Good afternoon, and welcome to the TaskUs' Fiscal Fourth Quarter and Full year 2024 Earnings Call. My name is Marvin, and I will be your conference facilitator today. At this time, all lines have been placed on mute to avoid background noise. After the speaker's remarks, there will be a question-and-answer period. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to introduce Trent Thrash, Senior Vice President of Corporate Development and Investor Relations. Trent, you may begin.

Good afternoon, and thank you for joining us for TaskUs' fourth quarter and full year 2024 earnings call. 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 on the investor relations section of our 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. 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 statements. Factors that could cause actual results to differ from these forward-looking statements can be found in our annual report on Form 10-K, which was filed with the SEC on March 8, 2024. This filing is accessible on the SEC's website and our Investor Relations website and may be supplemented with subsequent periodic reports we file with the SEC. We expect our 2024 10-K to be filed with SEC no later than March 17, 2025. Any forward-looking statements made on today's conference call, including responses to questions, are based on the 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 measures. For a reconciliation 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 Bryce Maddock, our Co-Founder and Chief Executive Officer. Bryce?

Thank you, Trent. Good afternoon, everyone, and thank you for joining us. In the fourth quarter, we delivered $274.2 million in revenue, outperforming the top end of our guidance of $269.3 million by $4.9 million or nearly 2%. This result marks the second consecutive quarter of record-breaking revenue and reflects 17.1% year-over-year revenue growth. In 2024, we delivered on our goal of returning the company to growth. In the back half of the year, we exceeded expectations by delivering accelerating double-digit growth. As we look to 2025, we intend to continue this trend. In terms of profitability, we delivered $53.8 million in adjusted EBITDA in the quarter for an adjusted EBITDA margin of 19.6%, 150 basis points below our guidance of 21.1%. Our top line revenue performance and outlook for 2025 again required higher than anticipated investments in operations, facilities, hiring and training, which impacted our margins. Additionally, Q4 revenue and costs were negatively impacted by certain business disruptions. Balaji will discuss these impacts in more detail later in the call. For the full year 2024, we delivered $995 million in revenue and $209.9 million in adjusted EBITDA, representing an adjusted EBITDA margin of 21.1%. We also delivered $107.4 million in adjusted free cash flow in 2024, slightly below our guidance of approximately $110 million primarily due to increased capital investments required by 2025's anticipated revenue growth. On behalf of the entire TaskUs leadership team, I want to express my gratitude for our teammates who show up to work every day to deliver for our clients. It is their operational excellence and execution that has driven robust client demand. This demand has positioned us for what we believe will be record breaking revenue and adjusted EBITDA in 2025. While it's still early, 2025 is off to a strong start. We're…

Thank you, Bryce, and good afternoon, everyone. In the fourth quarter, we earned total revenues of $274.2 million once again beating our guidance range of $267.3 million to $269.3 million Revenue increased by 17.1% compared to the previous year exceeding our expectation of 14.5% growth at the midpoint of our guidance. Our performance reflected strong accelerating year-over-year growth across all three of our service lines and higher than expected volumes from both new and existing clients across a broad range of verticals. Full year 2024 revenue increased year-over-year by 7.6% to $995 million well above the top end of our guidance range of $990 million. In Q4 of 2024, we earned adjusted EBITDA of $53.8 million a 19.6% margin versus our guidance of $56.6 million and 21.1% at the midpoint. For the full year, we achieved $209.9 million in adjusted EBITDA and an adjusted EBITDA margin of 21.1% below our guidance of 21.5%. As Bryce previously mentioned, our strong Q4 revenues and double digit 2025 revenue growth forecast has necessitated increased investments in operations, facilities, hiring and training which impacted our Q4 margins. Additionally, this quarter's revenue and margins were negatively impacted by security incidents. In response to one event, we suspended our impacted operations out of an abundance of caution. In order to take care of our people, we chose to retain and pay the impacted teammates during the suspension period. I'm proud of our team's decisive action and happy to report that we have now fully restored the suspended operations. In response, we are hardening our defenses by investing more in information and physical security. We have included these investments in the guidance we are providing today. Now moving on to service lines, In the fourth quarter, our DCX offering generated $164.8 million for a year-over-year increase of…

Thank you, Balaji. Before we take questions, I want to take a moment to highlight the incredible impact our teams made in our communities around the world last year. At TaskUs, our vision goes beyond supporting the world's most innovative brands. It's about making a meaningful difference in the lives of the people we connect with and the communities we operate in. One of the most powerful ways we do this is by fostering a culture of service. We believe that when employees actively engage with their communities, they bring fresh perspectives, deeper empathy and a stronger sense of purpose back into the workplace. In 2023, as part of our fifteenth anniversary celebration, we established TUgether We Serve, a company-wide initiative that empowers employees to volunteer for causes they're passionate about. Whether it's community cleanups, animal rescues, social justice initiatives, environmental campaigns, or educational programs, our employees are stepping up to create a positive change. In 2024, we set an ambitious goal of reaching 10,000 volunteer hours across all TaskUs locations, but even that goal was not ambitious enough. By the end of the year, our employees collectively contributed over 26,000 hours of volunteer work with nearly 5,000 employees participating. Together, we supported 373 nonprofit organizations around the world. Behind these numbers are real stories of TaskUs employees who are making a meaningful impact in their communities. In The Philippines, Vina Paglicawan, Senior Director of Wellness and Resiliency, dedicated 56 hours to providing free coaching for young people, public school teachers, local government officials, and female leaders and professionals in her community. In India, Vandana Singh, Senior Manager of People Strategy, volunteered 100 hours, providing resources for local schools and supporting animal welfare initiatives. She helped improve access to clean food and water for children while also ensuring the well-being of stray and community animals. Here in the U.S., Lori Castle, our global editor in chief, contributed 64 hours to the Brooke Healey Foundation, where she played a key role in planning a gala to benefit families fighting pediatric cancer. The TUgether We Serve program has helped us better understand the diverse needs of the communities we work in, foster deeper empathy, and create a more culturally aware workforce. 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 the line of Jim Schneider of Goldman Sachs. Your line is now open.

Good afternoon. Thanks for taking my question. I was wondering if you could give us a bit of an update on your largest customer, Meta. And understanding that you do not participate in the fact checking work, which the company did. Maybe give us a sense about as the company revisits its fact checking and content moderation policies, how you're thinking about the potential risks to Task’s existing business and how you plan to mitigate them?

Yes. Jim, thanks so much for the question. So we continue to have a very strong relationship with our largest client. In 2024, we expanded global operations supporting this client adding operations in two new countries while growing our operations in the three existing countries, where we were doing business with them. We're supporting this client's integrity operations, financial crimes and compliance workflows, and obviously their growing investments in generative AI. So, as you mentioned, we don't provide fact checking services to our largest client or any other client for that matter. Generally, our trust and safety business is focused on solutions to ensure content posted complies with client policies. So what does that mean? Well, we work to remove illegal content such as terrorism activity and child endangerment. We also tackle toxic content that could include bullying, graphic violence, and sexually explicit material. So we will continue to be a go to partner for our largest client on these most critical initiatives. And I'll note that like the rest of our business, we expect to see significant growth in AI services from this client in 2025. As far as the risk, at this stage, we don't see any significant risk. Revenue from this client grew faster than the overall business in 2024. We expect that revenue with this client will grow even faster in 2025. By the end of 2025, the relationship with our largest client will actually be about 70% larger than it was in 2023. And with all that, I'll just note that we continue to see an uptick in both new logo sales and sales to other existing customers, which we mentioned in Q4. So we expect ongoing healthy growth from across the rest of our business as well.

That's helpful. Thank you. And then maybe as a follow-up, just on the margin front, Balaji, maybe you can give us a sense of the shape or profile of margins as you head throughout the year. Where might margins end the year in Q4? And maybe give us a sense about where margins could go prospectively beyond then?

Yes. So, Heath, thanks for the question. So while we don't provide guidance on margins on a quarterly basis, what we are guiding to currently for Q1 is about 20% adjusted EBITDA. And then what we are saying is for the full year, we will deliver adjusted EBITDA margins of about 21%. You will see that we'll continue to see sequential improvement in the margin starting Q1 getting into Q3. And then in Q4, we might see some reduction sequentially because we typically incur some seasonal costs as an sequentially because we typically incur some seasonal costs, as an example, holiday pay that we see every year. So there will be a small dip in Q4, but we would see an increase in margins starting Q2. And then in terms of some of the key drivers from a margin perspective that I spoke about earlier is the investments that we're going to be making from a generative AI perspective, the investments in security infrastructure, and then we will continue to incur ramp up that we saw in 2024 as we went through the growth phase. And we are calling for double digit growth rates in 2025. So we expect to see continued ramp cost in terms of facilities cost, training and recruitment. And then the guidance that we have provided today also factors in typical wage inflation that we see every year.

Thank you. One moment for our next question. And our next question comes from the line of Cassie Chan of Bank of America Securities.

Hey, guys. Thanks for taking my question. First, just wanted to ask about the first quarter revenue growth of 19%. That's really strong and only a sequential decline of about 1% quarter over quarter despite some of the headwinds you mentioned from the fewer billable days and seasonality. I just wanted to ask, does that pull forward of revenue from maybe something from the back half of the year? And the math kind of implies growth decelerating to is it fair to say high single digit or call it 10% is still exiting 2025? Is that conservatism or are there other factors that we should take into account as we think about the shape of the rest of the year, just given the strong first quarter guidance you gave?

Yes. Thanks, Cassie. So, obviously, it's the start of the New Year and we always want to provide guidance that we feel confident we can meet or beat. So, today, we're providing guidance for between 10% and 13% year-over-year growth in 2025. And I'll just note that to get to the top half of that range, we're contemplating a demand environment that doesn't change materially from 2024. And that means that things don't get worse, but it also means things don't get better. So we do think there's upside potential on these numbers. To simply get to 12% to 13% growth is very achievable. In 2024, we saw both increased bookings and a reduction in churn when compared to 2023. And so far, those trends have continued into 2025. We've got very good next quarter visibility and our results thus far in Q1 give us confidence that we will meet or beat our Q1 guidance. You mentioned the headwinds, it's a significant headwind, $15 million when compared to Q4. And even with that headwind, we're contemplating revenues that are nearly flat quarter-over-quarter. So clearly, we feel like we're off to a pretty good start. So for the remainder of 2025, if we keep our head down, successfully recruit, ramp and retain our large clients, then, we feel we feel very confident, in our ability to meet or beat the guidance we're providing. And to be clear, our goal is enduring double-digit revenue growth.

Okay. Super helpful. And then just a quick follow-up. You guys mentioned the security incident that impacted the fourth quarter. Is there any way you can quantify the impact on that on revenues and margins? Anything lingering into maybe first quarter? And I guess you talked about some reinvestments in the business as well. Any way to quantify how much is going to bolster those own internal security measures versus the investments in building out those AI tools that you continue to see strong demand for, teammate growth, etc., just those different buckets as well? Thank you.

Yes. So I'll start. And Balaji, if you want to add anything, feel free. I mean, security has always been a top priority for TaskUs. And unfortunately, our industry has been targeted by an increasing number of these types of events. So what happened in Q4 was not at all unique to TaskUs. What is perhaps unique is how quickly our team responded. I'm incredibly proud of the response of our team. We suspended operations out of an abundance of caution. We continue to pay our employees during the suspension period and we've now fully restored those suspended operations. And we actually expect our relationship with the client in this case to grow in 2025. When we combine the impact of the security incident with the impact of increased investments to meet our growth targets for 2025, so those ramp costs that Balaji related, had both of those things not happened, we would have met our EBITDA guidance. So, we were a few million dollars short on a dollar basis from our EBITDA guidance in Q4. So, that can give you a sense of kind of what the size of that impact is. As far as ongoing investments, we are going to continue to invest millions of dollars in our AI initiatives, and we will also be investing millions of dollars in improving our security posture. We have done that historically, but given the experience we had in Q4, we've set a goal of becoming the most secure provider in the industry. And so we've set out an investment agenda that will, we think, position us to accomplish that. But all of those investments have been factored in the guidance. As Balaji said, we expect EBITDA margins for the full year to be roughly flat with 2024, but we expect those margins to grow over the course of the year.

Thank you. And due to time please limit yourself to one question. Our next question comes from the line of Jonathan Lee of Guggenheim Partners. Your line is now open.

Great. Thanks for taking our question. How should we think about your market position in AI services, particularly around the new Agentic AI consulting practice? What gives you confidence that clients would look to TaskUs for that type of service versus using perhaps in house talent or competitor?

Yes. Thanks so much for the question, Jonathan. So broadly based, when we look at AI services, we're seeing a significant increase in demand from generative AI and foundational models. We're also seeing a significant increase in demand for these services from large social media companies. The Agentic AI practice that we mentioned on the call, which we're just kicking off, is going to be a partnership with the leading Agentic AI companies. These are companies that are using LLMs with a goal of automating certain aspects of customer support. As we've said, historically, we believe that simple and repeatable customer support interactions stand to be automated. We've got our own TaskGPT platform, which makes our teammates significantly more productive when responding to customers. But there are contact types that we believe we can just completely automate in partnerships with these Agentic AI technology providers. And so, as we're looking to this year, we are excited about partnerships. We have some partnerships that we'll be announcing publicly shortly, and we expect to begin to deploy these tools across a number of our clients. Again, this is going to create an enduring revenue stream because we'll be making money from the implementation and the ongoing automation. We think we're very well positioned because we've got teammates who have been trained on these workflows and deeply understand the policies of our customers, and we can use that knowledge to train and maintain these Agentic AI systems. And then, of course, as we've said, we think there is a huge portion of work that is not likely to be automated anytime soon. These are the more complex customer interactions. They may involve sales, revenue generation, customer success, tier two and tier three type support workflows, and TaskUs will continue to be a vendor of choice for our clients for those workflows. So it's a multi-pronged, approach, but really that Agentic AI practice is going to primarily focus on the future of our customer experience business.

Thank you. Our next question comes from the line of David Koning of Baird. Your line is now open.

Yes. Hey, guys. Nice job. And I guess my question, when we look at employee growth and nice job, big growth sequentially this quarter, but when we look at that, it grew faster year-over-year than revenue all through the year. And I'm sure that has to do with mix of offshore, maybe investing for the future. But when will we see a time when you kind of get the efficiencies where you're actually disconnecting where revenue starts growing faster than employees?

Yes. So, I'll comment conceptually and then Balaji can maybe add a few more details. Clearly, this year, we've seen a mix shift. I'm really proud that we got back to double digit growth in the U.S. in Q4. That was not the case for most of the year. For most of the year, our revenue in the U.S. was declining and obviously the U.S. is the region in which we drive the highest revenue per employee. And so, as we look at growth being driven in the Philippines and India and increasingly in new regions like Colombia and even parts of Europe, revenue per employee is just lower than it was in the U.S. business. We think that this year we will begin to see an increase in revenue per employee driven by stabilization in the geographic mix and by the fact that we're going to continue to automate large portions of our workflows. The Agentic AI practice I was just talking about gives us an opportunity to take a teammate, who's supporting customer support workflows and make them significantly more productive to handle more cases on an hourly basis than they would historically, and that should drive up revenue per employee. Baljeet anything to quickly add there?

Yes. Just a couple of things I'll add is, David, if you kind of look at revenue yield per employee, which is revenue divided by the end of the quarter headcount. Compared to 2023, we do see a reduction in 2024. But it's been fairly stable in 2024 because the mix is kind of fairly stable in 2024 when compared to 2023 because we started to digest the impact of this mixture from onshore to offshore. So it's been fairly stable in 2024. And like Bryce said, as we start selling some of these specialized service lines, we would start to see improvement from an yield perspective.

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

Thank you. You made a comment, in your prepared remarks, Bryce, that you were planning to expand specialized services that are less likely to be automated. Can you talk about maybe what service areas in particular you're investing in, how the mix might change, what that means in terms of your three service types that you report and margin profiles associated with them?

Yeah. So we are focused on both services and verticals where we think, there's an AI resistance. And not AI resistance because people don't want to use AI, but AI resistance because of either complexity or regulatory concerns. So on the service line side, we believe that trust and safety, risk and response, certainly and somewhat ironically, AI services themselves are more AI resistant. We also think that the work we're doing in sales and lead gen and more complex workflows in customer success, are more AI resistant. It's the commoditized repeatable customer interactions that we think are going to be automated first, and we fully intend to lead the charge on that automation with our Agentic AI consulting practice. As far as verticals, we're really focused on financial services and health care because we continue to see strong growth rates in both of those verticals across, the BPO industry and a lot of those services we think are more resistant to automation. We also mentioned that we're going to go after enterprise clients where we think our existing competitors are slow to attempt to automate, and we'll be taking an AI first offering to try to disrupt those competitors. So, it's a multi-pronged approach, but I appreciate the question, Maggie.

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

Thanks for the question, guys. It's Antonio on for James. I wanted to ask more on the pace of bookings like revenue conversion. How has that trended? And then, how has demand trended as well? Thank you.

Thanks for the question, Antonio. So as we mentioned on the call, Q4 was a great quarter, both in that we saw a significant uptick in new logo sales and the existing client sales were less concentrated with our largest customer. As I mentioned, we've seen incredible growth with our largest customer and we anticipate to see sustained growth with them in 2025. But in Q4, we were able to drive even more growth outside of the largest customer and we think that will show up, in revenue growth rates outside of our largest customer accelerating over the course of 2025.

Thank you. I'm showing no further questions at this time. Thank you for your participation in today's conference. [Operator Closing Remarks].