TASKUS, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q (this "Quarterly Report"), the financial statements and related notes included in our Annual Report on Form 10-K for the year endedDecember 31, 2021 (the Annual Report"), as filed with theSecurities and Exchange Commission (the "SEC") and the information included under "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Annual Report. In addition to historical data, the following discussion contains forward-looking 17
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statements that involve risks and uncertainties. Our actual results could differ materially from those discussed in our forward-looking statements as a result of various factors, including but not limited to those discussed under "Cautionary Note Regarding Forward-Looking Statements" in this Quarterly Report and under Part I, Item 1A, "Risk Factors" in the Annual Report. This Quarterly Report includes certain historical consolidated financial and other data forTaskUs, Inc. ("we," "us," "our" or the "Company"). The following discussion provides a narrative of our results of operations and financial condition for the three and six months endedJune 30, 2022 and 2021.
Overview
We provide digital outsourced services, focused on serving high-growth
technology companies to represent, protect and grow their brands. Our global,
omni-channel delivery model is focused on providing our clients three key
services - Digital Customer Experience, Content Security and Artificial
Intelligence ("AI") Services (formerly known as AI Operations). We have designed
our platform to enable us to rapidly scale and benefit from our clients' growth.
We believe our ability to deliver "ridiculously good" outsourcing will enable us
to continue to grow our client base.
At TaskUs , culture is at the heart of everything we do. Many of the companies
operating in the Digital Economy are well-known for their obsession with
creating a world-class employee experience. We believe clients choose TaskUs in
part because they view our company culture as aligned with their own, which
enables us to act as a natural extension of their brands and gives us an
advantage in the recruitment of highly engaged frontline teammates who produce
better results.
2022 Developments
Acquisition of heloo
On April 15, 2022 , we acquired all of the equity interests of Parsec d.o.o. and
Q Experience d.o.o. (collectively, "heloo"), a Croatia -based Digital Customer
Experience solutions provider to European technology companies supporting 20
languages across seven additional Eastern European countries, including Bosnia ,
Serbia , and Slovenia . The results of operations of heloo subsequent to the April
15, 2022 acquisition date are included in the accompanying consolidated
financial statements. See Note 3, "Business Combination" in the Notes to
Unaudited Condensed Consolidated Financial Statements included in this Quarterly
Report.
Macroeconomic Trends
Macroeconomic factors, including global economic and geopolitical developments,
increased inflation rates, interest rate increases, and foreign currency
exchange rate changes, have direct and indirect impacts on our results of
operations that are difficult to isolate and quantify. Due to market uncertainty
and potential recession or other economic challenges, many of our customers are
shifting their focus from growth to cost reduction resulting in certain
customers electing to shift work from our onshore locations to our offshore
delivery centers or reduce vendor spend across the board. This trend has been
accelerated by our clients in the cryptocurrency and equity trading spaces.
These factors contributed to a deceleration in our revenue growth rate and an
increase in our operating costs. We expect some or all of these factors to
continue to impact our operations in the near term; however, we believe that the
increased cost focus also creates meaningful opportunities with both new and
existing customers.
War in Ukraine
The Russian invasion of Ukraine and resulting sanctions and other measures
imposed in response thereto have increased the level of economic and political
uncertainty in Eastern Europe and worldwide. We do not have employees,
facilities or operations in either Russia or Ukraine ; however, the continuation
of the conflict or its potential expansion into surrounding geographic areas,
could directly impact us, our clients, vendors or subcontractors, which could
impact our operations and financial performance. We continue to monitor the
situation closely to ensure business continuity plans are in place for
neighboring countries where we have a presence.
Recent Financial Highlights
For the three months endedJune 30, 2022 , we recorded service revenue of$246.5 million , a 36.9% increase from$180.0 million for the three months endedJune 30, 2021 . For the six months endedJune 30, 2022 , we recorded service revenue of$486.1 million , a 46.0% increase from$332.9 million for the six months endedJune 30, 2021 . Net income (loss) for the three months endedJune 30, 2022 increased to$7.7 million from$(105.9) million for the three months endedJune 30, 2021 . This increase included expenses related to the one-time phantom shares bonuses and non-recurring teammate bonuses associated with our initial public offering (the "IPO") of$133.7 million during the three months endedJune 30, 2021 and the impact of our continued revenue growth, partially offset by higher non-cash stock-based compensation expense, which we began recognizing upon the IPO, and the impact of foreign currency exchange rate changes. Adjusted Net Income for the three months endedJune 30, 2022 increased 23.5% to$38.7 million from$31.4 million for the 18
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three months endedJune 30, 2021 . Adjusted EBITDA for the three months endedJune 30, 2022 increased 26.2% to$55.7 million from$44.1 million for the three months endedJune 30, 2021 . Net income (loss) for the six months endedJune 30, 2022 increased to$19.3 million from$(89.4) million for the six months endedJune 30, 2021 . This increase included expenses related to the one-time phantom shares bonuses and non-recurring teammate bonuses associated with the IPO of$133.7 million during the six months endedJune 30, 2021 and the impact of our continued revenue growth, partially offset by higher non-cash stock-based compensation expense, which we began recognizing upon the IPO, and the impact of foreign currency exchange rate changes. Adjusted Net Income for the six months endedJune 30, 2022 increased 23.7% to$73.7 million from$59.6 million for the six months endedJune 30, 2021 . Adjusted EBITDA for the six months endedJune 30, 2022 increased 31.3% to$109.8 million from$83.7 million for the six months endedJune 30, 2021 .
The operating results in any period are not necessarily indicative of the results that may be expected for any future period.
Results of Operations
Comparison of the Three Months Ended
The following tables set forth certain historical consolidated financial
information for the three months ended
Three months ended June 30, Period over Period Change
(in thousands, except %) 2022 2021 ($) (%)
Service revenue $ 246,459 $ 180,022 $ 66,437 36.9 %
Operating expenses:
Cost of services 143,538 103,798 39,740 38.3 %
Selling, general, and administrative
expense 68,919 177,810 (108,891) (61.2) %
Depreciation 9,657 6,729 2,928 43.5 %
Amortization of intangible assets 4,967 4,712 255 5.4 %
Loss on disposal of assets 5 1 4 400.0 %
Total operating expenses 227,086 293,050 (65,964) (22.5) %
Operating income (loss) 19,373 (113,028) 132,401 (117.1) %
Other expense (income) 7,377 (1,659) 9,036 (544.7) %
Financing expenses 2,204 1,594 610 38.3 %
Income (loss) before income taxes 9,792 (112,963) 122,755 (108.7) %
Provision for (benefit from) income taxes 2,063 (7,020) 9,083 (129.4) %
Net income (loss) $ 7,729 $ (105,943) $ 113,672 (107.3) %
Service revenue
Service revenue for the three months ended June 30, 2022 and 2021 was $246.5
million and $180.0 million , respectively. Service revenue for the three months
ended June 30, 2022 increased by $66.4 million or 36.9% when compared to the
three months ended June 30, 2021 .
Service revenue by service offering
The following table presents the breakdown of our service revenue by service offering for each period:
Three months ended June 30, Period over Period Change
(in thousands, except %) 2022 2021 ($) (%)
Digital Customer Experience $ 167,420 $ 113,566 $ 53,854 47.4 %
Content Security 46,331 42,995 3,336 7.8 %
AI Services 32,708 23,461 9,247 39.4 %
Service revenue $ 246,459 $ 180,022 $ 66,437 36.9 %
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The period over period growth in Digital Customer Experience, AI Services and Content Security contributed 29.9%, 5.1% and 1.9%, respectively, of the total increase of 36.9% for the three months endedJune 30, 2022 . The 47.4% growth in Digital Customer Experience was primarily driven by an increase in volume of services to our existing customers inOn Demand Travel + Transportation,FinTech and Entertainment + Gaming and new customers in FinTech and Hi-Tech, as well as new customers as a result of the acquisition of heloo. The 39.4% growth in AI Services was primarily driven by an increase in volume of services to our existing customers inSocial Media and On Demand Travel + Transportation as well as new customers in HealthTech, partially offset by a decrease in volumes to existing customers in Retail + E-Commerce. The 7.8% growth in Content Security was primarily driven by an increase in the volume of services to our existing customers in Entertainment + Gaming, Social Media and Retail + E-Commerce as well as new customers in FinTech, partially offset by a decrease in volumes inOn Demand Travel + Transportation.
Service revenue by delivery geography
The majority of our service revenues are derived from contracts with clients who are either located inthe United States , or with clients who are located outside ofthe United States but whereby the contract specifies payment inUnited States dollars. However, we deliver our services from multiple locations around the world. The following table presents the breakdown of our service revenue by geographical location, based on where the services are provided, for each period: Three months endedJune 30 , Period over Period Change (in thousands, except %) 2022
2021 ($) (%) Philippines$ 124,322 $ 95,681 $ 28,641 29.9 % United States 74,273 58,930 15,343 26.0 % Rest of World 47,864 25,411 22,453 88.4 % Service revenue$ 246,459 $ 180,022 $ 66,437 36.9 % Revenue generated from services provided from our delivery sites inthe Philippines grew primarily from expansion in all three of our service offerings, including the impact of certain clients electing to shift work fromthe United States . Digital Customer Experience contributed 20.5% of the total increase primarily driven by customers inOn Demand Travel + Transportation,FinTech and Entertainment + Gaming. Content Security contributed 5.0% of the total increase primarily driven by customers in Social Media, Entertainment + Gaming and Retail + E-Commerce. AI Services contributed 4.4% of the total increase primarily driven by customers in Social Media. Revenue generated from services provided from our delivery sites inthe United States grew primarily from expansion in two of our service offerings. Digital Customer Experience contributed 28.0% of the total increase primarily driven by customers in FinTech, Hi-Tech,On Demand Travel + Transportation and HealthTech. AI Services contributed 1.1% of the total increase primarily driven by customers inOn Demand Travel + Transportation, mostly offset by customers in Retail + E-Commerce and Social Media. These increases were partially offset by a 3.1% decrease contributed by Content Security primarily driven by customers in Social Media, partially offset by customers in FinTech. Certain of our customers have elected to shift work fromthe United States tothe Philippines and Rest of World and we expect this shift to continue through the rest of the year as we work to deliver service out of our customers' optimal geography, which allows us to serve them better in the long-term. Revenue generated from services provided from our delivery sites in the Rest of World grew primarily from expansion in all three of our service offerings, including the impact of certain clients electing to shift work fromthe United States . Digital Customer Experience contributed 69.5% of the total increase primarily driven by new customers as a result of the acquisition of heloo, customers in FinTech,On Demand Travel +Transportation and Entertainment + Gaming. AI Services contributed 17.4% of the total increase primarily driven by customers in Social Media, as well asHealthTech and On Demand Travel + Transportation. Content Security contributed 1.5% of the total increase primarily driven by customers in Social Media, mostly offset by customers inFinTech and On Demand Travel + Transportation. Growth in the Rest of World was led byIndia ,Europe andLatin America .
Operating expenses
Cost of services
Cost of services for the three months endedJune 30, 2022 and 2021 was$143.5 million and$103.8 million , respectively. Cost of services for the three months endedJune 30, 2022 increased by$39.7 million , or 38.3%, when compared to the three months endedJune 30, 2021 . The increase was primarily driven by higher personnel costs of$35.5 million , related to an 20
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increase in headcount to meet the demand in services from our customers. The remaining increase included costs associated with site expansions to support revenue growth as well as other costs associated with certain teammates operating on-site.
Selling, general, and administrative expense
Selling, general, and administrative expense for the three months endedJune 30, 2022 and 2021 was$68.9 million and$177.8 million , respectively. Selling, general, and administrative expense for the three months endedJune 30, 2022 decreased by$(108.9) million , or (61.2)%, when compared to the three months endedJune 30, 2021 . The decrease was primarily driven by lower personnel costs of$113.8 million due primarily to expenses related to the one-time phantom shares bonuses and non-recurring teammate bonuses associated with the IPO of$133.7 million , partially offset by stock-based compensation expense, increased headcount across functions in support of our growth as well as earn-out consideration recognized as compensation expense. The decrease was partially offset by investments in software and costs associated with resuming travel in the second quarter. Depreciation
Depreciation for the three months ended
Amortization of intangible assets
Amortization of intangible assets for the three months endedJune 30, 2022 and 2021 was$5.0 million and$4.7 million , respectively. The nominal increase in amortization is due to the acquisition of heloo onApril 15, 2022 . See Note 3, "Business Combination" in the Notes to Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report.
Other expense (income)
Other expense (income) for the three months endedJune 30, 2022 and 2021 was$7.4 million and$(1.7) million , respectively. Changes are driven by our exposure to foreign currency exchange risk resulting from our operations in foreign geographies, primarilythe Philippines , offset by economic hedges using foreign currency exchange rate forward contracts. See Item 3., "Quantitative and Qualitative Disclosures About Market Risk" for additional information on how foreign currency impacts our financial results.
Financing expenses
Financing expense for the three months endedJune 30, 2022 and 2021 was$2.2 million and$1.6 million , respectively. Changes in financing expense are primarily driven by the rate of LIBOR used to calculate the interest rate of our debt and the additional$32.5 million draw on our Revolving Credit Facility onApril 12, 2022 to fund cash payments relating to our acquisition of heloo. See "-Liquidity and Capital Resources-Indebtedness-2019 Credit Agreement" for additional discussion on the Term Loan Facility.
Provision for (benefit from) income taxes
Provision for (benefit from) income taxes for the three months endedJune 30, 2022 and 2021 was$2.1 million and$(7.0) million , respectively. The effective tax rate for the three months endedJune 30, 2022 and 2021 was 21.1% and 6.2%, respectively. There are certain items included within the provision for (benefit from) income taxes calculation which were directly related to the IPO in 2021 and not expected to recur in future periods, including certain phantom shares bonuses and equity awards made to officers which are not deductible under Section 162(m) of the Internal Revenue Code. Additionally, costs related to the issuance of stock-based compensation included within the provision for (benefit from) income taxes calculation are adjusted for Non-GAAP purposes. If those costs are removed, the provision for income taxes would have been$5.1 million and$4.4 million and the effective tax rate would have been 17.7% and 19.5% for the three months endedJune 30, 2022 and 2021, respectively. The effective tax rate in the future will depend upon the proportion of income before provision for income taxes earned inthe United States and in jurisdictions with a tax rate lower than theU.S. statutory rate, as well as a number of other factors, including the impact of new legislation. 21
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Comparison of the Six Months Ended
The following tables set forth certain historical consolidated financial
information for the six months ended
Six months ended June 30, Period over Period Change
(in thousands, except %) 2022 2021 ($) (%)
Service revenue $ 486,139 $ 332,893 $ 153,246 46.0 %
Operating expenses:
Cost of services 284,820 191,828 92,992 48.5 %
Selling, general, and administrative
expense 133,166 209,308 (76,142) (36.4) %
Depreciation 18,558 12,932 5,626 43.5 %
Amortization of intangible assets 9,678 9,424 254 2.7
Loss (gain) on disposal of assets (10) 28 (38) (135.7) %
Total operating expenses 446,212 423,520 22,692 5.4 %
Operating income (loss) 39,927 (90,627) 130,554 (144.1) %
Other expense (income) 8,430 (905) 9,335 (1,031.5) %
Financing expenses 3,806 3,175 631 19.9 %
Income (loss) before income taxes 27,691 (92,897) 120,588 (129.8) %
Provision for (benefit from) income taxes 8,376 (3,461) 11,837 (342.0) %
Net income (loss) $ 19,315 $ (89,436) $ 108,751 (121.6) %
Service revenue
Service revenue for the six months ended June 30, 2022 and 2021 was $486.1
million and $332.9 million , respectively. Service revenue for the six months
ended June 30, 2022 increased by $153.2 million or 46.0% when compared to the
six months ended June 30, 2021 .
Service revenue by service offering
The following table presents the breakdown of our service revenue by service offering for each period:
Six months ended June 30, Period over Period Change
(in thousands, except %) 2022 2021 ($) (%)
Digital Customer Experience $ 327,151 $ 213,277 $ 113,874 53.4 %
Content Security 92,183 79,122 13,061 16.5 %
AI Services 66,805 40,494 26,311 65.0 %
Service revenue $ 486,139 $ 332,893 $ 153,246 46.0 %
The year over year growth in Digital Customer Experience, AI Services and
Content Security contributed 34.2%, 7.9% and 3.9%, respectively, of the total
increase of 46.0% for the six months ended
The 53.4% growth in Digital Customer Experience was primarily driven by an increase in volume of services to our existing customers in FinTech,On Demand Travel + Transportation, Entertainment + Gaming and HealthTech and new customers in FinTech and Hi-Tech, as well as new customers as a result of the acquisition of heloo. The 65.0% growth in AI Services was primarily driven by an increase in volume of services to our existing customers inSocial Media and On Demand Travel + Transportation and new customers in HealthTech, partially offset by a decrease in volume of services to our existing customers in Retail + E-Commerce.
The 16.5% growth in Content Security was primarily driven by an increase in
volume of services to our existing customers in FinTech, Social Media,
Entertainment + Gaming and Retail + E-Commerce, partially offset by a decrease
in volume of services to our existing customers in
Service revenue by delivery geography
The majority of our service revenues are derived from contracts with clients who are either located inthe United States , or with clients who are located outside ofthe United States but whereby the contract specifies payment inUnited States dollars. However, we deliver our services from multiple locations around the world. 22
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The following table presents the breakdown of our service revenue by
geographical location, based on where the services are provided, for each
period:
Six months ended June 30 , Period over Period Change
(in thousands, except %) 2022 2021 ($) (%) Philippines$ 244,402 $ 180,259 $ 64,143 35.6 % United States 153,404 109,687 43,717 39.9 % Rest of World 88,333 42,947 45,386 105.7 % Service revenue$ 486,139 $ 332,893 $ 153,246 46.0 % Revenue generated from services provided from our delivery sites inthe Philippines grew primarily from expansion in all three of our service offerings, including the impact of certain clients electing to shift work fromthe United States . Digital Customer Experience contributed 24.9% of the total increase primarily driven by customers inOn Demand Travel + Transportation,FinTech and Entertainment + Gaming. Content Security contributed 6.2% of the total increase primarily driven by customers in Social Media and Retail + E-Commerce. AI Services contributed 4.5% of the total increase primarily driven by customers in Social Media, partially offset by customers inOn Demand Travel + Transportation. Revenue generated from services provided from our delivery sites inthe United States grew primarily from expansion in two of our service offerings. Digital Customer Experience contributed 34.8% of the total increase primarily driven by customers in FinTech, Hi-Tech and HealthTech. AI Services contributed 6.7% of the total increase primarily driven by customers inOn Demand Travel + Transportation, partially offset by customers in Retail + E-Commerce. These increases were partially offset by a 1.6% decrease contributed by Content Security primarily driven by customers in Social Media, partially offset by customers in FinTech. Certain of our customers have elected to shift work fromthe United States tothe Philippines and Rest of World and we expect this shift to continue through the rest of the year as we work to deliver service out of our customers' optimal geography, which allows us to serve them better in the long-term. Revenue generated from services provided from our delivery sites in the Rest of World grew primarily from expansion in in all three of our service offerings, including the impact of certain clients electing to shift work fromthe United States . Digital Customer Experience contributed 71.6% of the total increase primarily driven by customers in FinTech,On Demand Travel + Transportation, Entertainment + Gaming, Retail + E-Commerce as well as new customers as a result of the acquisition of heloo. AI Services contributed 25.4% of the total increase primarily driven by customers in Social Media and HealthTech. Content Security contributed 8.7% of the total increase primarily driven by customers inSocial Media and Entertainment + Gaming, partially offset by customers inOn Demand Travel + Transportation and FinTech. Growth in the Rest of World was led byIndia ,Europe andLatin America .
Operating expenses
Cost of services
Cost of services for the six months endedJune 30, 2022 and 2021 was$284.8 million and$191.8 million , respectively. Cost of services for the six months endedJune 30, 2022 increased by$93.0 million , or 48.5%, when compared to the six months endedJune 30, 2021 . The increase was primarily driven by higher personnel costs of$81.7 million related to an increase in headcount to meet the demand in services from our clients. The remaining increase included costs associated with site expansions and investments in software, as well as other costs associated with certain teammates operating on-site.
Selling, general, and administrative expense
Selling, general, and administrative expense for the six months endedJune 30, 2022 and 2021 was$133.2 million and$209.3 million , respectively. Selling, general, and administrative expense for the six months endedJune 30, 2022 decreased by$(76.1) million , or (36.4)%, when compared to the six months endedJune 30, 2021 . The decrease was primarily driven by lower personnel costs of$87.1 million due primarily to expenses related to the one-time phantom shares bonuses and non-recurring teammate bonuses associated with the IPO of$133.7 million , partially offset by higher stock-based compensation expense and increased headcount across functions in support of our growth as well as earn-out consideration recognized as compensation expense. The decrease was partially offset by investments in software, as well as insurance expense and costs associated with resuming travel in the second quarter.
Depreciation
Depreciation for the six months endedJune 30, 2022 and 2021 was$18.6 million and$12.9 million , respectively. The increase in depreciation is a result of capital expenditures for additional technology and computers, as well as leasehold improvements associated with site expansions to support revenue growth. 23
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Amortization of intangible assets
Amortization of intangible assets for the six months endedJune 30, 2022 and 2021 was$9.7 million and$9.4 million , respectively. The increase in amortization is due to the acquisition of heloo onApril 15, 2022 . See Note 3, "Business Combination" in the Notes to Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report.
Other expense (income)
Other expense (income) for the six months endedJune 30, 2022 and 2021 was$8.4 million and$(0.9) million , respectively. Changes are driven by our exposure to foreign currency exchange risk resulting from our operations in foreign geographies, primarilythe Philippines , offset by economic hedges using foreign currency exchange rate forward contracts. See Item 3., "Quantitative and Qualitative Disclosures About Market Risk" for additional information on how foreign currency impacts our financial results.
Financing expenses
Financing expense for the six months endedJune 30, 2022 and 2021 was$3.8 million and$3.2 million , respectively. Changes in financing expense are primarily driven by the rate of LIBOR used to calculate the interest rate of our debt and the additional$32.5 million draw on our Revolving Credit Facility onApril 12, 2022 to fund cash payments relating to our acquisition of heloo. See "-Liquidity and Capital Resources-Indebtedness-2019 Credit Agreement" for additional discussion on the Term Loan Facility.
Provision for (benefit from) income taxes
Provision for (benefit from) income taxes for the six months endedJune 30, 2022 and 2021 was$8.4 million and$(3.5) million , respectively. Our effective tax rate for the six months endedJune 30, 2022 and 2021 was 30.2% and 3.7%, respectively. There are certain items included within the provision for (benefit from) income taxes calculation which were directly related to the IPO in 2021 and not expected to recur in future periods, including certain phantom shares bonuses and equity awards made to officers which are not deductible under Section 162(m) of the Internal Revenue Code. Additionally, costs related to the issuance of stock-based compensation included within the provision for (benefit from) income taxes calculation are adjusted for Non-GAAP purposes. If those costs are removed, the provision for income taxes would have been$13.7 million and$8.0 million and the effective tax rate would have been 20.7% and 18.7% for the six months endedJune 30, 2022 and 2021, respectively.
Revenue by Top Clients
The table below sets forth the percentage of our total service revenue derived from our largest clients for the three and six months endedJune 30, 2022 and 2021: Three months ended June 30, Six months ended June 30, 2022 2021 2022 2021 Top ten clients 58 % 63 % 60 % 64 % Top twenty clients 73 % 77 % 74 % 78 % Our clients are part of the rapidly growing Digital Economy and they rely on our suite of digital solutions to drive their continued success. For our existing clients, we benefit from our ability to grow as they grow and to cross sell new solutions, further deepening our entrenchment. For the three months endedJune 30, 2022 and 2021, we generated 22% and 27%, respectively, of our service revenue from our largest client, and we generated less than 10% and 12%, respectively, of our service revenue from our second largest client. For the six months endedJune 30, 2022 and 2021, we generated 23% and 28%, respectively, of our service revenue from our largest client, and we generated Less than 10% and 12%, respectively, of our service revenue from our second largest client. We continue to identify and target high growth industry verticals and clients. Our strategy is to acquire new clients and further grow with our existing ones in order to achieve meaningful client and revenue diversification over time.
Foreign Currency
As a global company, we face exposure to movements in foreign currency exchange rates. Fluctuations in foreign currencies impact the amount of total assets, liabilities, revenue, operating expenses and cash flows that we report for our foreign subsidiaries upon the translation of these amounts intoU.S. dollars. See Item 3., "Quantitative and Qualitative Disclosures About Market Risk" for additional information on how foreign currency impacts our financial results. 24
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Non-GAAP Financial Measures
We use Adjusted Net Income, Adjusted Earnings Per Share ("EPS"), EBITDA, Adjusted EBITDA, Free Cash Flow and Conversion of Adjusted EBITDA, as key measures to assess the performance of our business.
Each of the measures are not recognized under accounting principles generally accepted inthe United States of America ("GAAP") and do not purport to be an alternative to net income as a measure of our performance. Such measures have limitations as analytical tools, and you should not consider any of such measures in isolation or as substitutes for our results as reported under GAAP. Additionally, Adjusted Net Income, Adjusted EPS, EBITDA, and Adjusted EBITDA exclude items that can have a significant effect on our profit or loss and should, therefore, be used in conjunction with profit or loss for the period. Our management compensates for the limitations of using non-GAAP financial measures by using them to supplement GAAP results to provide a more complete understanding of the factors and trends affecting the business than GAAP results alone. Because not all companies use identical calculations, these measures may not be comparable to other similarly titled measures of other companies.
Adjusted Net Income
Adjusted Net Income is a non-GAAP profitability measure that represents net income or loss for the period before the impact of amortization of intangible assets and certain items that are considered to hinder comparison of the performance of our businesses on a period-over-period basis or with other businesses. During the periods presented, we excluded from Adjusted Net Income amortization of intangible assets, transaction costs, earn-out consideration, the effect of foreign currency gains and losses, losses on disposals of assets, COVID-19 related expenses, severance costs, natural disaster costs, one-time payments associated with the IPO, stock-based compensation expense and employer payroll tax associated with equity-classified awards and the related effect on income taxes of certain pre-tax adjustments, which include costs that are required to be expensed in accordance with GAAP. Our management believes that the inclusion of supplementary adjustments to net income applied in presenting Adjusted Net Income are appropriate to provide additional information to investors about certain material non-cash items and about unusual items that we do not expect to continue at the same level in the future. The following table reconciles net income, the most directly comparable GAAP measure, to Adjusted Net Income for the three months endedJune 30, 2022 and 2021: 25
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Three months ended June 30, Period over Period Change
(in thousands, except %) 2022 2021 ($) (%)
Net income (loss) $ 7,729 $ (105,943) $ 113,672 (107.3) %
Amortization of intangible assets 4,967 4,712 255 5.4 %
Transaction costs(1) 357 2,432 (2,075) (85.3) %
Earn-out consideration(2) 1,328 - 1,328 100.0 %
Foreign currency losses (gains)(3) 7,501 (1,595) 9,096 (570.3) %
Loss on disposal of assets 5 1 4 400.0 %
COVID-19 related expenses(4) - 3,711 (3,711) (100.0) %
Severance costs(5) 821 - 821 100.0 %
Phantom shares bonus(6) - 129,362 (129,362) (100.0) %
Teammate IPO bonus(7) - 4,361 (4,361) (100.0) %
Stock-based compensation expense(8) 19,042 5,771 13,271 230.0 %
Tax impacts of adjustments(9) (3,008) (11,440) 8,432 (73.7) %
Adjusted Net Income $ 38,742 $ 31,372 $ 7,370 23.5 %
Net Income (Loss) Margin(10) 3.1 % (58.9) %
Adjusted Net Income Margin(10) 15.7 % 17.4 %
(1) Represents non-recurring professional service fees related to the acquisition of heloo in
2022 and the preparation for public offerings that have been expensed during the period in
2021.
(2) Represents earn-out consideration recognized as compensation expense related to the
acquisition of heloo. (3) Realized and unrealized foreign currency losses (gains) include the effect of fair market
value changes of forward contracts and remeasurement of
to foreign currency. (4) Represents incremental expenses incurred related to the transition to a virtual operating
model and incentive and leave pay granted to employees that are directly attributable to
the COVID-19 pandemic. (5) Represents severance payments as a result of certain cost optimization measures we
undertook during the period to restructure support roles.
Represents expense for one-time non-recurring payments of
tax and 401(k) contributions. (7) Represents expense for non-recurring bonus payments to certain employees in connection
with the completion of the IPO. (8) Represents stock-based compensation expense associated with equity-classified awards, as
well as associated payroll tax.
Represents tax impacts of adjustments to net income (loss) which resulted in a tax benefit (9) during the period. These adjustments include phantom shares bonus related to the IPO and
stock-based compensation expense after the IPO. (10) Net Income (Loss) Margin represents net income (loss) divided by service revenue and
Adjusted Net Income Margin represents Adjusted Net Income divided by service revenue.
The following table reconciles net income, the most directly comparable GAAP
measure, to Adjusted Net Income for the six months ended
Six months ended June 30, Period over Period Change
(in thousands, except %) 2022 2021 ($) (%)
Net income (loss) $ 19,315 $ (89,436) $ 108,751 (121.6) %
Amortization of intangible assets 9,678 9,424 254 2.7 %
Transaction costs(1) 549 5,761 (5,212) (90.5) %
Earn-out consideration(2) 1,328 - 1,328 100.0 %
Foreign currency losses (gains)(3) 8,654 (808) 9,462 (1,171.0) %
Loss (gain) on disposal of assets (10) 28 (38) (135.7) %
COVID-19 related expenses(4) - 6,105 (6,105) (100.0) %
Severance costs(5) 821 - 821 100.0 %
Natural disaster costs(6) - 442 (442) (100.0) %
Phantom shares bonus(7) - 129,362 (129,362) (100.0) %
Teammate IPO bonus(8) - 4,361 (4,361) (100.0) %
Stock-based compensation expense(9) 38,730 5,771 32,959 571.1 %
Tax impacts of adjustments(10) (5,358) (11,440) 6,082 (53.2) %
Adjusted Net Income $ 73,707 $ 59,570 $ 14,137 23.7 %
Net Income (Loss) Margin(11) 4.0 % (26.9) %
Adjusted Net Income Margin(11) 15.2 % 17.9 %
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Table of Contents (1) Represents non-recurring professional service fees related to the acquisition of heloo
in 2022 and the preparation for public offerings that have been expensed during the
period in 2021. (2) Represents earn-out consideration recognized as compensation expense related to the
acquisition of heloo. (3) Realized and unrealized foreign currency losses (gains) include the effect of fair
market value changes of forward contracts and remeasurement of
accounts to foreign currency. (4) Represents incremental expenses incurred related to the transition to a virtual
operating model and incentive and leave pay granted to employees that are directly
attributable to the COVID-19 pandemic. (5) Represents severance payments as a result of certain cost optimization measures we
undertook during the period to restructure support roles. (6) Represents one-time costs associated with emergency housing, transportation costs and
bonuses for our employees in connection with the natural disaster related to the severe
winter storm in
phantom shareholders in connection with the completion of the IPO, as well as associated
payroll tax and 401(k) contributions. (8) Represents expense for non-recurring bonus payments to certain employees in connection
with the completion of the IPO. (9) Represents stock-based compensation expense associated with equity-classified awards, as
well as associated payroll tax. (10) Represents tax impacts of adjustments to net income (loss) which resulted in a tax
benefit during the period, including phantom shares bonus related to the IPO, and
stock-based compensation expense after the IPO. (11) Net Income (Loss) Margin represents net income (loss) divided by service revenue and
Adjusted Net Income Margin represents Adjusted Net Income divided by service revenue.
Adjusted EPS
Adjusted EPS is a non-GAAP profitability measure that represents earnings
available to shareholders excluding the impact of certain items that are
considered to hinder comparison of the performance of our business on a
period-over-period basis or with other businesses. Adjusted EPS is calculated as
Adjusted Net Income divided by our diluted weighted-average number of shares
outstanding, including the impact of any potentially dilutive common stock
equivalents that are anti-dilutive to GAAP net income (loss) per share - diluted
("GAAP diluted EPS") but dilutive to Adjusted EPS. Our management believes that
the inclusion of supplementary adjustments to earnings per share applied in
presenting Adjusted EPS are appropriate to provide additional information to
investors about certain material non-cash items and about unusual items that we
do not expect to continue at the same level in the future.
The following table reconciles GAAP diluted EPS, the most directly comparable
GAAP measure, to Adjusted EPS for the three and six months ended June 30, 2022
and 2021:
Three months ended June 30, Six months ended June 30,
2022 2021 2022 2021
GAAP diluted EPS $ 0.07 $
(1.14)
0.31 1.48 0.52 1.61
Per share adjustments for GAAP anti-dilutive
shares(2) - (0.02) - (0.01)
Adjusted EPS $ 0.38 $ 0.32 $ 0.71 $ 0.63
Weighted-average common shares outstanding -
diluted 103,177,186 92,957,493 103,649,606 92,347,257
GAAP anti-dilutive shares(2) - 4,599,736 - 2,299,868
Adjusted weighted-average shares outstanding 103,177,186 97,557,229 103,649,606 94,647,125
(1) Reflects the aggregate adjustments made to reconcile net income (loss) to Adjusted Net
Income, as noted in the above table, divided by the GAAP diluted weighted-average number
of shares outstanding for the relevant period. (2) Reflects the impact of awards that were anti-dilutive to GAAP diluted EPS since we were
in a net loss position, and therefore not included in the calculation, but would be
dilutive to Adjusted EPS and are therefore included in the calculation.
EBITDA and Adjusted EBITDA
EBITDA is a non-GAAP profitability measure that represents net income or loss
for the period before the impact of the benefit from or provision for income
taxes, financing expenses, depreciation, and amortization of intangible assets.
EBITDA eliminates potential differences in performance caused by variations in
capital structures (affecting financing expenses), tax positions (such as the
availability of net operating losses against which to relieve taxable profits),
the cost and age of tangible assets (affecting relative depreciation expense)
and the extent to which intangible assets are identifiable (affecting relative
amortization expense).
Adjusted EBITDA is a non-GAAP profitability measure that represents EBITDA
before certain items that are considered to hinder comparison of the performance
of our businesses on a period-over-period basis or with other businesses. During
the periods presented, we excluded from Adjusted EBITDA transaction costs,
earn-out consideration, the effect of foreign currency gains and losses, losses
on disposals of assets, COVID-19 related expenses, severance costs, natural
disaster costs, one-time payments associated with the IPO and stock-based
compensation expense and employer payroll tax associated with equity-classified
awards, which include costs that are required to be expensed in accordance with
GAAP. Our management believes
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that the inclusion of supplementary adjustments to EBITDA applied in presenting Adjusted EBITDA are appropriate to provide additional information to investors about certain material non-cash items and about unusual items that we do not expect to continue at the same level in the future. The following table reconciles net income, the most directly comparable GAAP measure, to EBITDA and Adjusted EBITDA for the three months endedJune 30, 2022 and 2021: Three months ended June 30, Period over Period Change (in thousands, except %) 2022 2021 ($) (%) Net income (loss)$ 7,729 $ (105,943) $ 113,672 (107.3) % Provision for (benefit from) income taxes 2,063 (7,020) 9,083 (129.4) % Financing expenses 2,204 1,594 610 38.3 % Depreciation 9,657 6,729 2,928 43.5 % Amortization of intangible assets 4,967 4,712 255 5.4 % EBITDA$ 26,620 $ (99,928) $ 126,548 (126.6) % Transaction costs(1) 357 2,432 (2,075) (85.3) % Earn-out consideration(2) 1,328 - 1,328 100.0 % Foreign currency losses (gains)(3) 7,501 (1,595) 9,096 (570.3) % Loss on disposal of assets 5 1 4 400.0 % COVID-19 related expenses(4) - 3,711 (3,711) (100.0) % Severance costs(5) 821 - 821 100.0 % Phantom shares bonus(6) - 129,362 (129,362) (100.0) % Teammate IPO bonus(7) - 4,361 (4,361) (100.0) % Stock-based compensation expense(8) 19,042 5,771 13,271 230.0 % Adjusted EBITDA$ 55,674 $ 44,115 $ 11,559 26.2 % Net Income (Loss) Margin(9) 3.1 % (58.9) % Adjusted EBITDA Margin(9) 22.6 % 24.5 %
(1) Represents non-recurring professional service fees related to the acquisition of heloo
in 2022 and the preparation for public offerings that have been expensed during the
period in 2021. (2) Represents earn-out consideration recognized as compensation expense related to the
acquisition of heloo. (3) Realized and unrealized foreign currency losses (gains) include the effect of fair
market value changes of forward contracts and remeasurement of
accounts to foreign currency. (4) Represents incremental expenses incurred related to the transition to a virtual
operating model and incentive and leave pay granted to employees that are directly
attributable to the COVID-19 pandemic. (5) Represents severance payments as a result of certain cost optimization measures we
undertook during the period to restructure support roles.
(6) Represents expense for one-time non-recurring payments of
phantom shareholders in connection with the completion of the IPO, as well as associated
payroll tax and 401(k) contributions. (7) Represents expense for non-recurring bonus payments to certain employees in connection
with the completion of the IPO. (8) Represents stock-based compensation expense associated with equity-classified awards, as
well as associated payroll tax. (9) Net Income (Loss) Margin represents net income (loss) divided by service revenue and
Adjusted EBITDA Margin represents Adjusted EBITDA divided by service revenue.
The following table reconciles net income, the most directly comparable GAAP measure, to EBITDA and Adjusted EBITDA for the six months endedJune 30, 2022 and 2021: 28
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Six months ended June 30, Period over Period Change
(in thousands, except %) 2022 2021 ($) (%)
Net income (loss) $ 19,315 $ (89,436) $ 108,751 (121.6) %
Provision for (benefit from) income taxes 8,376 (3,461) 11,837 (342.0) %
Financing expenses 3,806 3,175 631 19.9 %
Depreciation 18,558 12,932 5,626 43.5 %
Amortization of intangible assets 9,678 9,424 254 2.7 %
EBITDA $ 59,733 $ (67,366) $ 127,099 (188.7) %
Transaction costs(1) 549 5,761 (5,212) (90.5) %
Earn-out consideration(2) 1,328 - 1,328 100.0 %
Foreign currency losses (gains)(3) 8,654 (808) 9,462 (1,171.0) %
Loss (gain) on disposal of assets (10) 28 (38) (135.7) %
COVID-19 related expenses(4) - 6,105 (6,105) (100.0) %
Severance costs(5) 821 - 821 100.0 %
Natural disaster costs(6) - 442 (442) (100.0) %
Phantom shares bonus(7) - 129,362 (129,362) (100.0) %
Teammate IPO bonus(8) - 4,361 (4,361) (100.0) %
Stock-based compensation expense(9) 38,730 5,771 32,959 571.1 %
Adjusted EBITDA $ 109,805 $ 83,656 $ 26,149 31.3 %
Net Income (Loss) Margin(10) 4.0 % (26.9) %
Adjusted EBITDA Margin(10) 22.6 % 25.1 %
(1) Represents non-recurring professional service fees and earn-out consideration recognized
as compensation expense related to the acquisition of heloo in 2022 and the preparation
for public offerings that have been expensed during the period in 2021. (2) Represents earn-out consideration recognized as compensation expense related to the
acquisition of heloo. (3) Realized and unrealized foreign currency losses (gains) include the effect of fair
market value changes of forward contracts and remeasurement of
accounts to foreign currency. (4) Represents incremental expenses incurred related to the transition to a virtual
operating model and incentive and leave pay granted to employees that are directly
attributable to the COVID-19 pandemic. (5) Represents severance payments as a result of certain cost optimization measures we
undertook during the period to restructure support roles. (6) Represents one-time costs associated with emergency housing, transportation costs and
bonuses for our employees in connection with the natural disaster related to the severe
winter storm in
phantom shareholders in connection with the completion of the IPO, as well as associated
payroll tax and 401(k) contributions. (8) Represents expense for non-recurring bonus payments to certain employees in connection
with the completion of the IPO. (9) Represents stock-based compensation expense associated with equity-classified awards, as
well as associated payroll tax. (10) Net Income (Loss) Margin represents net income (loss) divided by service revenue and
Adjusted EBITDA Margin represents Adjusted EBITDA divided by service revenue.
Free Cash Flow Free Cash Flow is a non-GAAP liquidity measure that represents our ability to generate additional cash from our business operations. Free Cash Flow is calculated as net cash provided by operating activities in the period minus cash used for purchase of property and equipment in the period. Our management believes that the inclusion of this non-GAAP measure, when considered with our GAAP results, provides management and investors with an additional understanding of our ability to generate additional cash for ongoing business operations and other capital deployment.
The following table reconciles net income, the most directly comparable GAAP
measure, to Free Cash Flow for the six months ended
Six months ended
2022 2021
Net cash provided by operating activities $ 72,966
Purchase of property and equipment (29,357) (23,453)
Free Cash Flow $ 43,609
Conversion of Adjusted EBITDA(1) 39.7 % 26.6 %
(1) Conversion of Adjusted EBITDA represents Free Cash Flow divided by Adjusted EBITDA.
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Liquidity and Capital Resources
As of
We have financed our operations primarily through cash received from operations. We believe our existing cash and cash equivalents and our 2019 Credit Facilities will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months. Our future capital requirements will depend on several factors, including but not limited to our obligation to repay any amounts outstanding under our 2019 Credit Facilities, our revenue growth rate, timing of client billing and collections, the timing of expansion into new geographies, variability in the cost of delivering services in our geographies, the timing and extent of spending on technology innovation, the extent of our sales and marketing activities, and the introduction of new and enhanced service offerings and the continuing market adoption of our platform. To the extent additional funds are necessary to meet our long-term liquidity needs as we continue to execute our business strategy, we anticipate that they will be obtained through the incurrence of additional indebtedness, additional equity financings or a combination of these potential sources of funds; however, such financing may not be available on favorable terms, or at all. In particular, the evolving COVID-19 pandemic has resulted in, and may continue to result in, significant disruption of global financial markets, reducing our ability to access capital. If we are unable to raise additional funds when desired, our business, financial condition and results of operations could be adversely affected.
Potential investments in, or acquisitions of, complementary businesses, applications or technologies, could reduce our cash and cash equivalents, require us to seek additional equity or debt financing or repatriate cash generated by our international operations that could cause us to incur withholding taxes on any distributions. Additional funds from financing arrangements may not be available on terms favorable to us or at all.
As market conditions warrant, we and certain of our equity holders, includingBlackstone and their respective affiliates, may from time to time seek to purchase our outstanding debt securities or loans, including borrowings under our 2019 Credit Facilities, in privately negotiated or open market transactions, by tender offer or otherwise. Subject to any applicable limitations contained in the agreements governing our indebtedness, any purchases made by us may be funded by the use of cash on our balance sheet or the incurrence of new secured or unsecured debt, including borrowings under our credit facilities. The amounts involved in any such purchase transactions, individually or in the aggregate, may be material. Any such purchases may be with respect to a substantial amount of a particular class or series of debt, with the attendant reduction in the trading liquidity of such class or series. In addition, any such purchases made at prices below the "adjusted issue price" (as defined forU.S. federal income tax purposes) may result in taxable cancellation of indebtedness income to us, which amounts may be material, and in related adverse tax consequences to us.
Indebtedness
As of
2019 Credit Agreement
OnSeptember 25, 2019 , we entered into a credit agreement (the "2019 Credit Agreement") that included a$210 million term loan (the "Term Loan Facility") and a$40 million revolving credit facility (the "Revolving Credit Facility" and, together with the Term Loan Facility, the "2019 Credit Facilities"). OnApril 30, 2021 , the Company entered into Amendment No. 1 to its 2019 Credit Agreement with the existing lenders providing for$50.0 million incremental revolving credit commitments on the same terms as our existing revolving credit facility. We accounted for this amendment as a debt modification and recorded$0.3 million of debt financing fees which will be amortized, along with previously deferred fees, over the remaining term of the facility. The Term Loan Facility matures onSeptember 25, 2024 and requires quarterly principal payments of 0.25% of the original principal amount per quarter throughSeptember 30, 2020 , 0.625% of the original principal amount throughSeptember 30, 2021 , 1.25% of the original principal amount throughSeptember 30, 2022 , 1.875% of the original principal amount throughSeptember 30, 2023 and 2.50% of the original principal amount thereafter, with any remaining principal due in a lump sum at the maturity date. As ofJune 30, 2022 ,$194.8 million was outstanding under the Term Loan Facility. The interest rate in effect for the Term Loan Facility was 3.916% as ofJune 30, 2022 . The Revolving Credit Facility matures onSeptember 25, 2024 and requires a commitment fee of 0.4% on undrawn commitments paid quarterly in arrears. As ofJune 30, 2022 , the interest rate in effect was 3.731% on$72.4 million of outstanding borrowings under the Revolving Credit Facility. As ofJune 30, 2022 , we had$17.6 million of borrowing availability under the Revolving Credit Facility. 30
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The 2019 Credit Agreement contains certain affirmative and negative covenants applicable to us and our restricted subsidiaries, including, among other things, limitations on our Consolidated Total Net Leverage Ratio (as defined in the 2019 Credit Agreement) and restrictions on changes in the nature of our business, acquisitions and other investments, indebtedness, liens, fundamental changes, dispositions, prepayment of other indebtedness, repurchases of stock, cash dividends, and other distributions. The 2019 Credit Facilities are guaranteed by our material domestic subsidiaries and are secured by substantially all of our tangible and intangible assets, including our intellectual property, and the equity interests of our subsidiaries, subject to certain exceptions.
See Note 8, "Long-Term Debt" in the Notes to Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report for additional information regarding our debt.
Cash Flows
The following table presents a summary of our consolidated cash flows from operating, investing and financing activities for the periods indicated:
Six months ended
(in thousands) 2022 2021
Net cash provided by operating activities $ 72,966
Net cash used in investing activities (52,592) (23,453)
Net cash provided by financing activities 25,393 67,733 Operating Activities Net cash provided by operating activities for the six months endedJune 30, 2022 was$73.0 million compared to net cash provided by operating activities of$45.7 million for the six months endedJune 30, 2021 . Net cash provided by operating activities for the six months endedJune 30, 2022 reflects net income of$19.3 million , as well as the add back for non-cash charges totaling$75.4 million , primarily driven by$38.5 million in stock-based compensation expense,$18.6 million of depreciation and$9.7 million of amortization related to intangibles. These changes were partially offset by changes in operating assets and liabilities of$21.7 million . Net cash provided by operating activities for the six months endedJune 30, 2021 reflects changes in operating assets and liabilities of$115.0 million primarily driven by a$150.5 million change in accrued payroll and employee-related liabilities due primarily to the one-time phantom shares bonuses that were accrued but not yet paid, partially offset by a$41.2 million change in accounts receivable. These changes were partially offset by the net loss of$89.4 million , reduced by the add back for non-cash charges totaling$20.1 million , primarily driven by$12.9 million of depreciation,$9.4 million of amortization related to intangibles and$5.8 million of stock-based compensation expense, partially offset by deferred taxes of$10.5 million .
Investing Activities
Net cash used in investing activities for the six months endedJune 30, 2022 was$52.6 million compared to net cash used in investing activities of$23.5 million for the six months endedJune 30, 2021 . Net cash used in investing activities primarily consisted of investments in technology and computers as well as build-out costs associated with site expansions to support revenue growth. Net cash used in investing activities for the six months endedJune 30, 2022 included the acquisition of heloo, net of cash received.
Financing Activities
Net cash provided by financing activities for the six months endedJune 30, 2022 was$25.4 million compared to net cash provided by financing activities of$67.7 million for the six months endedJune 30, 2021 . Net cash provided by financing activities for the six months endedJune 30, 2022 consisted primarily of borrowings from our Revolving Credit Facility, partially offset by payments on long-term debt and payments for taxes related to net share settlement of equity awards. Net cash provided by financing activities for the six months endedJune 30, 2021 consisted of proceeds from the IPO, net of underwriters' fees, partially offset by distribution of dividends and payments on long-term debt.
Critical Accounting Policies and Estimates
Except as described in Note 2, "Summary of Significant Accounting Policies" in
the Notes to Unaudited Condensed Consolidated Financial Statements, there have
been no material changes to our critical accounting policies or in the
underlying accounting assumptions and estimates used in such policies as
reported in our Annual Report.
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Recent Accounting Pronouncements
For additional information regarding recent accounting pronouncements adopted and under evaluation, refer to Note 2, "Summary of Significant Accounting Policies" in the Notes to Unaudited Condensed Consolidated Financial Statements.
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