TaskUs, Inc. Q2 FY2024 earnings call

• Q2 revenue was $237.9 million, a 3.8% year-over-year increase and 4.6% sequential quarterly growth, with all three service lines growing quarter-over-quarter. - Top 20 clients generated 68% of total revenue, with the largest client contributing approximately 20% of total revenue in Q2. - Sales and client service teams performed strongly, with existing clients accounting for approximately 66% of total signings, and new client bookings increasing to 34% of total signings. - Cross-selling of specialized services to client base increased, with the number of clients using multiple services up over 10% year-over-year. - Expanded presence in new markets, including FinTech, HealthTech, generative AI, and technology verticals. - DCX saw sequential quarterly growth accelerate to ~3.4% in Q2 after a sequential decline of 5.6% in Q1. - Trust and safety service line had 6.9% quarter-on-quarter growth, with revenue from financial crimes and compliance work doubling year-over-year. - AI services returned to sequential growth of approximately 6.3% in Q2, with anticipation of returning to year-over-year growth in the back half of 2024.

In the second quarter, DCX offering generated $148.4 million with a year-over-year decline of 1.7%, contributing approximately 62.4% of total revenue. The trust and safety business, including risk and response solutions, grew 13.7% year-over-year to $59.1 million, accounting for about 24.8% of total revenue. AI services had revenues of $30.5 million, a year-over-year decline of 7.7%, making up approximately 12.8% of total revenue. US delivery revenue declined 32% year-over-year, accounting for approximately 11% of total revenue. Offshore geographies saw strong revenue growth, up approximately 11% year-over-year, and Latin America had over 40% year-over-year growth.

• Increased full-year revenue guidance to $955 million to $975 million, with the midpoint increased by $27.5 million. - Expect adjusted EBITDA margins of approximately 22% for the full year 2024 and free cash flow of approximately $120 million. - Q3 revenues expected to be in the range of $244 million to $246 million, with adjusted EBITDA margin expected to be approximately 21.5%.

• Pricing pressure due to competitors with excess capacity reducing their rates. - Additional investments in operations, facilities, hiring, and training impacting margins. - Currency rate fluctuations potentially impacting margins as adjusted EBITDA margin guidance for the third quarter and full year is based on current forex rates. - Non-recurring litigation costs that are outside the ordinary course of business.

Q: Jonathan Lee with Guggenheim Securities asked about the durability of the relationship with the top client and pricing pressure.

A: Bryce Maddock said the relationship with the largest client is strong, with multiple large pieces of business won this year, scaling operations in countries where they operate and expanding into two new countries, and mentioned pricing strategy to go after competitors and drive growth but impact margins.

Q: Maggie Nolan with William Blair inquired about the investment expectations and competitive pricing environment.

A: Bryce Maddock said investments are for awarded business, with good visibility, and competitive pricing is due to industry growth slowdown and buyers having more pricing power, and Balaji Sekar added about annual labor and benefit cost inflation impact on margins.

Q: Kathy Chan with Bank of America followed up on bookings details.

A: Bryce Maddock talked about new logos and existing clients signing new statements of work, including in DCX, trust and safety, and AI services, and Balaji Sekar added about year-over-year factors like labor and benefit cost inflation.

Q: James Faucette with Morgan Stanley asked about customer work composition and pricing response.

A: Bryce Maddock said continuing previous activities, adding new geographies, moving up the value chain, and KR Sridhar talked about near shore delivery demand and client priorities shifting to growth modes.

Q: Jim Schneider with Goldman Sachs inquired about AI services market and cost support.

A: KR Sridhar discussed the shift in complexity of AI work, rapid growth of the AI services market, and the abrupt turnaround leading to increased costs for office building, hiring, and training.

Q: Matt VanVliet with BTIG asked about Latin America business and client work shifting.

A: KR Sridhar talked about huge demand in Latin America for near shore delivery and the multifaceted reasons behind it.

Q: Jacob Haggarty with Baird asked about offshore business and AI service employee efficiency.

A: Bryce Maddock said US business stabilizing, near shore not necessarily a stepping stone, and AI servicing being global with revenue per employee depending on task sophistication