is that we started the optimization and efficiency building process sometime in the late part of 2022. And like I said earlier, that's kind of part of the business now. So we'll continue to find efficiencies from an operational perspective, from a GNA perspective. So that's something that we'll continue to try.

<unk> started.

The optimization and efficiency building process, sometimes they part of <unk>.

Like I said earlier, that's kind of part of the business and also we'll continue to find efficiencies from an operational perspective from a G&A perspective. So that's something that we'll continue to drive secondary as Bryce bookable growth rates, especially in the second half of the year. So as you start seeing growth rates improve we will begin to see that module also will start to expire and then.

Balaji Sekar: Second, as Bryce spoke about growth rates, especially in the second half of the year. So as we start seeing growth rates improve, we will begin to see that margins also start to expand. And then we'll also continue to see that growth is happening more in offshore locations. And like we have spoken about this before, those are areas of margin appeal.

Then we will also continue to see that the growth is happening more in offshore locations.

We have spoken about this before those are margin sorry.

Balaji Sekar: So again, that's going to help from a margin perspective. And then as we continue to grow some of our specialized service lines, we've seen that these are higher-margin. So again, that's going to be a focus area from a from a. So those are some of the things that we are thinking about, as how to deliver the margins that we are getting to, getting into TDR. Okay, no, that's that's really helpful.

So again thats going to help from a margin perspective, and then as we continue to grow some of our specialized service lines do you assume that these are higher margin. So again, that's going to be a focus from.

From a business perspective, so that those are some of the things that we're thinking about.

Hooper delivered margins that were.

Getting into 'twenty four.

Got you, Okay, that's really helpful.

Bryce Maddock: Um, and then I guess the second question, you guys are signing new clients at a pretty amazing pace still, and you know, it wasn't long ago, you were probably around 100. You're probably around 200 clients now, give or take. But given the, you know, given revenue hasn't grown a ton lately, the average size client is, is smaller, is, you know, maybe what are the dynamics there? Are you just doing smaller deals?

And then I guess the second question.

You guys are signing new clients at a pretty amazing pace still and it wasn't long ago, you were probably around 100, you're probably around 200 clients now give or take.

But given the given revenue hasnt grown a ton lately.

Average sized client is smaller.

Maybe what are the dynamics. There are you just doing smaller deals or is that just the incremental client that comes on just doesn't need as much service or how should we think about that that dynamic over time.

Bryce Maddock: Or is that just the incremental client that comes on just doesn't need as much service? Or, you know, how should we think about that, that dynamic over time? It's a great question, Dave.

Great question Dave.

Bryce Maddock: The number of clients that we closed in 2023 was the highest that we've seen since we started keeping track of this number back in 2018, so we were very pleased to see that, but you're right that the initial deal size was smaller than we've seen historically. Part of that is because we're seeing more interest in offshore deals. So while the volume of work may be the same, the dollar value associated with that work is lower in an offshore environment than in the United States.

The number of clients that we closed in 2023 was.

The highest that we've seen.

Since we started.

Keeping track of this number back in 2018. So we were very pleased to see that but youre right.

Initial deal size was smaller than we've seen historically part of that is because we're seeing more interest for offshore deal so while the.

The volume of work may be the same the dollar value associated with that work is lower in an offshore environment.

In the United States.

Bryce Maddock: And as we think about this going forward, I think it's just important that we continue to maintain our sales velocity and bring on more clients. Because each one of these clients has the opportunity to scale exponentially if their business model begins to grow. So that's really what we've seen there.

And as we think about this going forward I think it's just important that we continue to maintain our sales velocity and bring on more clients because each one of these client as it has the opportunity.

Scale exponentially if their business model begins to grow.

Bryce Maddock: The other thing I'll just say is, you know, some of the challenges we faced in 2023 had more to do with our large clients optimizing their spend. As I already said, our top three clients' revenue declined by a double-digit percentage in 2023. And we've now seen that stabilized and that number will increase by a single digit percentage in 2024. Gotcha. Well, thank you. Our next question comes from the line of Matthew Roswell with RBC Capital Markets. Yes, good afternoon. It's Matt Roswell once again, Perlin.

So that's really what we've seen there the other thing I will just say as.

Some of the challenges we faced in 2023 or more to do with our large clients optimizing their spend.

As I already said that our top three clients revenue declined by double digit percentage in 2023.

And we've now seen that stabilize that number will increase by single digit percentage in 2024.

Got it got it thank you.

Our next question comes from the line of Matthew Roswell with RBC capital markets.

Yes. Good afternoon. This is Matt Roswell answer Dan Perlin.

Bryce Maddock: A question on AI Assist. How do you think about balancing, you know, pricing and investment in internal solutions like AI Assist against helping companies? So they're investing in their own solutions. What's the dynamic?

A question on the.

AI is just how do you think about balancing pricing and investment in internal solutions like AI assist against helping companies.

So they're investing in their own solutions, what's the dynamic.

Bryce Maddock: [inaudible] Yeah, thanks for the question. So Assist AI is a platform that our teammates use to improve their productivity and the accuracy or quality of the responses or actions that they take. And this is a technology that we're actually baking into our service free of charge to our clients. We think that the future of our industry is going to require service providers to bring a well-trained combination of both teammates and technologies to solve client problems. And, you know, we've been wrestling quite a bit with, okay, how do we do this in a way that is margin-accretive and protects our underlying revenue?

I mean those two.

Yes, thanks for the question so.

AI is a platform that our teammates used to improve their productivity and the accuracy or quality of the responses or actions that they take and this is a technology that were actually baking into our service free of charge to our clients and we.

The future of our industry is going to require service providers to bring a well trained combination of both teammates and technologies to solve client problems.

And we've been wrestling quite a bit with okay. How do we do this in a way that is margin accretive.

And protects our underlying revenue and where we've gotten as we need to be the best and most efficient and most.

Bryce Maddock: And where we've gotten to is that we need to be the best and most efficient and the most high-quality provider in terms of services. And in the cases where we're able to do that, to take the number one spot amongst all the vendors that we're competing against, we capture more share of the client spend. And where we can demonstrate service excellence, clients tend to also give us more work that they may have been doing historically inside their own operations. The second part of your question is that the entire industry that's being created in front of our eyes, the generative AI industry, requires a huge amount of services. Everything from expert prompt writing to red teaming, the various generative AI tools to kind of provoke them to create illicit content, to some of our more traditional trust and safety services.

High quality provider in terms of services and in the cases in which we're able to do that could take the number one spot amongst all of the vendors that were competing again, we capture more share.

The client spending where we can demonstrate service excellence clients tend to also give us more work.

They have been doing historically.

Inside their own operations.

The second part of your question is that the entire industry, that's being created in front of Verizon degenerative AI industry requires a huge amount of services.

Briefing from expert prompt writing.

Two red teaming.

The various.

The various generative AI tools to kind of provoke them to create content to some of our more traditional trust and safety services and so we've seen.

Bryce Maddock: So we've seen an uptick in demand from generation AI companies for our core trust and safety and AI services. And as companies continue to invest more and more in those services, we think that we will benefit from that. That being said, we're not seeing that many examples of clients building their own generative AI technology for our core workflows, things like customer service. But there are definitely a few that made some interesting headlines today.

An uptick in demand from generic companies for for our core Trust and safety and AI services and as companies continue to invest more and more in those services. We think that we will benefit from that that being said, we're not seeing that many examples of clients building there.

One generative AI technology for our core workflows things like customer service. There are definitely a few rivers to interesting headlines today, but for the most part we're seeing clients are interested in either using a third party technology.

Bryce Maddock: But for the most part, we're seeing clients interested in either using a third-party technology or partnering with a client, a company like Taskus, who has assist AI as a core solution that we bake into our services. Okay, thank you. And as a follow-up, should we anticipate any changes to capital allocation now that revenue growth seems like it's coming back? Well, I can start, and Balaji, maybe you can jump in there.

Or on partnering with a company like <unk>.

Who has access to AI as a core solution that we baked into our services.

Okay. Thank you and as a follow up should we anticipate any changes to capital allocation.

Sort of the revenue growth seems like it's coming back.

Okay.

Okay.

Well I can start and <unk>, maybe you can jump in there.

Bryce Maddock: You know, we are going to be investing more in sales and marketing, as well as technology. And so right now, the number one use of capital is going to be funding the expansion of our growth team. We expect that those investments will pay off here in the near term, as we said, getting back to growth in the back half of the year as well within our sites. You know, beyond that, we continue to look at the uses of capital, you know, for everything from CapEx to potentially share repurchases at the right prices and also considering the potential of M&A. Okay, thank you very much. Our next question comes from the line of Matthew VanVliet with BTIG. Unknown Attendee.

We're going to be investing more in sales and marketing as well as technology.

And so right now the number one use of capital is going to be funding.

Funding the expansion of our growth team.

We expect that those investments will pay off here in the near term as we said getting back to growth in the back half of the year is well within our sights.

Beyond that we continue to look at.

And at the uses of capital.

Everything from Capex to potentially share repurchases.

At the right at the right prices.

And also considering the potential M&A.

Okay. Thank you very much.

Our next question comes from the line of Matthew <unk> with BT AIG.

Okay.

Hi, good afternoon, Thanks for taking my question.

Bryce Maddock: Hi, good afternoon. Thanks for taking the time to ask the question. I guess the first question was where we stand in terms of the progress of I guess the offshoring initiatives of a number of clients, especially the larger ones. Are we pretty much through all of that now, or there's still some sort of in-process movement there? And then, sort of natural follow-up there is how much do you anticipate other clients looking to further offshore maybe any US revenues that are still here today? Yeah, great question. So in 2023, U.S. revenues ended up at about $148 million in 2023. So it was the only region that we report on that declined.

I guess first one.

Where do we stand out in terms of the progress of.

I guess the offshoring initiatives.

Number of clients, especially the larger ones are we pretty much through all of that now or are there still.

Some sort of in process movement there.

And then sort of natural follow up there is how.

Much do you anticipate other clients looking to.

To further offshore maybe any U S revenues that are still.

Still here today.

Yeah, Great question. So in 2023, we saw U S revenues declined by more than $100 million for 2022 U S revenues ended up about $148 million in 2023.

So it was the only region that we report on that decline all of our other regions.

Bryce Maddock: All of our other regions, the Philippines, India, and the rest of the world, grew year over year in 2023. So as we look at the future here, you know, clearly with almost $150 million in revenue in the U.S., there is some risk. We've said for a while that we don't expect the percentage of our overall revenue to ever get below 10%. It was at 14% of revenues coming from the U.S. in Q4 of 2023. So there is the possibility of some incremental onshore to offshore shifts, but those will not be anywhere near the size of the onshore to offshore shifts that we saw in 2022 and 2023. Okay, very helpful.

Philippines, India and the rest of the World grew at a year over year in 2023.

So as we look at the future here clearly with.

Almost $150 million in revenue in the U S.

There is some risk we've said.

For a while that we don't expect the percentage of our overall revenue ever dipped below 10% it was at 14%.

Revenue is coming from the U S. In Q4 of 2023. So there is a possibility of some incremental onshore to offshore shifts.

But those will not be anywhere near the size the entre to offer ships that we saw in 2022 and 2023.

Bryce Maddock: And then when you talk about a greater focus on some of the specialty services, especially being sold back into the existing client base, you know, I guess, at what point during the year do you expect that to show sort of an inflection point higher? And, you know, I guess how many of the clients that have gone through, you know, pretty detailed offshoring initiatives over the last year plus are now ready to sort of come back and look for more opportunities to use Taskus, especially for those specialty services? Yeah, I mean, we're seeing a real increase in demand for our specialized services. As I said, the number of clients who are using one or, actually, I should say, two or more of our specialized services has increased quite substantially in 2023 over 2022.

Okay very helpful. And then when you talk about a greater focus on some of the specialty services, especially being sold back into the existing client base.

I guess at what point during the year do you expect that to show sort of an inflection point higher and.

I guess, how many of the clients that have gone through.

Pretty detailed offshoring.

Initiatives over the last year, plus are now ready to sort of come back and look for more opportunities to use task us, especially for those specialty services.

Yes, I mean, we're seeing a real increase in demand for specialized services as I said the number of clients who are using.

One of them actually I should say two or more of our specialized services.

<unk> increased quite substantially in 2023 over 2022.

Bryce Maddock: The growth in our trust and safety offering, which also includes all the risk and response work that we do for financial crimes and compliance, is really, really encouraging. I think the decline that we saw in our AI services revenues is really driven by two simultaneous impacts. The first is that over the course of 2023, our largest client cut spending on certain AI related R&D investments. And the second is that our largest autonomous vehicle client did a huge onshore to offshore shift in 2023. So we expect to lap the impact of those towards the back half of 2024.

The growth in our trust and safety offering.

Which also includes all the risks in response work that we do for.

Financial crime and compliance is really really encouraging.

I think the.

The <unk>.

The decline that we saw in our AI services revenues.

It's really driven by two simultaneous impacts the first is that over the course of 2023, our largest client cut spending on certain AI as related.

R&D investments and the second is that our largest autonomous vehicle client.

Hum.

It did a huge onshore to offshore ship in 2023, so we expect to lap the impact of those.

Towards the back half of 2024.

Bryce Maddock: And we're continuing to see an uptick in the number of customers who are using our AI services. A lot of these clients are coming from the generative AI space. And, you know, while the projects themselves may be starting small, there's massive potential upside.

We're continuing to see an uptick in the number of customers who are using our AI services.

Lot of these clients are coming from the generative AI space, while the projects themselves, maybe starting small and there's massive.

Bryce Maddock: So we're excited and encouraged to see, you know, a continued increase in demand for our specialized service. Great, thank you. Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect. Go to Beadaholique.com for all of your beading supply needs!

Potential upside.

So we're excited and encouraged to see.

A continued increase in demand for our specialized services.

Great. Thank you.

Thank you.

This concludes today's conference call. Thank you for participating you may now disconnect.

Okay.

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