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 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 nine months endedSeptember 30, 2022 and 2021.
Overview
We are a provider of outsourced digital services and next-generation customer
experience to fast-growing technology companies, helping our clients 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 condensed
consolidated financial statements. See Note 3, "Business Combination" in the
Notes to Unaudited Condensed Consolidated Financial Statements included in this
Quarterly Report.
Share Repurchase Program
On September 7, 2022 , we announced that the board of directors authorized a
share repurchase program, pursuant to which we may repurchase up to $100.0
million of our Class A common stock through December 31, 2024 . For additional
information, see Item 2 of Part II, "Unregistered Sales of Equity Securities and
Use of Proceeds" of 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. This has resulted in certain customers electing to shift their delivery model in order to reduce pricing, moving work from our onshore locations to our offshore delivery centers or moving to a work-from-home model, or reducing 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
The Russian invasion ofUkraine and resulting sanctions and other measures imposed in response thereto have increased the level of economic and political uncertainty inEastern Europe and worldwide. We do not have employees, facilities or operations in eitherRussia orUkraine ; 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 20
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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 endedSeptember 30, 2022 , we recorded service revenue of$232.1 million , a 15.5% increase from$201.1 million for the three months endedSeptember 30, 2021 . For the nine months endedSeptember 30, 2022 , we recorded service revenue of$718.3 million , a 34.5% increase from$533.9 million for the nine months endedSeptember 30, 2021 . Net income for the three months endedSeptember 30, 2022 decreased to$5.4 million from$11.6 million for the three months endedSeptember 30, 2021 . This decrease is due primarily to the impact of foreign currency exchange rate forward contracts and rising interest rates, partially offset by the impact of our continued revenue growth. Adjusted Net Income for the three months endedSeptember 30, 2022 increased 9.3% to$35.8 million from$32.8 million for the three months endedSeptember 30, 2021 . Adjusted EBITDA for the three months endedSeptember 30, 2022 increased 15.3% to$55.5 million from$48.1 million for the three months endedSeptember 30, 2021 . Net income (loss) for the nine months endedSeptember 30, 2022 increased to$24.7 million from$(77.8) million for the nine months endedSeptember 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 nine months endedSeptember 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, the impact of foreign currency exchange rate forward contracts and rising interest rates. Adjusted Net Income for the nine months endedSeptember 30, 2022 increased 18.6% to$109.5 million from$92.3 million for the nine months endedSeptember 30, 2021 . Adjusted EBITDA for the nine months endedSeptember 30, 2022 increased 25.4% to$165.3 million from$131.8 million for the nine months endedSeptember 30, 2021 . Free Cash Flow for the nine months endedSeptember 30, 2022 increased to$78.5 million from$(102.0) million for the nine months endedSeptember 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 September 30, Period over Period Change
(in thousands, except %) 2022 2021 ($) (%)
Service revenue $ 232,130 $ 201,053 $ 31,077 15.5 %
Operating expenses:
Cost of services 134,544 112,423 22,121 19.7 %
Selling, general, and administrative
expense 62,348 60,342 2,006 3.3 %
Depreciation 9,428 7,422 2,006 27.0 %
Amortization of intangible assets 5,087 4,711 376 8.0 %
Loss (gain) on disposal of assets (8) 26 (34) (130.8) %
Total operating expenses 211,399 184,924 26,475 14.3 %
Operating income 20,731 16,129 4,602 28.5 %
Other expense 7,612 1,204 6,408 532.2 %
Financing expenses 3,859 1,633 2,226 136.3 %
Income before income taxes 9,260 13,292 (4,032) (30.3) %
Provision for income taxes 3,895 1,656 2,239 135.2 %
Net income $ 5,365 $ 11,636 $ (6,271) (53.9) %
Service revenue
Service revenue for the three months ended
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Service revenue by service offering
The following table presents the breakdown of our service revenue by service offering for each period:
Three months ended September 30, Period over Period Change
(in thousands, except %) 2022 2021 ($) (%)
Digital Customer Experience $ 151,474 $ 125,310 $ 26,164 20.9 %
Content Security 43,910 45,376 (1,466) (3.2) %
AI Services 36,746 30,367 6,379 21.0 %
Service revenue $ 232,130 $ 201,053 $ 31,077 15.5 %
The period over period growth in Digital Customer Experience and AI Services
contributed 13.0% and 3.2%, respectively, while the decline in Content Security
contributed (0.7)%, of the total increase of 15.5% for the three months ended
September 30, 2022 .
The 20.9% growth in Digital Customer Experience was primarily driven by an
increase in volume of services to existing customers in On Demand Travel +
Transportation and Entertainment + Gaming and new customers in On Demand Travel
+ Transportation and Hi-Tech, as well as new customers as a result of the
acquisition of heloo, partially offset by a decrease in volumes with existing
customers in FinTech and Social Media.
The 21.0% growth in AI Services was primarily driven by an increase in volume of
services to existing customers in Social Media and On Demand Travel +
Transportation as well as new customers in HealthTech, partially offset by a
decrease in volumes with existing customers in Retail + E-Commerce.
The (3.2)% decline in Content Security was primarily driven by a decrease in
volume of services to existing customers in Social Media and On Demand Travel +
Transportation, partially offset by an increase in volumes with existing
customers in Entertainment + Gaming and Retail + E-Commerce, as well as new
customers in FinTech.
Service revenue by delivery geography
We deliver our services from multiple locations around the world; however, the majority of our service revenues are derived from contracts that require payment inUnited States dollars, regardless of whether the clients are located inthe United States . 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 ended September 30, Period over Period Change (in thousands, except %) 2022 2021 ($) (%) Philippines$ 127,507 $ 103,837 $ 23,670 22.8 % United States 49,040 65,866 (16,826) (25.5) % Rest of World 55,583 31,350 24,233 77.3 % Service revenue$ 232,130 $ 201,053 $ 31,077 15.5 % 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 11.9% of the total increase primarily driven by customers inOn Demand Travel + Transportation, Entertainment + Gaming and Retail + E-Commerce. Content Security contributed 8.5% of the total increase primarily driven by customers in Social Media. AI Services contributed 2.4% of the total increase primarily driven by customers in Social Media, partially offset by decreases with customers inOn Demand Travel + Transportation. Revenue generated from services provided from our delivery sites inthe United States declined primarily from reductions in all three of our service offerings. 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. Content Security contributed 20.3% of the total decrease primarily driven by customers in Social Media, partially offset by increases with customers in FinTech. Digital Customer Experience contributed 4.3% of the total decrease primarily driven by customers in FinTech and Social Media, partially offset by increases with customers in Hi-Tech,On Demand Travel +Transportation and Entertainment + Gaming. AI Services contributed 0.9% of the total decrease primarily driven by customers in Retail + E-Commerce and Social Media, mostly offset by increases with customers inOn Demand Travel + Transportation. 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 22
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Customer Experience contributed 53.5% 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 14.3% of the total increase primarily driven by customers in Social Media. Content Security contributed 9.5% of the total increase primarily driven by customers inSocial Media and Entertainment + Gaming, partially offset by decreases with customers inFinTech and On Demand Travel + Transportation. Growth in the Rest of World was led byIndia andEurope .
Operating expenses
Cost of services
Cost of services for the three months endedSeptember 30, 2022 and 2021 was$134.5 million and$112.4 million , respectively. Cost of services for the three months endedSeptember 30, 2022 increased by$22.1 million , or 19.7%, when compared to the three months endedSeptember 30, 2021 . The increase was primarily driven by higher personnel costs of$17.4 million , related to an increase in headcount to meet the demand in services from our customers. The remaining increase included costs associated with site expansions and investments in software to support revenue growth.
Selling, general, and administrative expense
Selling, general, and administrative expense for the three months ended
Depreciation
Depreciation for the three months endedSeptember 30, 2022 and 2021 was$9.4 million and$7.4 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.
Amortization of intangible assets
Amortization of intangible assets for the three months endedSeptember 30, 2022 and 2021 was$5.1 million and$4.7 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
Other expense for the three months endedSeptember 30, 2022 and 2021 was$7.6 million and$1.2 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 Part I, Item 3., "Quantitative and Qualitative Disclosures About Market Risk" in this Quarterly Report for additional information on how foreign currency impacts our financial results.
Financing expenses
Financing expense for the three months endedSeptember 30, 2022 and 2021 was$3.9 million and$1.6 million , respectively. Changes in financing expense are primarily driven by the rate of SOFR and 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" and "-2022 Credit Agreement" for additional discussion.
Provision for income taxes
Provision for income taxes for the three months endedSeptember 30, 2022 and 2021 was$3.9 million and$1.7 million , respectively. The effective tax rate for the three months endedSeptember 30, 2022 and 2021 was 42.1% and 12.5%, respectively. There are certain items included within the provision for 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 and costs related to the acquisition of heloo within the provision for income taxes calculation are adjusted for Non-GAAP purposes. If those costs are removed, the provision for income taxes would have been$6.4 million and$6.3 million and the effective tax rate would have been 20.9% and 19.4% for the three months endedSeptember 30, 2022 and 2021, respectively. 23
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The effective tax rate in the future will depend upon the proportion of income before provision for income taxes earned inthe United States and in jurisdictions with a tax rate lower than theU.S. statutory rate, as well as a number of other factors, including the impact of new legislation.
Comparison of the Nine Months Ended
The following tables set forth certain historical consolidated financial
information for the nine months ended
Nine months ended September 30, Period over Period Change
(in thousands, except %) 2022 2021 ($) (%)
Service revenue $ 718,269 $ 533,946 $ 184,323 34.5 %
Operating expenses:
Cost of services 419,364 304,251 115,113 37.8 %
Selling, general, and administrative
expense 195,514 269,650 (74,136) (27.5) %
Depreciation 27,986 20,354 7,632 37.5 %
Amortization of intangible assets 14,765 14,135 630 4.5
Loss (gain) on disposal of assets (18) 54 (72) (133.3) %
Total operating expenses 657,611 608,444 49,167 8.1 %
Operating income (loss) 60,658 (74,498) 135,156 (181.4) %
Other expense 16,042 299 15,743 5,265.2 %
Financing expenses 7,665 4,808 2,857 59.4 %
Income (loss) before income taxes 36,951 (79,605) 116,556 (146.4) %
Provision for (benefit from) income taxes 12,271 (1,805) 14,076 (779.8) %
Net income (loss) $ 24,680 $ (77,800) $ 102,480 (131.7) %
Service revenue
Service revenue for the nine months ended September 30, 2022 and 2021 was $718.3
million and $533.9 million , respectively. Service revenue for the nine months
ended September 30, 2022 increased by $184.3 million , or 34.5%, when compared to
the nine months ended September 30, 2021 .
Service revenue by service offering
The following table presents the breakdown of our service revenue by service
offering for each period:
Nine months ended September 30, Period over Period Change
(in thousands, except %) 2022 2021 ($) (%)
Digital Customer Experience $ 478,625 $ 338,587 $ 140,038 41.4 %
Content Security 136,093 124,498 11,595 9.3 %
AI Services 103,551 70,861 32,690 46.1 %
Service revenue $ 718,269 $ 533,946 $ 184,323 34.5 %
The year over year growth in Digital Customer Experience, AI Services and
Content Security contributed 26.2%, 6.1% and 2.2%, respectively, of the total
increase of 34.5% for the nine months ended
The 41.4% growth in Digital Customer Experience was primarily driven by an
increase in volume of services to existing customers in
The 46.1% growth in AI Services was primarily driven by an increase in volume of
services to existing customers in
The 9.3% growth in Content Security was primarily driven by an increase in volume of services to existing customers in Entertainment + Gaming, FinTech and Retail + E-Commerce, partially offset by a decrease in volumes with existing customers inOn Demand Travel + Transportation.
Service revenue by delivery geography
We deliver our services from multiple locations around the world; however, the majority of our service revenues are derived from contracts that require payment inUnited States dollars, regardless of whether the clients are located inthe United States . 24
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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:
Nine months ended September 30, Period over Period Change
(in thousands, except %) 2022 2021 ($) (%)
Philippines $ 371,909 $ 284,096 $ 87,813 30.9 %
United States 202,444 175,553 26,891 15.3 %
Rest of World 143,916 74,297 69,619 93.7 %
Service revenue $ 718,269 $ 533,946 $ 184,323 34.5 %
Revenue generated from services provided from our delivery sites in the
Philippines grew primarily from expansion in all three of our service offerings,
including the impact of certain clients electing to shift work from the United
States . Digital Customer Experience contributed 20.2% of the total increase
primarily driven by customers in On Demand Travel + Transportation, FinTech,
Entertainment + Gaming and Retail + E-Commerce. Content Security contributed
7.0% of the total increase primarily driven by customers in Social Media and
Retail + E-Commerce. AI Services contributed 3.7% of the total increase
primarily driven by customers in Social Media, partially offset by customers in
On Demand Travel + Transportation.
Revenue generated from services provided from our delivery sites in the United
States grew primarily from expansion in two of our service offerings. Certain of
our customers have elected to shift work from the United States to the
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. Digital
Customer Experience contributed 20.1% of the total increase primarily driven by
customers in Hi-Tech, FinTech, On Demand Travel + Transportation and HealthTech.
AI Services contributed 3.8% of the total increase primarily driven by customers
in On Demand Travel + Transportation, partially offset by customers in Retail +
E-Commerce and Social Media. These increases were partially offset by an 8.6%
decrease contributed by Content Security primarily driven by customers in Social
Media, partially offset by customers in FinTech.
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 from the United
States . Digital Customer Experience contributed 64.0% of the total increase
primarily driven by customers in FinTech, On Demand Travel + Transportation and
Entertainment + Gaming, as well as new customers as a result of the acquisition
of heloo. AI Services contributed 20.7% of the total increase primarily driven
by customers in Social Media, HealthTech and On Demand Travel + Transportation.
Content Security contributed 9.0% of the total increase primarily driven by
customers in Social Media and Entertainment + Gaming, partially offset by
customers in On Demand Travel + Transportation and FinTech. Growth in the Rest
of World was led by India , Europe and Latin America .
Operating expenses
Cost of services
Cost of services for the nine months endedSeptember 30, 2022 and 2021 was$419.4 million and$304.3 million , respectively. Cost of services for the nine months endedSeptember 30, 2022 increased by$115.1 million , or 37.8%, when compared to the nine months endedSeptember 30, 2021 . The increase was primarily driven by higher personnel costs of$99.2 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 nine months endedSeptember 30, 2022 and 2021 was$195.5 million and$269.7 million , respectively. Selling, general, and administrative expense for the nine months endedSeptember 30, 2022 decreased by$(74.1) million , or (27.5)%, when compared to the nine months endedSeptember 30, 2021 . The decrease was primarily driven by lower personnel costs of$86.1 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. The decrease was partially offset by investments in software, as well as costs associated with resuming travel and insurance expense.
Depreciation
Depreciation for the nine months endedSeptember 30, 2022 and 2021 was$28.0 million and$20.4 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. 25
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Amortization of intangible assets
Amortization of intangible assets for the nine months endedSeptember 30, 2022 and 2021 was$14.8 million and$14.1 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
Other expense for the nine months endedSeptember 30, 2022 and 2021 was$16.0 million and$0.3 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 Part I, Item 3., "Quantitative and Qualitative Disclosures About Market Risk" in this Quarterly Report for additional information on how foreign currency impacts our financial results.
Financing expenses
Financing expense for the nine months endedSeptember 30, 2022 and 2021 was$7.7 million and$4.8 million , respectively. Changes in financing expense are primarily driven by the rate of SOFR and 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" and "-2022 Credit Agreement" for additional discussion on the Term Loan Facility.
Provision for (benefit from) income taxes
Provision for (benefit from) income taxes for the nine months endedSeptember 30, 2022 and 2021 was$12.3 million and$(1.8) million , respectively. Our effective tax rate for the nine months endedSeptember 30, 2022 and 2021 was 33.2% and 2.3%, 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 and costs related to the acquisition of heloo 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$20.1 million and$14.3 million and the effective tax rate would have been 20.8% and 19.0% for the nine months endedSeptember 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 nine months endedSeptember 30, 2022 and 2021: Three months ended September 30, Nine months ended September 30, 2022 2021 2022 2021 Top ten clients 56 % 61 % 58 % 63 % Top twenty clients 70 % 76 % 72 % 76 % 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 endedSeptember 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 11%, respectively, of our service revenue from our second largest client. For the nine months endedSeptember 30, 2022 and 2021, we generated 23% and 27%, respectively, of our service revenue from our largest client, and we generated less than 10% and 11%, 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 Part I, Item 3., "Quantitative and Qualitative 26
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Disclosures About Market Risk" in this Quarterly Report for additional information on how foreign currency impacts our financial results.
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 or cash flow 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, gains and 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 endedSeptember 30, 2022 and 2021: Three months ended September 30, Period over Period Change (in thousands, except %) 2022 2021 ($) (%) Net income $ 5,365$ 11,636 $ (6,271) (53.9) % Amortization of intangible assets 5,087 4,711 376 8.0 % Transaction costs(1) 39 488 (449) (92.0) % Earn-out consideration(2) 3,648 - 3,648 100.0 % Foreign currency losses(3) 7,713 1,285 6,428 500.2 % Loss (gain) on disposal of assets (8) 26 (34) (130.8) % Stock-based compensation expense(4) 16,430 19,243 (2,813) (14.6) % Tax impacts of adjustments(5) (2,469) (4,632) 2,163 (46.7) % Adjusted Net Income$ 35,805 $ 32,757 $ 3,048 9.3 % Net Income Margin(6) 2.3 % 5.8 % Adjusted Net Income Margin(6) 15.4 % 16.3 %
(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 include the effect of fair market value
changes of forward contracts and remeasurement of
foreign currency.
(4) Represents stock-based compensation expense associated with equity-classified awards, as
well as associated payroll tax.
Represents tax impacts of adjustments to net income which resulted in a tax benefit (5) during the period. These adjustments include stock-based compensation expense and
earn-out consideration after the IPO. (6) Net Income Margin represents net income divided by service revenue and Adjusted Net
Income Margin represents Adjusted Net Income divided by service revenue.
The following table reconciles net income (loss), the most directly comparable GAAP measure, to Adjusted Net Income for the nine months endedSeptember 30, 2022 and 2021: 27
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Nine months ended September 30, Period over Period Change
(in thousands, except %) 2022 2021 ($) (%)
Net income (loss) $ 24,680 $ (77,800) $ 102,480 (131.7) %
Amortization of intangible assets 14,765 14,135 630 4.5 %
Transaction costs(1) 588 6,249 (5,661) (90.6) %
Earn-out consideration(2) 4,976 - 4,976 100.0 %
Foreign currency losses(3) 16,367 477 15,890 3,331.2 %
Loss (gain) on disposal of assets (18) 54 (72) (133.3) %
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) 55,160 25,014 30,146 120.5 %
Tax impacts of adjustments(10) (7,827) (16,072) 8,245 (51.3) %
Adjusted Net Income $ 109,512 $ 92,327 $ 17,185 18.6 %
Net Income (Loss) Margin(11) 3.4 % (14.6) %
Adjusted Net Income Margin(11) 15.2 % 17.3 %
(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 include the effect of fair market value
changes of forward contracts and remeasurement of
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 and earn-out consideration 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.
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The following table reconciles GAAP diluted EPS, the most directly comparable GAAP measure, to Adjusted EPS for the three and nine months endedSeptember 30, 2022 and 2021: Three months ended September 30, Nine months ended September 30, 2022 2021 2022 2021 GAAP diluted EPS $ 0.05 $
0.11 $ 0.24
0.30 0.19 0.82 1.81
Per share adjustments for GAAP anti-dilutive
shares(2) - - - (0.05)
Adjusted EPS $ 0.35 $ 0.30 $ 1.06 $ 0.93
Weighted-average common shares outstanding -
diluted 101,920,413 109,426,011 103,073,208 93,994,896
GAAP anti-dilutive shares(2) - - - 5,578,525
Adjusted weighted-average shares outstanding 101,920,413 109,426,011
103,073,208 99,573,421
(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, gains and 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 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 endedSeptember 30, 2022 and 2021: Three months ended September 30, Period over Period Change (in thousands, except %) 2022 2021 ($) (%) Net income $ 5,365$ 11,636 $ (6,271) (53.9) % Provision for income taxes 3,895 1,656 2,239 135.2 % Financing expenses 3,859 1,633 2,226 136.3 % Depreciation 9,428 7,422 2,006 27.0 % Amortization of intangible assets 5,087 4,711 376 8.0 % EBITDA$ 27,634 $ 27,058 $ 576 2.1 % Transaction costs(1) 39 488 (449) (92.0) % Earn-out consideration(2) 3,648 - 3,648 100.0 % Foreign currency losses(3) 7,713 1,285 6,428 500.2 % Loss (gain) on disposal of assets (8) 26 (34) (130.8) % Stock-based compensation expense(4) 16,430 19,243 (2,813) (14.6) % Adjusted EBITDA$ 55,456 $ 48,100 $ 7,356 15.3 % Net Income Margin(5) 2.3 % 5.8 % Adjusted EBITDA Margin(5) 23.9 % 23.9 % 29
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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.
Realized and unrealized foreign currency losses include the effect of fair market value
(3) changes of forward contracts and remeasurement of
foreign currency.
(4) Represents stock-based compensation expense associated with equity-classified awards, as
well as associated payroll tax. (5) Net Income Margin represents net income divided by service revenue and Adjusted EBITDA
Margin represents Adjusted EBITDA divided by service revenue.
The following table reconciles net income (loss), the most directly comparable
GAAP measure, to EBITDA and Adjusted EBITDA for the nine months ended
Nine months ended September 30, Period over Period Change
(in thousands, except %) 2022 2021 ($) (%)
Net income (loss) $ 24,680 $ (77,800) $ 102,480 (131.7) %
Provision for (benefit from) income taxes 12,271 (1,805) 14,076 (779.8) %
Financing expenses 7,665 4,808 2,857 59.4 %
Depreciation 27,986 20,354 7,632 37.5 %
Amortization of intangible assets 14,765 14,135 630 4.5 %
EBITDA $ 87,367 $ (40,308) $ 127,675 (316.7) %
Transaction costs(1) 588 6,249 (5,661) (90.6) %
Earn-out consideration(2) 4,976 - 4,976 100.0 %
Foreign currency losses(3) 16,367 477 15,890 3,331.2 %
Loss (gain) on disposal of assets (18) 54 (72) (133.3) %
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) 55,160 25,014 30,146 120.5 %
Adjusted EBITDA $ 165,261 $ 131,756 $ 33,505 25.4 %
Net Income (Loss) Margin(10) 3.4 % (14.6) %
Adjusted EBITDA Margin(10) 23.0 % 24.7 %
(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 include the effect of fair market value
changes of forward contracts and remeasurement of
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 nine months ended
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Nine months ended September 30,
2022 2021
Net cash provided by operating activities $ 114,464 $ (63,426)
Purchase of property and equipment (36,010) (38,603)
Free Cash Flow$ 78,454 $ (102,029) Conversion of Adjusted EBITDA(1) 47.5 %
(77.4) %
(1) Conversion of Adjusted EBITDA represents Free Cash Flow divided by Adjusted EBITDA.
Liquidity and Capital Resources
As ofSeptember 30, 2022 , our principal sources of liquidity were cash and cash equivalents totaling$122.5 million , which were held for working capital purposes, as well as the available balance of our 2022 Credit Facilities, described further below. Historically, we have made investments in supporting the growth of our business, which were enabled in part by our positive cash flows from operations during these periods. We expect to continue to make similar investments in the future. We have financed our operations primarily through cash received from operations. We believe our existing cash and cash equivalents and our 2022 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 2022 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 2022 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. InSeptember 2022 , our board of directors approved a share repurchase program of up to$100.0 million of shares of our Class A common stock. During the three months endedSeptember 30, 2022 , we repurchased 738,911 shares of our Class A common stock under the share repurchase program for$13.7 million , which we funded principally with available cash. As ofSeptember 30, 2022 , approximately$86.3 million remained available for share repurchases under our share repurchase program.
Indebtedness
As of
2019 Credit Agreement OnSeptember 25, 2019 , we entered into a credit agreement (the "2019 Credit Agreement") that included a$210.0 million term loan (the "2019 Term Loan Facility") and a$40.0 million revolving credit facility (the "2019 Revolving Credit Facility" and, together with the Term Loan Facility, the "2019 Credit Facilities"). OnApril 30, 2021 , we entered into 31
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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. OnSeptember 7, 2022 , we entered into the 2022 Credit Agreement (as defined below) and the total outstanding debt under the 2019 Credit Facilities of$267.2 million was fully repaid.
2022 Credit Agreement
OnSeptember 7, 2022 , we entered into a credit agreement (the "2022 Credit Agreement") with both new and existing lenders which amended and restated the 2019 Credit Agreement. The 2022 Credit Agreement includes a$270.0 million term loan (the "2022 Term Loan Facility") and a$190.0 million revolving credit facility (the "2022 Revolving Credit Facility" and, together with the 2022 Term Loan Facility, the "2022 Credit Facilities"). The proceeds of the 2022 Term Loan Facility were used to repay all borrowings under the 2019 Credit Facilities, to pay related fees and expenses and for general corporate purposes. The 2022 Term Loan Facility matures onSeptember 7, 2027 , and commencing with the fiscal quarter endingDecember 31, 2022 , requires quarterly principal payments of 0.25% of the original principal amount throughSeptember 30, 2023 , 0.625% of the original principal amount throughSeptember 30, 2024 , 1.25% of the original principal amount throughSeptember 30, 2025 , 1.875% of the original principal amount throughSeptember 30, 2026 and 2.50% of the original principal amount thereafter, with the remaining principal due in a lump sum at the maturity date. Voluntary principal prepayments are permitted. The 2022 Revolving Credit Facility provides us with access to a$15.0 million letter of credit facility and a$15.0 million swing line facility, each of which, to the extent used, reduces borrowing availability under the 2022 Revolving Credit Facility. The 2022 Revolving Credit Facility terminates onSeptember 7, 2027 . As ofSeptember 30, 2022 , we had$190.0 million of borrowing availability under the 2022 Revolving Credit Facility. Borrowings under the 2022 Credit Agreement, with the exception of swing line borrowings, bear interest, at our option, either at (i) an adjusted Term Secured Overnight Financing Rate ("SOFR rate") plus a margin of 2.25% per annum, subject to a Term SOFR rate floor of 0.00% or (ii) an alternative base rate plus a margin of 1.25% per annum, subject to an alternative base rate floor of 1.00%. Any borrowings under the swing line will be subject to the base rate. The 2022 Revolving Credit Facility also requires a commitment fee of 0.40% per annum of undrawn commitments to be paid quarterly in arrears. We have elected to pay interest on borrowings under the 2022 Term Loan Facility based on the SOFR rate. The interest rate in effect for the 2022 Term Loan Facility as ofSeptember 30, 2022 was 5.098% per annum. The 2022 Credit Agreement contains a financial covenant requiring compliance with a maximum total net leverage ratio and certain other covenants, including, among other things, covenants restricting additional borrowings, investments (including acquisitions) and distributions. We were in compliance with all debt covenants as ofSeptember 30, 2022 . Substantially all assets of our direct wholly owned subsidiaryTU MidCo, Inc. , its wholly owned subsidiaryTU BidCo, Inc. and its material wholly owned domestic subsidiaries are pledged as collateral under the 2022 Credit Agreement, subject to certain customary 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:
Nine months ended September 30,
(in thousands) 2022 2021
Net cash provided by (used in) operating activities $ 114,464 $ (63,426)
Net cash used in investing activities (59,245) (38,603)
Net cash provided by financing activities 12,854 62,093
Operating Activities
Net cash provided by operating activities for the nine months ended
September 30, 2022 was $114.5 million compared to net cash used in operating
activities of $63.4 million for the nine months ended September 30, 2021 . Net
cash provided by operating activities for the nine months ended September 30,
2022 reflects net income of $24.7 million , as well as the add back for non-cash
charges totaling $112.7 million , primarily driven by $54.8 million in
stock-based compensation expense, $28.0 million of depreciation, $14.8 million
of amortization related to intangibles and $13.5 million of unrealized foreign
exchange losses on forward contracts. These changes were partially offset by
changes in operating assets and liabilities of $22.9 million . Net cash used in
operating activities for the nine months ended September 30, 2021 reflects the
net loss of $77.8 million , which includes the one-time phantom shares bonuses,
as well as changes in operating assets and liabilities of $42.4 million . These
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changes were partially offset by the add back for non-cash charges totaling$56.8 million , primarily driven by$25.0 million in stock-based compensation expense,$20.4 million of depreciation and$14.1 million of amortization related to intangibles, partially offset by deferred taxes of$9.7 million .
Investing Activities
Net cash used in investing activities for the nine months endedSeptember 30, 2022 was$59.2 million compared to net cash used in investing activities of$38.6 million for the nine months endedSeptember 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 nine months endedSeptember 30, 2022 included the acquisition of heloo, net of cash received.
Financing Activities
Net cash provided by financing activities for the nine months endedSeptember 30, 2022 was$12.9 million compared to net cash provided by financing activities of$62.1 million for the nine months endedSeptember 30, 2021 . Net cash provided by financing activities for the nine months endedSeptember 30, 2022 consisted primarily of proceeds from the 2022 Credit Facilities, borrowings from our 2019 Revolving Credit Facility and proceeds from employee stock plans, partially offset by payments on long-term debt, including the repayment of all outstanding borrowings under the 2019 Credit Facilities, payments to acquire shares under our share repurchase program, payments for taxes related to net share settlement of equity awards and payments for debt financing fees. Net cash provided by financing activities for the nine months endedSeptember 30, 2021 consisted of proceeds from the IPO, net of underwriters' fees, partially offset by distribution of dividends, payments for offering costs and payments on long-term debt.
Critical Accounting Policies and Estimates
Except as described in Note 2, "Summary of Significant Accounting Policies" included in this Quarterly Report 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.
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 included in this Quarterly Report.
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