Hello, and welcome to the TaskUs Third Quarter 2021 Investor Conference Call. My name is Norman and I will be your conference facilitator today. At this time, all participants have been placed on mute to avoid any background noise. After the speakers’ remarks, there’ll be a question-and-answer session period. [Operator Instructions] I would now like to introduce Alan Katz, Vice President of Investor Relations. Alan, you may begin.

Good afternoon, and thank you for joining the TaskUs third quarter 2021 earnings call. Joining me on the call today are Bryce Maddock, 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 on the Investor Relations section of the website at ir.taskus.com. Please note that this call is simultaneously being webcast on the Investor Relations section of the company’s corporate 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 TaskUs’ future or financial results and management’s expectations and plans for the business. These statements are neither promises nor guarantees and involve risks and uncertainties that may cause actual results to differ materially from those discussed here. You should not place undue reliance on any forward-looking statements. Factors that could cause actual results to differ materially from forward-looking statements can be found in our updated prospectus filed with the SEC on October 22, 2021, which is accessible on the SEC’s website at www.sec.gov and is also available on our website at ir.taskus.com and may be supplemented with subsequent periodic reports we file with the SEC. Any forward-looking statements made in this 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 reconciliation of each of these non-GAAP financial measures to the most directly comparable GAAP metric, please see our earnings press release which is available in the IR section on our website at ir.taskus.com. Now, I will turn the call over to Bryce Maddock, Co-Founder and Chief Executive Officer of TaskUs. Bryce?

Thank you, Alan. Good afternoon, everyone. And thank you for joining us. We delivered another strong quarter of growth in Q3 and came in well above the high end of our guidance. Before we get into the numbers, I want to provide an update on the health and safety of our teammates. As I mentioned on the last call, in Q2, we began providing vaccines to our teammates and their families in India. In the third quarter, I’m proud to report, we were able to do the same in the Philippines. To-date, over 27,000 TaskUs teammates, approximately 75% of our global population have been vaccinated against COVID-19. And over 90% of our teammates working from an office are vaccinated. TaskUs provided many of these vaccines to our teammates. I’ll also note that we completed a successful follow on offering in mid-October and look forward to engaging with new shareholders as well as those who’ve been with us since our IPO. In terms of financials, in Q3, we delivered another quarter of strong top and bottom line growth. Revenue grew organically by 64.2% year-on-year to $201.1 million, above the top end of our guidance range of $186 million. Adjusted EBITDA grew 60% year-on-year to $48.1 million for an adjusted EBITDA margin of 23.9%, also above the top end of our guidance of 23.5%. Our Q3 performance was the result of continued progress executing on our five growth levers. Last quarter, I discussed these five levers, which position us for continued above market growth over the long-term. We made progress on all these fronts in this quarter, and I’d like to dig a bit deeper into the specifics. First, we continued to expand with our current clients who are growing extremely fast themselves and accelerating their outsourcing spend as their businesses mature…

Thanks, Bryce and good afternoon, everyone. I’m going to discuss our financial results for the third quarter of 2021. Please note that some of these items are non-GAAP measures and the relevant reconciliations are attached to the press release we issued here today. In the third quarter, we earned total revenues of $201.1 million, an increase of 64.2% over the prior year. We saw growth in each of our three specialized service offerings. In the third quarter our digital customer expedience offering generated $125.3 million for a year-over-year growth rate of 64.3% fuelled by growth from FinTech, retail and e-commerce and on-demand transportation clients. Our content security business grew 34.3% versus Q3 2020 resulting in $45.4 million of revenue and our AI operations business grew 145.2% year-over-year for revenues of $30.4 million. In Q3, we also saw continued revenue growth from our top client. However, that growth was exceeded by the ongoing expansion of our entire client base. As a result, our revenue concentration with our largest client was just below 27%, approximately flat compared with Q2, but less than the 32% of 2020 revenues. Our second largest client was 11% of our revenue down from 12% in Q2. Our top 10 and top 20 clients accounted for 61% and 76% of revenues respectively in the quarter. Revenue concentration continues to improve in our top 10 and top 20 clients both year-over-year and quarter-over-quarter. Our cost of service as a percentage of revenues and as a result, our margin profile is primarily driven by the geographic location from which services provider, rather than the specific service line. In the third quarter, we generated 52% of our revenues in the Philippines, 33% of our revenues in the United States and 15% of our revenues from the rest of the world, mainly…

Thank you, Balaji. Before we get to Q&A, I want to share another TaskUs teammates story. Our teammates are the key to everything we do here at TaskUs. And our commitment goes well beyond the four walls of our offices. We care deeply about the health of our co-workers and their family members. In September Chris, one of our team leaders based out of the Philippines discovered that his father was very ill and rushed him to the hospital for immediate medical attention. This was in the middle of a serious COVID spike in the country. And unfortunately the hospital was unable to provide Chris’ father with a bed. Over the next few hours Chris’ father’s situation deteriorated rapidly and was struggling to breathe. Chris texted his fellow teammates for help, he knew that in response to COVID, TaskUs had stockpiled supplies of oxygen for our team. Our team responded immediately and brought Chris the supplemental oxygen his father desperately needed. This bought Chris and his father the time required to transport him to a hospital further away. I’m happy to say that Chris’ father is back home and recovering today. Thanks in part to the TaskUs team. I am so proud of our team for acting quickly to support Chris and his father. I’m also incredibly proud of the TaskUs family health insurance program, which ensured that Chris and his family were able to afford the quality of care his father needed without facing insurmountable debt. Stories like these remind us by investing in people is not only the best business strategy, but the right thing to do. With that, I’ll ask the operator to open the line for our question-and-answer session. Operator?

Thank you. [Operator Instructions] Our first question comes from Matt VanVliet with BTIG. Your line is open.

Hey guys, thanks for taking my question. Really nice job on the quarter and congratulations on continuing that run just two quarters in. So I guess, the first question, you mentioned that two-thirds of your signings came from existing logos, maybe a couple part question here. So one, what has been the trend there over the last several quarters in terms of the overall mix? Is that higher or is that sort of in line with where we’ve been? And then secondarily, are you finding that your customers, potentially net new customers investing in TaskUs and your capabilities earlier on in their life cycles to where you are sort of landing smaller, but the long-term opportunity is much greater. Thanks.

Yes. Matt, thanks so much for the question. So as far as new versus existing sales, we’ve definitely seen a trend towards more of our sales coming from existing customers. And that’s exactly what we expect to see as the set of customers we’re working continues to expand. A few years ago, I know that about 60% of our sales came from new logos and 40% came from existing clients. We saw that basically convert in the first half of this year with 60% of our sales coming from existing clients and 40% of our sales coming from new logos. And obviously we’ve seen that trend continue into Q3 with over two-third of our sales coming from existing clients. As far as the second question goes, we definitely are seeing a trend towards a broad-based embrace of outsourcing. I think this is being driven by the rise – the rapid rise of digital disruptors, and also the COVID pandemic, which has forced us all to embrace new ways of working and are increasingly remote. So at TaskUs, we’re focused on identifying the next generation of digital disruptors and delivering the specialized services that they are going to need in order to scale. The one challenge of getting larger, I will say is that it does become more difficult to deal with companies in the very, very early stages. We have a product called Launch by TaskUs, which enables us to work with companies who need as few as five full-time resources. It’s sort of perfectly built for companies in the Series A stage and we’ve had a lot of success with that product.

Great. And then, tremendous success in the AI ops group of business. Are you finding yourself in a larger variety of potential engagements there? Or is it really just embracing some of the specialties that you’ve already developed and your proven ability to train models so effectively?

We’re finding demand is really expanding because the applications of artificial intelligence themselves are growing. We’ve gone from – in the beginning doing a lot of work in the autonomous vehicle space, where we continue to focus to working with clients across the social media space and other verticals, who are looking to train their own models in various situations. So certainly as the applications of artificial intelligence continue to expand, the demand for training data for those services will continue to expand as well.

All right. Great. Thanks for taking the questions.

Thank you. Thank you. Our next question comes from Puneet Jain of JPMorgan. Your line is open.

Thanks for taking my question. It was a great quarter. Can you comment on the outlook you see for Content Moderation business given – specifically given the largest client has been in the news so much over the last few months. What does all that new flow mean for near-term outlook of content moderation for you?

Yes. Puneet, thanks for the question. So obviously we can’t comment on specifics of any individual customer, but let me talk about the social media space in general. Clearly social media is facing increasing scrutiny and regulatory pressure here in the United States. And today the most advanced regulatory regime probably exists in Europe. There we’ve seen increased regulations lead to increased demand for essential services like content security and AI operations from European service providers. So our belief is that as our clients in the social media space face this scrutiny, they’re likely to continue to expand their investments in these services. Given our reputation as a best-in-class provider of content security services, we stand to benefit from this growth. I’ll also say that, we’re finding more and more clients are turning us – turning to us for content security services. So today, essentially anywhere content is being generated and shared content secure services are needed, we provide these services to job listing sites, dating apps, e-commerce and travel marketplaces. But by far the largest purchasers of these services today are the social media companies themselves and in particular, the three largest social networks in the world.

Got you. No, that’s good to know. Thanks for that. And then second with expectations of 25% or higher growth next year, and very strong exit rate to this year at around 50% plus how should we think about phasing of growth rate across the four quarters next year? Or if there is like any seasonality that we should expect like different than usual seasonality next year in terms of growth rates?

Let me take on the growth question and then I’ll have Balaji talk about seasonality. Clearly we’ve had an amazing 2021. And when we look at the year Q1 is the quarter in which we had the strongest sales quarter in our company’s history. Q2 and Q3 were also incredibly strong quarters basically on par with one another, but well above the sales targets that we set for ourselves. And so I think that kind of sets the stage for the growth that we’ve seen in 2021. In 2022, we’re expecting to see sustainable revenue growth and world class margins. And clearly, we’re not in a stage to give a formal outlook. But I will say we’re very confident in our ability to grow at or above 25% into the medium term, so well beyond next year. And then Balaji, maybe you want to touch on seasonality.

Yes. Thanks, Bryce. So for Q4, we are currently forecasting sequential quarterly growth of 7 percentage at the midpoint and year-over-year growth of 55 percentage. While we will not see huge seasonal swings in our business, Q4 does have some seasonal tailwinds. In Q4, we see major growth from e-commerce and to a lesser degree from food delivery clients. It is also important to note that this tends to work against us in Q1 then e-commerce and full delivery demand is generally at its lowest. Q1 has the additional challenge of having two fewer working days when compared to Q4. And like Bryce mentioned, we will provide additional detail on Q1 and FY2022 outlook in our Q4 call.

Got you. Thank you.

Thank you. Our next question comes from Maggie Nolan with William Blair. Your line is open.

Thank you. Congrats. Bryce, you commented a little bit on Europe, so I’m wondering how large you hope Europe can be or how fast you hope Europe can grow in the next couple of years here. And then what’s given you the confidence that you can grow internationally with your clients that are either already global or are becoming increasingly global.

Thanks, Maggie. Yes, we’ve seen this incredible explosion of international expansion amongst our client base. And for that reason, we’re really confident that we’re going to see huge growth in Europe over the next few years. As I said, I got the chance to travel to London and sit down with a lot of our clients. A few of these folks so that I was able to meet with, we just signed deals with in Q3. There’s just a tremendous amount of innovation that’s happening in London and Amsterdam and across the continent. And so we’re really excited to launch our third site in Europe in 2022. We’re not going to be able to provide specific numbers and guidance, but I think that Europe could be as big for us as a delivery geography as the United States is today.

Very good. And then on the delivery point, you put in the press release that the Indian offices have grown substantially fastest growing country in TaskUs history. Can you talk a little bit about the growth prospects for headcount in India versus Philippines? And where you want that mixed to land kind of medium-term. And Balaji, if there are any margin implications from any mixed shifts that we should consider in our longer-term models?

Yes. Let me start. I think that India has the potential to be as large for us as the Philippines over the medium-term. It is incredible what our team there has built. We’ve got an incredible country leader, Sapna Bhambani and the culture that we created in India reminds me a lot of what we created in the Philippines over a decade ago. So I’m incredibly bullish on the region for TaskUs. I’ll let Balaji answer the question on margin impact.

Yes. And Maggie geographies are key drivers of margin for us. And India margins are very comparable to the Philippines. Hence growth in India is going to be margin accretive from a mixed perspective.

All right. Thank you both.

Thank you. And her next question comes from Jason Kupferberg with Bank of America. Your line is open.

Hey guys. This is Cassie on for Jason. I guess, just following-up on the hiring question previously. What are your expectations in terms of hiring trends for the remainder of the year? Is there seasonality that we should be aware of? And kind of what are your attrition expectations as well in conjunction with that? Thanks.

Thanks Kathy. Yes, we expect to continue to hire roughly at the same rate that we have in the first three quarters of the year. I’m really proud of the team for their focus on attrition this year. We’ve seen our attrition rates considerably lower than the rates that we had in 2019. Obviously, attrition rates in 2020 were artificially depressed or lower as a result of the COVID environment. But given that the more challenging labor market that we’re facing globally to be at an attrition rate that is significantly lower than what we saw in 2019 is a remarkable accomplishment. So we’re seeing the investments that we’ve made in our employee value proposition since day one begin to pay off now more than they ever have. In Q3, we added 4,100 net new teammates, we did that with an on-time hiring SLA of 99%, despite the fact that our clients have some very aggressive hiring timeline. So I’m very proud of what our team has been able to accomplish in this environment. I will say the market in the U.S. is a bit more challenging and we expect to see wage pressure here at a higher level than we have historically. However, if we take a step back, we’re not the only company facing that wage pressure. Our clients themselves are facing a lot that same pressure for internal hires. And so we believe that as our customers look to hire the talent in the best spot in the world that they’ll increasingly embrace nearshore and offshore models that where we’re very well positioned to deliver and where our gross margins will actually be higher than they are onshore.

All right. That’s really helpful. Thanks. And I guess if I could ask a follow up, I know you mentioned in your prepared remarks that you’re very disciplined on M&A, just wanted to get an update on your appetite or willingness to engage in that. Would you use it to sort of accelerate some of the growth opportunities you’re seeing whether that’s international or an additional verticals outside of your core kind of eight or so? Thanks.

Yes. Great question. So we are very serious about M&A, we’ve hired an SVP to lead our efforts here named [indiscernible], who’s absolutely fantastic. And our focus really is on getting additional specialized services that we can sell to our customers or additional geographic delivery locations, where we can add additional customers. And we’re really focusing on trying to find companies that are as similar to TaskUs as possible in terms of growth and margin profile, and one place where we absolutely will not compromise that they need to be culturally accretive to TaskUs. So that limits the universe with which we can do – with in which we can do transactions. We’re very focused on finding very high quality assets and we’ll be ready to pay a market price when we do.

Perfect. Very helpful guys. Thanks.

Thank you. Our next question comes from David Koning with Baird. Your line is open.

Thanks guys. Good job. And I guess, maybe first of all, kind of piggybacking on the last question, a little bit. Gross margins, really good in Q3, despite what seems like in an environment of a ton of wage inflation, I guess, how are you managing that? And as we look in the future, it sounds like margins are expected to go up gross margins. Is it a balance of wage inflations are a little negative, but the mix of India and Philippines, the growth and those kind of offsets and net benefits, is that the best way to think about it?

Yes, I’ll take that question. Hey, thanks, Dave. So from a gross margin perspective, yes, that’s an important point in terms of the way the mix is shifting that is helping us from a gross margin perspective in terms of protecting into the future. And one more thing is like majority of our client contracts have annual co-op provisions that allows for price increases based on wage inflation up to a cap. And so these price increases are enforced annually and in some cases we cannot trade increases for additional volume, but given the headline around wage increases, we are having an easier time increasing rates this year than any other time that I can remember. So that is one lever. And the third, I probably get the third lever from a ForEx perspective is while the Philippine peso had appreciated last year and stayed relatively flat. So we’re starting to see that depreciate in Q3 and we kind of see that trend going forward. So that is also going to be helpful from a gross margin perspective.

Got you. That’s really helpful. And I guess operationally, I mean, it seems like you guys are just doing like everything right. And how hard is it? Like, it seems like you’ve done some things different, you create platforms that seems really hard for clients to either move away from you or move to other kind of split volumes or anything. Maybe explain a little bit about that, just about your ability to kind of retain and not have to like split volumes with other vendors and how that’s all working.

Yes. Thanks for the question. It is really about identifying the area of most need for our customers. And generally that’s a specialized service that brings a degree of sophistication that is difficult to deliver. And so we want to go on a journey with our clients. We want to start with whatever they’re initially comfortable outsourcing. And very often that can be fairly basic work, but as they get more comparable outsourcing more sophisticated functions, TaskUs wants to be the provider, who moves up the market with our clients’ needs. And so there are many, many cases that I can point to where we’ve been successful in doing that and so I think it’s a combination of that also it’s worth mentioning the technical investments that we’ve made. We’ve got an incredible team of technologists and our focus isn’t on building huge enterprise systems or CRM systems. Instead, we’re building lightweight browser based extensions that actually sit on top of our client systems and suggest next best actions to our teammates or automate large portions of our teammates’ manual workflow. Using this approach, we’ve built chat bots, workflow automation tools, and a suite of tools that improve the experience of our teammates on the front lines of content security. So I think it’s a combination of sophistication of service, level of technical enablement that that really makes the difference when it comes to TaskUs.

Got you. Thanks. Great job.

Thank you. Our next question comes from James Faucette with Morgan Stanley. Your line is open.

Thank you very much. And I guess, one of the things that you’re obviously having a lot of success doing right now is hiring. And if you can trust that with a lot of your customers, it seems like you definitely have an advantage from that perspective and you’re being rewarded, but I’m wondering if that is leading to them, approaching you to take on additional work and how that fits into both your hiring and planning prospects, especially when – in one of our most recent surveys, I think 85% of Chief Information Officers, we surveyed said that they had shortages in the IT departments generally. So I’m just wondering how that is factoring into your thinking about areas and capabilities you want to be adding to TaskUs catalog of offering?

Yes, James, it’s a very great question. We’ve seen our clients approach us with opportunities to rebatch some of their employees and locations. And in fact, we’ve done a number of these engagements in the United States now very successfully. And so I think it speaks to the employee value proposition that we’ve been able to develop and our success in both attracting and retaining talent. I think that’ll be a big growth lever for us in the years to come.

And then you – obviously growth is great, but I’m wondering if you can give us a little bit of insight into what the drivers are across different business segments. And I guess, what I’m really trying to understand is how sustainable is the demand and growth trajectory that you’re seeing right now. And what are the key things that you’re trying to watch to assess whether it’s continuing to that trajectory can continue, can accelerate or perhaps can accelerate.

Yes, it’s something I think a lot about, we’re ultimately, a way to play the high growth internet space. And if that space is growing, we should be growing too. We do that by delivering the three specialized services that we deliver today and moving up the value chain as our customers sourcing means become more sophisticated. We also do that by identifying the next-generation of services that our customers are going to be demanding. So FinTech is a vertical that I’ve talked about in the past. It’s incredibly exciting space for us where we’ve been adding lots of new customers and lots of new lines of service with existing customers. We’ve moved into the area of financial crimes, any money laundering, know your customer work. And then we’re also looking at existing service lines, like content security and saying, can we introduce an offering that gets ahead of some of what our – some of our crypto currency clients are doing in the non-fungible token space or NFT space. So I think to answer the question, our growth is going to be largely based on our success, continuing to deliver the specialized services that our customers need effectively. And then staying a step ahead, identifying the next-generation of specialized services. Customers are going to be demanding and developing an offering for them.

Thanks, Bryce. Appreciate it.

Thank you. And I’m currently showing no further questions at this time. I’d like to hand the conference back over to Mr. Bryce Maddock, Co-Founder and Chief Executive Officer of TaskUs for closing remarks.

Thank you so much. I want to take another moment to thank our teammates, our clients, and our shareholders for joining us on this journey. It is very humbling to have our second earnings call now in the books. And we look forward to seeing you all on our annual earnings call early next year.

This concludes today’s conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.