Greetings, and welcome to the TaskUs Third Quarter 2025 Investor Call. My name is Donna, and I will be your conference facilitator today. [Operator Instructions] I would like to introduce Trent Thrash, Vice President of Corporate Development and Investor Relations. Trent, you may begin.

Good morning, and thank you for joining us for today's TaskUs earnings call. Joining me 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'd like to remind you that the following discussions contain 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. This filing, which may be supplemented with subsequent periodic reports is accessible on the SEC's website and our Investor Relations website. 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 discussions throughout today's call contain non-GAAP financial 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. To begin, I want to briefly discuss the termination of the proposed take-private transaction we first announced in May. Please note that outside of these prepared remarks, we will not be responding to questions regarding the transaction during our Q&A session. During our October 8th Special Meeting with Shareholders, the requisite company shareholders did not approve the adoption of the merger agreement. As a result, on October 9th, upon the recommendation of the special committee and the approval of the company's full Board of Directors, the company and the buyer group entered into a mutual agreement to terminate the merger agreement. This mutual decision to terminate was not entered into lightly and followed true adjournments of our Special Meeting of Shareholders. The buyer group used this time to have multiple discussions regarding the level of price increase required to obtain the approval of certain shareholders, who believe that the $16.50 offer price undervalued the company. Ultimately, we did not obtain the necessary shareholder vote, because the valuation gap persisted despite this engagement. While we recognize the uncertainty the take-private attempt created, we're encouraged by the high valuation expectations of our shareholders and see it as a testament of their belief in TaskUs and the opportunities ahead. Throughout this process, I challenged our leaders and teammates to remain laser-focused on delivering the best-in-class specialized services that our customers have come to expect from TaskUs. I believe our Q3 financial results and Q4 guidance are a direct reflection of this focus. I want to thank all of our shareholders, our Board Members and most importantly, all TaskUs teammates for their focus, effort and support during this process. With that, let me turn briefly to our strong Q3 performance before outlining our plan for the future. In the third quarter,…

Thank you, Bryce, and good morning, everyone. In the third quarter, we earned total revenues of $298.7 million, reflecting an increase of 17% compared to the previous year, well ahead of our expectations entering the year. This was primarily the result of strong volume performance with existing clients and new client ramps exceeding expectations across a broad range of verticals during the quarter. While our DCX growth moderated to the mid-single digits for the quarter, growth in Trust and Safety and AI services delivered strong year-over-year growth of approximately 20% and 60%, respectively in Q3 of 2025. This marks the eighth consecutive quarter of approximately 20% or higher growth in our Trust and Safety service line. It was also the fourth consecutive quarter in excess of 30% revenue growth for AI services. We continue to grow across all our client cohorts, including growth in excess of 20% across our top 10 and top 20 cohorts. Our top 10 and top 20 clients represented 60% and 71% of total revenue in Q3, respectively, compared to 56% and 68% in Q3 of the previous year. Our largest client accounted for 27% of total Q3 revenue, up from 26% in the previous quarter and 23% in the prior year. We also saw growth from clients outside of our top 20, which grew approximately 6% year-over-year. Excluding our largest client, revenue from the rest of our business grew approximately 11%, accelerating from approximately 8% growth in Q3 of 2024. We are pleased with the strong broad-based growth across the business. In Q3, we saw approximately 20% year-over-year growth in the number of clients engaging with multiple service lines. Revenue from these multiple service clients increased in excess of 20% compared to the prior year period, highlighting the effectiveness of our cross-sell strategy and the…

Thank you, Balaji. Before we open for questions, I'd like to share another TaskUs teammate story. At TaskUs, we often talk about people and performance in the same sense and for good reason. The work our frontline teams do every day, especially in Trust and Safety is both operationally complex and emotionally demanding. As part of our video series highlighting our teammates, [ Ayana ], one of our content moderators in Greece, recently shared her perspective. AI-supported tools and structured workflows enable high-volume moderation decisions to be made quickly and accurately. But when it comes to edge cases where nuance, cultural context or intent matter, human judgment is critical for accurate and effective moderation. In her own words, AI can't feel what people feel. Only a person can make that type of call. Ayana also takes pride as a parent knowing her decisions help protect children like her own. Since our last call, I'm now the father of 3 young children and nothing makes me prouder of working at TaskUs than the trust and safety and AI safety work that we do. TaskUs teammates are protecting all of our children from the internet's most harmful content. This sense of purpose is powerful, but it also underscores the toll that this type of work can take. That's why we've invested in programs that build resilience and support our teammates' wellbeing. Our in-house team of Ph.D. researchers and wellness and resiliency clinicians provides teammates with research-based wellness services, including confidential counseling, peer support groups and software-based tools that help them stay clear, focused and grounded. Last year, our experts at sites around the world conducted 79,000 individual employee sessions and more than 22,000 group sessions supporting the wellbeing of the people who protect all of us online. These programs also support our operational performance. They help us reduce burnout, improve retention and sustain high levels of quality in the most sensitive areas of our digital operations. With that, I'll ask the operator to open the line for our question-and-answer session. Operator?

[Operator Instructions] Our first question is coming from Jim Schneider of Goldman Sachs.

Bryce, as you think about maybe the plans operationally you were -- you had contemplated as a potential private company, maybe talk about some of the operational things you had considered? And which of those you may bring to an ongoing operation as a public company that you considered having gone private?

Yes. I think given the outcome of the take-private transaction, I feel confident in following a strategy that will largely mirror what we would have done as a private company. As I shared on the call, we're planning to ramp up our investments and accelerate our transformation for the AI era. So that starts with our investments in our Agentic AI consulting practice, where we're deploying AI agents on behalf of our clients to automate aspects of their customer support. We've announced partnerships with Decagon and Regal and we've signed multiple clients to this service. In '26, we plan to make some key hires to lead this organization for us as an independent entity that will transform a large portion of the work that we're doing in the customer service space. We're also going to accelerate our investments in our AI services business line, which is where we're working with foundational model developers, doing AI safety work for social media companies and supporting companies across the autonomous vehicle and robotics space. The success there has driven growth of over 50% year-over-year for this service line. And so we're really excited about what we're going to be able to do next year there. And finally, we're using AI to drive efficiency internally. We're developing both proprietary technology and partnering with AI providers to automate everything from recruitment to training to quality. And as a result of these investments, we're enabling the members of our support organizations to do more, so we can stretch the ratios, the number of teammates per quality analyst or the number of hires per recruiter. And we've seen some encouraging early signs and look forward to reporting more on that next year.

And then as a follow-up, maybe you could talk a little bit about the broad scope of your business pipeline right now and specifically talk about what the pipeline looks at within your largest customer?

The pipeline is strong. We're seeing strong demand for both new and existing clients. And as we head into Q4, we're seeing strong demand in the autonomous vehicle and robotics space. We have 2 large deals with new clients in the robotics space as well as a very large scale-up with the leader in the autonomous vehicle industry. We've also seen significant growth at our large enterprise health care client, which is a testament to the success of our strategy to diversify into the health care space. The relationship with our largest client remains very strong. As everyone knows, we went through a large ramp with them in the back of 2024 and into 2025. And so I think like all clients, there's a budgeting process that's going on as they're looking ahead to 2026 and we're deeply engaged in that process with them.

The next question is coming from Jonathan Lee of Guggenheim Partners.

Can you talk us through what's contemplated in your outlook, particularly around sequential growth contemplated in 4Q? Particularly are you just seeing a seasonally better 4Q driven by DCX? I wanted to better understand the modest implied sequential growth there.

Yes. So as always, our goal is to meet or exceed the guidance we provide. And coming back into being a company that's doing earnings calls on a quarterly basis, we wanted to make sure we set the bar at a level that we felt like we could deliver and exceed. So in the back half of last year, we started a very large ramp with our largest client, which creates some challenging comps in Q4. Despite that, we're forecasting 11% year-over-year growth in Q4. And when we exclude our largest client, we're forecasting 9% year-over-year growth, which we think is amongst the best in the industry. There are about $5 million worth of seasonal revenues that are contemplated in the forecast. Most of that is driven, as you said, from the DCX portion of our business from retail and health care. And so at this point, we're going through the budgeting processes with our clients and just looking to ensure that we're providing guidance that we feel very confident we can deliver.

Great. And just as a follow-up, how should we think about your philosophy around the appropriate margins, as we think about the level of investment needed to advance your AI initiatives versus what the industry sees as potential deflationary pressure from AI?

Yes. I think ultimately, there's going to be a significant investment needed to transform our business. And we plan to be bold in that investment. We're very lucky in that we're starting from a place of EBITDA margins that are well north of 20% or adjusted EBITDA margins that are well north of 20%. And so we want to continue to be one of the more profitable players in our industry, but also have the courage to trade short-term margins for long-term growth and margin expansion. And so I think you'll see things like us beginning to break out those AI investments, which in 2024, the amount of money we're spending on these AI initiatives -- sorry, in 2025, the amount of money we're spending on these AI initiatives runs into the -- well into the multiple millions of dollars and will continue to increase into 2026. And so we'll do our best to call out those investments independent of the core of the business.

The next question is coming from Dave Koning of Baird.

Good job. And I guess kind of going back to that margin question a little bit. This year was a lower gross margin year, but a better SG&A year and it netted to margins being reasonably flat. I guess we just saw 6% employee growth. So you're definitely investing. I would imagine that reflects a good pipeline, but that comes with some cost of employees, which hits the gross margin line. But kind of getting back to how does this balance out over time? Does gross margin keep falling, but you offset it with SG&A? And I guess, secondly, could margins actually go down somewhat? Or do they stay around the same?

Yes. I'll have Balji comment more on this. But let me just sort of say what we've seen. Certainly, there has been a decline in the gross margin over the last few years. It's a combination of diversification of geographic delivery and just a more dynamic pricing environment that we've seen as the industry itself has slowed in terms of growth. I'm very proud of the disciplined approach our team has taken to optimizing our G&A spending in particular and being able to more than offset any gross margin decline to defend the adjusted EBITDA line. Certainly, that is something we're going to continue to do. As I discussed in a previous question, we have a huge initiative to use AI to automate internal support functions and we've seen some very encouraging signs. As an example, in this last month, the number of hires per recruiter at TaskUs was the highest it's been in our company's history and that's because we've automated the entire candidate pipeline up until a face-to-face interview. So everything from getting candidates' information to putting them through testing to doing background screening, ID verification, that process has been entirely automated. And that's a large administrative lift that allows us to further optimize our recruitment team and push the number of hires that we're making per recruiter. That's the type of initiative that we'll see as we go into 2026, which will give us better G&A as a percentage of revenue. And then the investments we're making in terms of actually deploying AI for our clients and moving up the value chain in the service offerings into things like the AI services business, where we're seeing pretty significant growth this year should defend the gross margin and potentially expand the gross margin of the business over time. Balaji, do you want to add anything to that?

Yes. Yes. There's a couple of factors that I'll add to the gross margin trend. One is we do see the impact of annual merit inflation, including some certain statutory changes. As an example, one of the things that Bryce called out earlier in the call was the minimum wage increase in the Philippines. Items like that are captured in the forecast. Second, we did have a significant ramp this year from a revenue growth perspective, which includes ramp costs, building out new facilities, which also is reflected in our CapEx number. So that does impact gross margins. And the last is what Bryce mentioned in terms of the geography mix. As we continue to also see growth in geographies like Colombia and Greece, we do see some impact from a gross margin perspective. And we did see an offset. We did kick off a efficiency project, which -- in the early part of 2025, which Bryce spoke about that, but that impacted both the gross margin line item and also G&A line item. And this program delivered millions of dollars in savings. And that's kind of reflective in our adjusted EBITDA dollars, which grew year-on-year compared to 2024.

Got you. And maybe just a quick follow-up. Your balance sheet has become very clean. You're roughly neutral cash debt position now. You can kind of take next year's cash flow, put it all into buybacks and buy back almost 10% of the shares at the current price. Like does that start entering your mind? Or are there other uses of cash you're thinking about?

Yes. I think right now, the primary use of cash is going to be on this AI transformation. We're very fortunate to have a very clean balance sheet and a net debt position that on the current trajectory, we think will basically be net debt free at some point in Q1. So I think the first thing we're going to do is take the healthy cash flow the business generates and invest a significant portion of that into our Agentic AI consulting practice, into growing our AI services business, into continuing to transform the core of our business and really be as aggressive as we can in those investments. As I said on the prepared remarks, we are fortunate enough to have enough cash to be able to do that and look for other ways to utilize our cash flow in a way that is the most constructive in terms of creating long-term returns for our shareholders.

The next question is coming from Maggie Nolan of William Blair.

Bryce, congrats on your growing family. It's fun to hear that kind of stuff. I wanted to ask about the sustainability of the AI services growth into 2026. There's a decel implied in the fourth quarter. So maybe just talk about the pipeline and whether or not that can sustain double digit growth over a slightly longer time frame?

Yes. We're very confident that AI services is going to be a double digit grower over the long term. The challenge we have in this service line that's different from the core DCX and some of the Trust and Safety business is that work. And so the work we're doing here supporting the foundational model developers and the social media companies on projects around AI safety tends to be more project-based and sprint-based in nature. And so some projects can spin up and then spin down and there can be the sort of lumpiness of revenues. So this is pretty common across the entire AI services industry. We've got a lot of competitors that are more like privately held businesses, but consistent with the information that we've been able to gather on how the industry is performing, it's just more project-based in nature. With that being said, at this stage, we do anticipate that AI services will be a strong growth for us over the course of 2026. But as you point out, there's a deceleration as we head into Q4.

Understood. And then maybe still thinking a little bit more kind of medium term, some of the expectations you have for how year-over-year comps will be impacted by some of your larger customer sets, ones that were ramping up last year. How difficult is it to lap that this year? Help us think through those dynamics.

Yes. Ultimately, we're going to provide the full 2026 guidance on the next earnings call. But I'd say that we're really proud of the results that we've put up in 2025 and our goal is certainly to continue to grow well above the industry average, while also embarking on a transformation that's going to require us to make some short-term trade-offs for long-term growth and margin expansion.

The next question is coming from James Faucette of Morgan Stanley.

It's [ Antonio ] on for James. I wanted to focus on your largest customer. Could you just give us a sense on the durability of that spend as we head into next year? And then as far as their spend goes, like how that's trending within AI services and within Trust and Safety?

Yes. So as I said, we've seen massive growth at our largest customer over the course of the last 18 months and we continue to have a very strong relationship with them. I was with them just yesterday down in our site here in New Braunfels and we'll be with them again in December in Dublin. So right now, I think we're very well positioned in their vendor network. Clearly, like all of our clients, there's big investments that are going into AI. A lot of those investments we're benefiting from, as we're helping to support the development of their AI models. And then there's also trade-offs that will happen as a result of some of the work that we're doing, automating other parts of our business. So as we head into 2026, we feel very confident in the enduring relationship that we have with our largest customer. Clearly, the growth that we've seen in '25 is unlikely to happen again, but we don't have a significant amount of concern that we would see the opposite in 2026.

That's helpful. And then as a follow-up, I wanted to ask on your investment strategy that you outlined. How far along are you guys in that investment cycle? And based off of the investments that you've already made, like where have you like really seen that like really shine within the P&L?

Sorry, Antonio, I lost you there. Do you mind restating the question?

Yes. No, I was just asking on the investment strategy and like how far you are in your like investment cycle? And then where like you've seen that shine within the P&L?

Great. Yes. So ultimately, when it comes to the AI transformation strategy, I feel like we're still very much in the first inning. We've made some serious success in 2025 as we look to transform internal aspects of our business. As I mentioned, improving recruiter productivity significantly with the use of AI and scaling our use of AI across things like quality, workforce management and other elements of the business. The -- when it comes to our implementations with customers, we're really encouraged that our partnerships with Decagon and Regal are beginning to pay off and we're seeing clients begin to adopt this technology and be open to contracting in a way where we're able to deliver meaningful cost savings upfront in exchange for a longer-term transformation program. And so we think we'll see the impact of that beginning in 2026. Again, it's not a straight line. There is going to be the cannibalization of some of our own revenues in order to position ourselves to be a long-term beneficiary of that AI transformation. But we're in a position now where we feel very confident and courageous in being able to go out and make those bold decisions to trade off some short-term growth for long-term results.

The next question is coming from Puneet Jain of JPMorgan.

And good to be back on these calls. So Bryce, perhaps talk to us about like as clients embrace AI in automating some of the processes you service for them in digital customer care, talk to us like why they need your Agentic AI solution? Especially I'm thinking about like the large technology customers. Many of them have their own significant AI capabilities. Why do they need like TaskUs' Agentic AI solutions to automate some of their customer care processes?

Yes. I think there certainly is going to be different classes of customers. The big technology companies, the big tech, the Mag 7 are probably going to develop a lot of this technology in-house. Certainly, we've been helping a number of our customers in that category with their own AI transformation. But we've got lots of customers who are medium- to large-sized technology companies that have shown a real appetite for working with partners and consultants to drive their own AI transformation. At this stage, more than 3 years on from the launch of ChatGPT, I think leaders are getting frustrated with the slow speed at which AI is being adopted and truly completely transforming their operations. And so we've seen our clients announce partnerships with Agentic AI firms even in the last few weeks, where maybe previously, they would have tried to develop that technology themselves. The unique offering that TaskUs has is an ability to manage both AI agents and human agents. And so unlike pure technology solutions, we can come in and solve 100% of our customers' issues from day 1. For existing clients, we have spent the last 17 years training and managing human agents. And so we're taking our expertise -- in doing that, taking our expertise in our clients' processes and policies and applying that to training agents on their behalf. And we've seen a real appetite amongst our clients for help with these types of transformations. So Puneet, to answer your question directly, like the largest of the large technology companies are not going to turn to TaskUs or any of the AI agent companies to do this work for them. But most of the other companies have shown a willingness and eagerness and an appetite to work with partners on their AI transformation.

That's great. And then on your Trust and Safety, like from a year ago, there was like a big focus on diversifying some of that revenue like across multiple clients. Can you talk to us like of that segment, like how much of that revenue stems from your largest customer? And you did announce like a few wins in that space this quarter. Maybe talk to us about that efforts to diversify revenue in that segment?

Yes. We've been very focused on that. And in the Trust and Safety space, there's a high concentration of spend amongst the largest buyers, which are the largest entertainment and social media platforms. We've done a good job of diversifying. We've gone from working with our largest client to working with the 2 other largest players in the space. One of those clients has become a very significant client for TaskUs in the tens of millions of dollars and driven significant growth over the last year. And in all of these initiatives now we're helping clients with both Trust and Safety and with AI safety workflows. And so I'm encouraged by the enduring relationship, the enduring nature of those relationships.

Thank you. Ladies and gentlemen, this brings us to the end of the question-and-answer session and today's conference. We would like to thank you for your participation and interest in TaskUs. This concludes today's event. You may disconnect your lines or log off the webcast at this time, and enjoy the rest of your day.