10-Q 1 task-20230930.htm 10-Q task-20230930
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________
FORM 10-Q
_______________________
(Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2023
or
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from_____________to______________
Commission File Number: 001-40482
_______________________
TaskUs, Inc.
(Exact name of registrant as specified in its charter)
_______________________
Delaware83-1586636
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
1650 Independence Drive, Suite 100
New Braunfels, Texas
78132
(Address of principal executive offices)(Zip Code)
(888) 400-8275
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
_______________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A Common Stock, par value $0.01 per shareTASKThe Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). x Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated fileroAccelerated filerx
 
Non-accelerated fileroSmaller reporting companyo
 
Emerging growth companyx
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No
As of November 1, 2023, the number of shares outstanding of the registrant’s common stock was as follows: Class A common stock, par value $0.01 per share: 19,286,977; Class B common stock, par value $0.01 per share: 70,032,694.


TASKUS, INC.
Quarterly Report on Form 10-Q
For Quarterly Period Ended September 30, 2023
Table of Contents
Page No.


CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (this "Quarterly Report") contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which involve certain known and unknown risks and uncertainties. Forward-looking statements include all statements that are not historical facts. In some cases, you can identify these forward-looking statements by the use of words such as "outlook," "believes," "expects," "potential," "continues," "may," "will," "should," "could," "seeks," "predicts," "intends," "trends," "plans," "estimates," "anticipates," "position us," other comparable words, or the negative version of any of these words. Such forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made. We assume no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Our actual results may differ significantly from any results expressed or implied by any forward-looking statements. A summary of the principal risk factors that might cause our actual results to differ from our forward-looking statements is set forth below. The following is only a summary of the principal risks that may materially adversely affect our business, financial condition and results of operations. This summary should be read in conjunction with the more complete discussion of the risk factors we face, which are set forth under Part I, Item 1A, "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2022 (our "Annual Report") as filed with the Securities and Exchange Commission (the "SEC"), as such risk factors may be updated from time to time in our periodic filings with the SEC, which are accessible on the SEC’s website at www.sec.gov. Such risks and uncertainties include, but are not limited to, the following:
Our business is dependent on key clients, and the loss of a key client could have an adverse effect on our business and results of operations.
Our clients may terminate contracts before completion or choose not to renew contracts and a loss of business or non-payment from clients could materially affect our results of operations.
We may fail to cost-effectively acquire and retain new clients, which would adversely affect our business, financial condition and results of operations.
If we provide inadequate service or cause disruptions in our clients’ businesses or fail to comply with the quality standards required by our clients under our agreements, it could result in significant costs to us, the loss of our clients and damage to our corporate reputation.
Unauthorized or improper disclosure of personal or other sensitive information, or security breaches and incidents, whether inadvertent or purposeful, including as the result of a cyber-attack, could result in liability and harm our reputation, each of which could adversely affect our business, financial condition, results of operations and prospects.
Trust and Safety, including content monitoring and moderation services, is a large portion of our business. The long term impacts on the mental health and well-being of our employees doing this work are unknown. This work may lead to stress disorders and may create liabilities for us. This work is also subject to significant press and regulatory scrutiny. As a result, we may be subject to negative publicity or liability, or face difficulties recruiting and retaining employees, any of which could have an adverse effect on our reputation, business, financial condition and results of operations.
Our failure to detect and deter criminal or fraudulent activities or other misconduct by our employees, or third parties such as contractors and consultants that may have access to our data, could result in loss of trust from our clients and negative publicity, which would have an adverse effect on our business and results of operations.
Global economic and political conditions, especially in the social media and meal delivery and transport industries from which we generate significant revenue, could adversely affect our business, results of operations, financial condition and prospects.
Our business is heavily dependent upon our international operations, particularly in the Philippines and India, and any disruption to those operations would adversely affect us.
Our business is subject to a variety of U.S. federal and state, as well as international laws and regulations, including those regarding data privacy and security, and we or our clients may be subject to regulations related to the processing of certain types of sensitive and confidential information. Any failure to comply with applicable data privacy and security laws and regulations could harm our business, results of operations and financial condition.
Our business prospects will suffer if we are unable to continue to anticipate our clients’ needs by adapting to market and technology trends, investing in technology as it develops, and adapting our services and solutions to changes in technology and client expectations.     
Fluctuations against the U.S. dollar in the local currencies in the countries in which we operate could have a material effect on our results of operations.
Our business depends on a strong brand and corporate reputation, and if we are not able to maintain and enhance our brand, our ability to expand our client base will be impaired and our business and operating results will be adversely affected.
Pricing pressure may reduce our revenue or gross profits and adversely affect our financial results.
Our results of operations have been, and could in the future be, adversely affected by volatile, unfavorable or uncertain economic and political conditions, particularly in the markets in which our clients and operations are concentrated, and the effects of these conditions on our clients’ businesses.
The success of our business depends on our senior management and key employees.
The COVID-19 pandemic, including the resulting global economic uncertainty and measures taken in response to the pandemic, has adversely impacted our business, financial condition and results of operations.
Increases in employee expenses as well as changes to labor laws could reduce our profit margin.
We may fail to attract, hire, train and retain sufficient numbers of skilled employees in a timely fashion at our sites to support our operations, which could have a material adverse effect on our business, financial condition, results of operations and prospects.
Our business relies heavily on owned and third-party technology and computer systems, which subjects us to various uncertainties.
Our profitability will suffer if we are not able to maintain asset utilization levels, price appropriately and control our costs.
Our Sponsor and our Co-Founders control us and their interests may conflict with ours or yours in the future.
The dual class structure of our common stock has the effect of concentrating voting control with those stockholders who held our common stock prior to the completion of our June 2021 initial public offering ("IPO"), and it may depress the trading price of our Class A common stock.
The market price of shares of our Class A common stock has been, and may continue to be, volatile and may decline regardless of our operating performance, which could cause the value of your investment to decline.
We urge you to carefully consider the foregoing summary together with the risks discussed under "Risk Factors" in the Annual Report, and in Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations in this Quarterly Report.
1

WEBSITE AND SOCIAL MEDIA DISCLOSURE
We use our website and our social media outlets, such as Facebook, Instagram, LinkedIn, TikTok, YouTube, and X (formerly known as Twitter) as channels of distribution of Company information. The information we post through these channels may be deemed material. Financial and other important information regarding the Company is routinely posted on and accessible through the Company’s website at ir.taskus.com, its Facebook page at facebook.com/TaskUs/, its Instagram page at instagram.com/taskus/, its LinkedIn page at linkedin.com/company/taskus/, its TikTok page at tiktok.com/@taskusinc, its YouTube account at youtube.com/c/Taskus/, and its X account at twitter.com/taskus. Accordingly, investors should monitor these channels, in addition to following the Company's press releases, SEC filings and public conference calls and webcasts. In addition, you may automatically receive email alerts and other information about the Company when you enroll your email address by visiting the “Email Alerts” section of our investor relations website at ir.taskus.com. The contents of our website and social media channels are not, however, a part of this Quarterly Report.
2

PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
TASKUS, INC.
Unaudited Condensed Consolidated Balance Sheets
(in thousands, except share data)
AssetsSeptember 30,
2023
December 31,
2022
Current assets:
Cash and cash equivalents$114,616 $133,992 
Accounts receivable, net of allowance for doubtful accounts of $1,909 and $3,422, respectively
179,120 178,678 
Income tax receivable5,639 2,879 
Prepaid expenses and other current assets25,897 25,876 
Total current assets325,272 341,425 
Noncurrent assets:
Property and equipment, net74,495 75,053 
Operating lease right-of-use assets43,297 41,510 
Deferred tax assets6,406 6,165 
Intangibles197,636 212,993 
Goodwill217,170 217,382 
Other noncurrent assets6,503 7,487 
Total noncurrent assets545,507 560,590 
Total assets$870,779 $902,015 
Liabilities and Shareholders’ Equity
Liabilities:
Current liabilities:
Accounts payable and accrued liabilities$34,898 $37,062 
Accrued payroll and employee-related liabilities44,898 48,663 
Current portion of debt6,372 3,334 
Current portion of operating lease liabilities14,723 11,614 
Current portion of income tax payable7,082 5,730 
Deferred revenue3,199 3,481 
Total current liabilities111,172 109,884 
Noncurrent liabilities:
Income tax payable2,286 2,293 
Long-term debt259,446 264,225 
Operating lease liabilities31,516 32,380 
Accrued payroll and employee-related liabilities2,973 2,818 
Deferred tax liabilities34,495 34,514 
Other noncurrent liabilities143 288 
Total noncurrent liabilities330,859 336,518 
Total liabilities442,031 446,402 
Commitments and Contingencies (See Note 10)
Shareholders’ equity:
Class A common stock, $0.01 par value. Authorized 2,500,000,000; 30,328,882 issued and 20,523,884 outstanding and 29,257,651 issued and 27,607,720 outstanding, respectively
304 293 
Class B convertible common stock, $0.01 par value. Authorized 250,000,000; 70,032,694 and 70,032,694 shares issued and outstanding, respectively
700 700 
Additional paid-in capital672,753 631,908 
Accumulated deficit(106,261)(135,674)
Accumulated other comprehensive loss(14,316)(10,647)
Treasury stock, at cost. 9,804,998 and 1,649,931 shares, respectively
(124,432)(30,967)
Total shareholders’ equity428,748 455,613 
Total liabilities and shareholders’ equity$870,779 $902,015 
See accompanying notes to unaudited condensed consolidated financial statements.
3

TASKUS, INC.
Unaudited Condensed Consolidated Statements of Operations
(in thousands, except share and per share data)
Three months ended September 30,Nine months ended September 30,
2023202220232022
Service revenue$225,626 $232,130 $690,101 $718,269 
Operating expenses:
Cost of services130,139 134,544 401,455 419,364 
Selling, general, and administrative expense57,114 62,348 179,583 195,514 
Depreciation9,762 9,428 29,502 27,986 
Amortization of intangible assets5,027 5,087 15,276 14,765 
Loss (gain) on disposal of assets640 (8)772 (18)
Total operating expenses202,682 211,399 626,588 657,611 
Operating income22,944 20,731 63,513 60,658 
Other expense, net2,895 7,612 34 16,042 
Financing expenses5,712 3,859 16,141 7,665 
Income before income taxes14,337 9,260 47,338 36,951 
Provision for income taxes4,565 3,895 17,925 12,271 
Net income$9,772 $5,365 $29,413 $24,680 
Net income per common share:
Basic$0.11 $0.05 $0.31 $0.25 
Diluted$0.10 $0.05 $0.30 $0.24 
Weighted-average number of common shares outstanding:
Basic92,480,316 98,299,612 95,522,026 97,854,944 
Diluted94,035,111 101,920,413 97,729,230 103,073,208 
See accompanying notes to unaudited condensed consolidated financial statements.
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TASKUS, INC.
Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
Three months ended September 30,Nine months ended September 30,
2023202220232022
Net income$9,772 $5,365 $29,413 $24,680 
Retirement benefit reserves(14)28 13 65 
Foreign currency translation adjustments(3,559)(7,613)(3,682)(15,490)
Comprehensive income (loss)$6,199 $(2,220)$25,744 $9,255 
See accompanying notes to unaudited condensed consolidated financial statements.
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TASKUS, INC.
Unaudited Condensed Consolidated Statements of Shareholders’ Equity
(in thousands, except share data)
Capital stock and additional paid-in capitalAccumulated
deficit
Accumulated
other
comprehensive
loss
Total
shareholders’
equity
Class A common stockClass B convertible common stockAdditional
paid-in
capital
Treasury stock
SharesAmountSharesAmountSharesAmount
Balance as of December 31, 2021
27,431,264 $275 70,032,694 $700 $556,418 $(176,096)$(2,163) $ $379,134 
Issuance of common stock for settlement of equity awards137,794 1 — — (1)— — — —  
Shares withheld related to net share settlement(45,389)(1)— — (1,468)— — — — (1,469)
Stock-based compensation expense— — — — 19,605 — — — — 19,605 
Net income— — — — — 11,586 — — — 11,586 
Other comprehensive loss— — — — — — (1,756)— — (1,756)
Balance as of March 31, 2022
27,523,669 $275 70,032,694 $700 $574,554 $(164,510)$(3,919) $ $407,100 
Issuance of common stock for settlement of equity awards450,304 5 — — 915 — — — — 920 
Shares withheld related to net share settlement(76,908)(1)— — (1,307)— — — — (1,308)
Shares issued in acquisition of heloo200,103 2 — — 7,194 — — — — 7,196 
Stock-based compensation expense— — — — 18,933 — — — — 18,933 
Net income— — — — — 7,729 — — — 7,729 
Other comprehensive loss— — — — — — (6,084)— — (6,084)
Balance as of June 30, 2022
28,097,168 $281 70,032,694 $700 $600,289 $(156,781)$(10,003) $ $434,486 
Issuance of common stock for settlement of equity awards774,758 8 — — 1,289 — — — — 1,297 
Shares withheld related to net share settlement(60,694)(1)— — (1,159)— — — — (1,160)
Repurchase of common stock— — — — — — — 738,911 (13,702)(13,702)
Stock-based compensation expense— — — — 16,226 — — — — 16,226 
Net income— — — — — 5,365 — — — 5,365 
Other comprehensive loss— — — — — — (7,585)— — (7,585)
Balance as of September 30, 2022
28,811,232 $288 70,032,694 $700 $616,645 $(151,416)$(17,588)738,911 $(13,702)$434,927 

Capital stock and additional paid-in capitalAccumulated
deficit
Accumulated
other
comprehensive
loss
Total
shareholders’
equity
Class A common stockClass B convertible common stockAdditional
paid-in
capital
Treasury stock
SharesAmountSharesAmountSharesAmount
Balance as of December 31, 2022
29,257,651 $293 70,032,694 $700 $631,908 $(135,674)$(10,647)1,649,931 $(30,967)$455,613 
Issuance of common stock for settlement of equity awards246,537 2 — — 207 — — — — 209 
Shares withheld related to net share settlement(14,293)— — — (257)— — — — (257)
Repurchase of common stock— — — — — — — 389,801 (6,374)(6,374)
Stock-based compensation expense— — — — 13,464 — — — — 13,464 
Net income— — — — — 9,509 — — — 9,509 
Other comprehensive income— — — — — — 3,591 — — 3,591 
Balance as of March 31, 2023
29,489,895 $295 70,032,694 $700 $645,322 $(126,165)$(7,056)2,039,732 $(37,341)$475,755 
Issuance of common stock for settlement of equity awards338,035 3 — — 187 — — — — 190 
Shares withheld related to net share settlement(23,705)— — — (293)— — — — (293)
Repurchase of common stock— — — — — — — 3,223,283 (38,338)(38,338)
Stock-based compensation expense— — — — 15,040 — — — — 15,040 
Net income— — — — — 10,132 — — — 10,132 
Other comprehensive loss— — — — — — (3,687)— — (3,687)
Balance as of June 30, 2023
29,804,225 $298 70,032,694 $700 $660,256 $(116,033)$(10,743)5,263,015 $(75,679)$458,799 
Issuance of common stock for settlement of equity awards661,158 7 — — 148 — — — — 155 
Shares withheld related to net share settlement(136,501)(1)— — (1,484)— — — — (1,485)
Repurchase of common stock— — — — — — — 4,541,983 (48,753)(48,753)
Stock-based compensation expense— — — — 13,833 — — — — 13,833 
Net income— — — — — 9,772 — — — 9,772 
Other comprehensive loss— — — — — — (3,573)— — (3,573)
Balance as of September 30, 2023
30,328,882 $304 70,032,694 $700 $672,753 $(106,261)$(14,316)9,804,998 $(124,432)$428,748 
    
See accompanying notes to unaudited condensed consolidated financial statements.
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TASKUS, INC.
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
Nine months ended September 30,
20232022
Cash flows from operating activities:
Net income$29,413 $24,680 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation29,502 27,986 
Amortization of intangibles15,276 14,765 
Amortization of debt financing fees447 420 
Loss (gain) on disposal of assets772 (18)
Provision for losses on accounts receivable 1,329 
Unrealized foreign exchange losses on forward contracts6,020 13,522 
Deferred taxes(255)(39)
Stock-based compensation expense42,337 54,764 
Changes in operating assets and liabilities:
Accounts receivable(680)(6,995)
Prepaid expenses and other current assets(4,403)(8,022)
Operating lease right-of-use assets10,670 9,762 
Other noncurrent assets(123)(522)
Accounts payable and accrued liabilities(9,063)(3,941)
Accrued payroll and employee-related liabilities(4,093)10,477 
Operating lease liabilities(10,217)(9,146)
Income tax payable(1,278)(13,918)
Deferred revenue(278)(738)
Other noncurrent liabilities(152)98 
Net cash provided by operating activities103,895 114,464 
Cash flows from investing activities:
Purchase of property and equipment(22,904)(36,010)
Acquisition, net of cash acquired (23,235)
Investment in loan receivable(1,000) 
Net cash used in investing activities(23,904)(59,245)
Cash flows from financing activities:
Proceeds from borrowings, Revolving credit facility 32,500 
Proceeds from long-term debt 270,000 
Payments for deferred business acquisition consideration(145) 
Payments on long-term debt(2,025)(272,403)
Payments for debt financing fees (1,821)
Proceeds from employee stock plans554 2,217 
Payments for taxes related to net share settlement(2,035)(3,937)
Payments for stock repurchases(92,683)(13,702)
Net cash provided by (used in) financing activities(96,334)12,854 
Increase (decrease) in cash and cash equivalents(16,343)68,073 
Effect of exchange rate changes on cash and cash equivalents(3,033)(9,166)
Cash and cash equivalents at beginning of period133,992 63,584 
Cash and cash equivalents at end of period$114,616 $122,491 
See accompanying notes to unaudited condensed consolidated financial statements.
7

TASKUS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
1. Description of Business and Organization
TaskUs, Inc. ("TaskUs," together with its subsidiaries, the "Company," "we," "us" or "our") was formed by investment funds affiliated with Blackstone Inc. (“Blackstone”) as a vehicle for the acquisition of TaskUs Holdings, Inc. ("TaskUs Holdings") on October 1, 2018 (the "Blackstone Acquisition"). Prior to the Blackstone Acquisition, TaskUs had no operations and TaskUs Holdings operated as a standalone entity. TaskUs, Inc. was incorporated in Delaware in July 2018, and is headquartered in New Braunfels, Texas.
The Company is a provider of outsourced digital services and next-generation customer experience to the world’s most innovative companies, helping its clients represent, protect and grow their brands. The Company’s global, omni-channel delivery model is focused on providing its clients three key services - Digital Customer Experience, Trust and Safety and Artificial Intelligence ("AI") Services. The Company has designed its platform to enable it to rapidly scale and benefit from its clients’ growth. Through its agile and responsive operational model, the Company delivers services from multiple delivery sites that span globally from the United States, Philippines, India and other parts of the world.
The Company’s major service offerings are described in more detail below:
Digital Customer Experience: Principally consists of omni-channel customer care services, primarily delivered through digital (non-voice) channels.
Trust and Safety: Principally consists of review and disposition of user and advertiser generated visual, text and audio content for purposes which include removal or labeling of policy violating, offensive or misleading content. Also included in this area are our offerings for risk management, compliance, identity management and fraud.
AI Services: Principally consists of high-quality data labeling services, annotation, context relevance and transcription services performed for the purpose of training and tuning machine learning algorithms, enabling them to develop cutting-edge AI systems.
2. Summary of Significant Accounting Policies
(a) Basis of Presentation
The accounting and reporting policies of the Company are in accordance with accounting principles generally accepted in the United States of America ("US GAAP"). Our Annual Report on Form 10-K for the year ended December 31, 2022 (the "Annual Report"), as filed with the Securities and Exchange Commission (the "SEC"), includes a discussion of the significant accounting policies used in the preparation of our consolidated financial statements. There have been no changes to the Company’s significant accounting policies described in the Annual Report that have had a material impact on the Company’s condensed consolidated financial statements and related notes.
These unaudited condensed consolidated financial statements and accompanying notes have been prepared in accordance with US GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by US GAAP for complete financial statements and should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2022 included in the Annual Report. In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of its financial position as of September 30, 2023 and its results of operations, comprehensive income (loss) and shareholders’ equity for the three and nine months ended September 30, 2023 and 2022, and cash flows for the nine months ended September 30, 2023 and 2022. The condensed consolidated balance sheet as of December 31, 2022, was derived from audited annual financial statements but does not contain all of the footnote disclosures from the annual financial statements.
The Company has made certain reclassifications to prior period consolidated financial statements to conform to current period presentation. India, which was previously included in Rest of World, is now reported separately within revenue disaggregation by geographical location. Other receivables, Prepaid expenses and Other current assets have been combined into Prepaid expenses and other current assets.
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(b) Use of Estimates
The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant items subject to such estimates and assumptions include: the determination of useful lives and impairment of fixed assets; allowances for doubtful accounts and other receivables; the valuation of deferred tax assets; the measurement of lease liabilities and right-of-use assets; valuation of forward contracts; valuation of stock-based compensation; valuation of acquired intangible assets and goodwill, as well as related impairment assessments; and reserves for income tax uncertainties and other contingencies.
(c) Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. The Company has no variable interest entities in its corporate structure.
(d) Concentration Risk
Most of the Company’s clients are located in the United States. Clients outside of the United States are concentrated in Europe.
For the three and nine months ended September 30, 2023 and 2022, the following client represented greater than 10% of the Company’s service revenue:
ClientService revenue percentage
Three months ended September 30,Nine months ended September 30,
2023202220232022
A19 %22 %19 %23 %
As of September 30, 2023 and December 31, 2022, the following clients represented greater than 10% of the Company’s accounts receivable:
Accounts receivable percentage
ClientSeptember 30, 2023December 31, 2022
A17 %17 %
B10 %13 %
The Company’s principal operations, including the majority of its employees and the fixed assets owned by its wholly owned subsidiaries, are located in the Philippines.
(e) Recent Accounting Pronouncements
The Company currently qualifies as an "emerging growth company" under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Accordingly, the Company is provided the option to adopt new or revised accounting guidance either (i) within the same periods as those otherwise applicable to non-emerging growth companies or (ii) within the same time periods as private companies. The Company has elected to adopt new or revised accounting guidance within the same time period as private companies.
Recently adopted accounting pronouncements
In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"). The revised standard relates to measurement of credit losses on financial instruments, and requires financial assets measured at amortized cost to be presented at the net amount expected to be collected. The guidance replaces the incurred loss model with an expected loss model referred to as current expected credit loss ("CECL"). The CECL model requires us to measure lifetime expected credit losses for financial instruments held at the reporting date using historical experience, current conditions and reasonable supportable forecasts. The guidance expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating credit losses and requires new disclosures of the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination. The company adopted this standard as of January 1, 2023. The adoption of ASU 2016-13 did not have a material impact on the Company’s consolidated financial statements.
9

3. Business Combination
On April 15, 2022 (the "Closing Date"), the Company completed the acquisition of 100% of the equity interests of Parsec d.o.o. and Q Experience d.o.o. (collectively, "heloo") for $35.4 million. The former shareholders of heloo are also eligible to receive contingent earn-out payments not to exceed €20 million, based on performance compared to prescribed EBITDA targets outlined in the purchase agreement during each of the one year periods ending April 30, 2023 and 2024, respectively. The total fair value of remaining contingent earn-out payments was determined to be immaterial and $14.9 million as of September 30, 2023 and December 31, 2022, respectively, based on a Monte Carlo simulation model, utilizing a discounted payout analysis based on probabilities and timing of achieving the prescribed targets. Since these payments were contingent on future service conditions, they were recognized as compensation expense ratably over the required service period. Since the service conditions have been met, future changes will be based only on updates to the expected achievement. The Company recognized compensation expense related to the contingent earn-out payments included in selling, general, and administrative expenses of $(0.1) million and $7.9 million for the three and nine months ended September 30, 2023, respectively, and $3.6 million and $5.0 million for the three and nine months ended September 30, 2022. The Company paid $18.3 million related to the contingent earn-out during the nine months ended September 30, 2023, which is included in net cash provided by operating activities. The Company paid $0.1 million related to holdback cash consideration during the nine months ended September 30, 2023, which is included in payments for deferred business acquisition consideration.
4. Revenue from Contracts with Customers
Disaggregation of Revenue
The Company's revenues are derived from contracts with customers related to business outsourcing services that it provides. The following table presents the breakdown of the Company’s revenues by service offering:
Three months ended September 30,Nine months ended September 30,
(in thousands)2023202220232022
Digital Customer Experience$145,952 $151,474 $454,004 $478,625 
Trust and Safety48,687 43,910 134,494 136,093 
AI Services30,987 36,746 101,603 103,551 
Service revenue$225,626 $232,130 $690,101 $718,269 
The majority of the Company’s revenues are derived from contracts with customers who are located in the United States. However, the Company delivers its services from geographies outside of the United States. The following table presents the breakdown of the Company’s revenues by geographical location, based on where the services are provided from:
Three months ended September 30,Nine months ended September 30,
(in thousands)2023202220232022
Philippines$126,419 $127,507 $380,539 $371,909 
United States32,421 49,040 116,318 202,444 
India29,379 27,057 86,617 74,692 
Rest of World37,407 28,526 106,627 69,224 
Service revenue$225,626 $232,130 $690,101 $718,269 
Contract Balances
Accounts receivable, net of allowance for doubtful accounts includes $79.8 million and $80.8 million of unbilled revenues as of September 30, 2023 and December 31, 2022, respectively.
5. Forward Contracts and Fair Value Measurement
The Company transacts business in various foreign currencies and has international sales and expenses denominated in foreign currencies, subjecting the Company to foreign currency exchange rate risk. During 2023 and 2022, the Company entered into foreign currency exchange rate forward contracts, with three commercial banks as the counterparties, with maturities of generally 12 months or less, to reduce the volatility of cash flows primarily related to forecasted costs denominated in Philippine pesos and Indian rupees. In addition, the Company utilizes foreign currency exchange rate contracts to mitigate foreign currency exchange rate risk associated with foreign currency-denominated assets and liabilities, primarily intercompany balances. The Company does not use foreign currency exchange rate contracts for trading purposes. The exchange rate forward contracts entered into by the Company are not designated as hedging instruments. Any gains or losses resulting from changes in the fair value of these contracts are recognized in other expense, net in the statements of operations.
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The forward contract receivable (payable) resulting from changes in fair value was recorded under prepaid expenses and other current assets (accounts payable and accrued liabilities).
The following table presents the Company's settled forward contracts and realized and unrealized losses (gains) associated with derivative contracts:
Three months ended September 30,Nine months ended September 30,
(in thousands)2023202220232022
Notional amount of settled forward contracts in Philippine pesos$46,800 $51,247 $175,050 $139,646 
Notional amount of settled forward contracts in Indian rupees11,447  18,545  
Total notional amount of settled forward contracts$58,247 $51,247 $193,595 $139,646 
Realized losses (gains) from settlement of forward contracts$(3,386)$4,474 $(3,561)$8,017 
Unrealized losses on forward contracts$7,669 $6,070 $6,020 $13,522 
The following table presents the Company's outstanding forward contracts:
(in thousands)September 30,
2023
December 31,
2022
Notional amount of outstanding forward contracts in Philippine pesos$133,618 $175,050 
Notional amount of outstanding forward contracts in Indian rupees35,298  
Total notional amount of outstanding forward contracts$168,916 $175,050 
By entering into derivative contracts, the Company is exposed to counterparty credit risk, or the failure of the counterparty to perform under the terms of the derivative contract. For the periods presented, the non-performance risk of the Company and the counterparties did not have a material impact on the fair value of the derivative instruments.
The Company has implemented the fair value accounting standard for those assets and liabilities that are re-measured and reported at fair value at each reporting period. This standard establishes a single authoritative definition of fair value, sets out a framework for measuring fair value based on inputs used, and requires additional disclosures about fair value measurements. This standard applies to fair value measurements already required or permitted by existing standards.
In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets. Fair values determined by Level 2 inputs utilize data points that are observable such as quoted prices, interest rates and yield curves. Fair values determined by Level 3 inputs are unobservable data points for the asset and include situations where there is little, if any, market activity for the asset.
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For financial statement presentation purposes, the Company offsets assets and liabilities for forward contracts with the same counterparty that it has the right and intent to net settle upon maturity; however, it does not offset assets and liabilities under master netting arrangements that it does not intend to net settle. The following table presents information about the Company’s assets and liabilities that are measured at fair value on a recurring basis, and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value, at September 30, 2023 and December 31, 2022:
September 30, 2023
Fair value measurements usingTotal Gross Fair ValueEffect of Counter-party NettingNet Amounts on Balance Sheet
Effect of Master Netting Arrangements
Net Amounts
(in thousands)Level 1
inputs
Level 2
inputs
Level 3
inputs
Assets
Forward contracts receivable$ $62 $ $62 $ $62 $(62)$ 
Liabilities
Forward contracts payable$ $4,286 $ $4,286 $ $4,286 $(62)$4,224 
December 31, 2022
Fair value measurements usingTotal Gross Fair ValueEffect of Counter-party NettingNet Amounts on Balance Sheet
Effect of Master Netting Arrangements
Net Amounts
(in thousands)Level 1 inputsLevel 2 inputs
Level 3 inputs
 
Assets
Money market funds$6,069 $ $ $6,069 $— $6,069 $— $6,069 
Forward contracts receivable
$ $4,845 $ $4,845 $(518)$4,327 $(1,778)$2,549 
Liabilities
Forward contracts payable
$ $3,049 $ $3,049 $(518)$2,531 $(1,778)$753 
The Company’s derivatives are carried at fair value using various pricing models that incorporate observable market inputs, such as interest rate yield curves and currency rates, which are Level 2 inputs. Derivative valuations incorporate credit risk adjustments that are necessary to reflect the probability of default by the counterparty or by the Company.
6. Property and Equipment, net
The components of property and equipment, net as of September 30, 2023 and December 31, 2022 were as follows:
(in thousands)September 30,
2023
December 31,
2022
Leasehold improvements$65,331 $53,950 
Technology and computers100,842 95,189 
Furniture and fixtures6,446 6,173 
Construction in process3,173 4,640 
Other property and equipment13,550 10,828 
Property and equipment, gross189,342 170,780 
Accumulated depreciation(114,847)(95,727)
Property and equipment, net$74,495 $75,053 
The Company’s principal operations are in the Philippines where the majority of property and equipment resides under its wholly owned subsidiaries. The table below presents the Company’s total property and equipment by geographic location as of September 30, 2023 and December 31, 2022:
(in thousands)September 30,
2023
December 31,
2022
Philippines$33,462 $42,153 
United States8,618 9,136 
India19,209 15,482 
Rest of World13,206 8,282 
Property and equipment, net$74,495 $75,053 
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7. Goodwill and Intangibles
The changes in the carrying amount of goodwill during the period were as follows:
(in thousands)
Balance as of December 31, 2022
$217,382 
Foreign currency translation(212)
Balance as of September 30, 2023
$217,170 
The components of intangible assets as of September 30, 2023 and December 31, 2022 were as follows:
September 30, 2023December 31, 2022
(in thousands)Intangibles,
Gross
Accumulated
Amortization
Intangibles,
Net
Intangibles,
Gross
Accumulated
Amortization
Intangibles,
Net
Customer relationships$251,433 $(81,817)$169,616 $251,539 $(68,987)$182,552 
Trade names42,219 (14,199)28,020 42,222 (11,986)30,236 
Other intangibles372 (372) 410 (205)205 
Total$294,024 $(96,388)$197,636 $294,171 $(81,178)$212,993 
8. Long-Term Debt
The balances of current and noncurrent portions of debt consist of the following as of September 30, 2023 and December 31, 2022:
September 30, 2023December 31, 2022
(in thousands)CurrentNoncurrentTotalCurrentNoncurrentTotal
Term Loan$6,750 $260,550 $267,300 $3,712 $265,613 $269,325 
Less: Debt financing fees(378)(1,104)(1,482)(378)(1,388)(1,766)
Total$6,372 $259,446 $265,818 $3,334 $264,225 $267,559 
2022 Credit Agreement
On September 7, 2022, the Company entered into a credit agreement (the "2022 Credit Agreement") with both new and existing lenders which amended and restated its previous 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 2022 Term Loan Facility matures on September 7, 2027, and commencing with the fiscal quarter ending December 31, 2022, requires quarterly principal payments of 0.25% of the original principal amount through September 30, 2023, 0.625% of the original principal amount through September 30, 2024, 1.25% of the original principal amount through September 30, 2025, 1.875% of the original principal amount through September 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 the Company 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 on September 7, 2027. As of September 30, 2023, we had no balance outstanding and $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 of September 30, 2023 was 7.674% 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 of September 30, 2023. Substantially all assets of our direct wholly owned subsidiary TU MidCo, Inc., its wholly owned subsidiary, TU BidCo, Inc. and its material wholly owned domestic subsidiaries are pledged as collateral under the 2022 Credit Agreement, subject to certain customary exceptions.
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9. Leases
The following table presents operating lease costs recorded to cost of services:
Three months ended September 30,Nine months ended September 30,
(in thousands)2023202220232022
Operating lease costs - Cost of services$4,266 $3,739 $12,801 $11,351 
Operating lease costs recorded to selling, general, and administrative expenses were immaterial.
The following table presents the weighted average remaining lease term and weighted average discount rate for the Company's operating leases as of September 30, 2023 and December 31, 2022:
September 30, 2023December 31, 2022
Weighted average remaining lease term3.7 years4.1 years
Weighted average discount rate6.0 %5.3 %
The following table presents supplemental cash flow information related to the Company's operating leases:
Nine months ended September 30,
(in thousands)20232022
Cash paid for amounts included in the measurement of operating lease liabilities$12,487 $10,822 
ROU assets obtained in exchange for operating lease liabilities14,725 7,041 
The future lease payments on the Company's operating lease liabilities as of September 30, 2023 were as follows:
(in thousands)
2023-remainder of year$4,471 
202416,128 
202513,661 
20268,704 
20275,189 
Thereafter3,774 
     Total lease payments51,927 
Less: imputed interest(5,688)
     Total lease liabilities$46,239 
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10. Commitments and Contingencies
We are subject to various legal proceedings, claims, and litigation arising in the ordinary course of business. Although the outcomes of such matters cannot be predicted with certainty, we believe that resolution of all such pending matters will not, either individually or in the aggregate, have a material adverse effect on the Company’s business, operating results, cash flows, or financial condition.
On February 23, 2022, a purported class action lawsuit captioned Lozada v. TaskUs, Inc. et al., No. 22-cv-1479-JPC, was filed in the United States District Court for the Southern District of New York against the Company, our Chief Executive Officer, our President, and our Chief Financial Officer. The complaint alleges that the registration statement filed in connection with the Company’s IPO and the Company’s second and third quarter 2021 earnings calls contained materially false and misleading information in violation of the federal securities laws. On October 20, 2022, the Court entered an order appointing Humberto Lozada as lead plaintiff in the lawsuit. On December 16, 2022, lead plaintiff filed an amended complaint, alleging additional misstatements in certain of the Company’s 2021 earnings releases filed on Form 8-K and at an investor conference, and asserting additional securities claims, including against members of TaskUs’s board of directors as well as BCP FC Aggregator L.P. The complaint seeks unspecified damages and an award of costs and expenses, including reasonable attorneys’ fees, as well as equitable relief. We believe that the lawsuit is without merit and intend to defend the lawsuit vigorously. On February 17, 2023, TaskUs filed a motion to dismiss, which is currently pending. On September 28, 2023, the court heard oral argument on the motion to dismiss. On September 29, 2023, the court issued a stay of this action. On October 16, 2023, the plaintiffs voluntarily dismissed with prejudice certain claims based on certain theories of liability. On October 17, 2023, the Court lifted the stay of the action. We cannot predict at this point the length of time that this action will be ongoing or the liability, if any, which may arise therefrom.
The Company is currently defending two lawsuits that present in large degree the same legal or factual issues, with allegations that are similar in nature. We believe that these two lawsuits are without merit and intend to defend each vigorously. We cannot predict at this point the length of time that these actions will be ongoing or the liability, if any, which may arise therefrom. As these actions are still in preliminary phases, any potential loss or impact on financial position or results of operations cannot yet be estimated:
On April 1, 2022, a purported class action lawsuit captioned Gregory Forsberg, Christopher Gunter, Samuel Kissinger, and Scott Sipprell vs. TaskUs, Inc. and Shopify, Inc., Shopify Holdings (USA), Inc., Shopify (USA) Inc., No. 1:22-cv-00436-UNA, was filed in the United States District Court for the District of Delaware. The complaint alleges the named defendants failed to exercise reasonable care in securing and safeguarding consumer information in connection with a 2020 data breach impacting Ledger SAS cryptocurrency hardware wallets, resulting in the unauthorized public release of approximately 272,000 pieces of detailed personally identifiable information, including Plaintiffs’ and class members’ full names, email addresses, postal addresses, and telephone numbers. The four named plaintiffs allege aggregate losses of approximately $140,000, and allege that the damages exceed $5 million for purposes of class action jurisdiction. On April 8, 2022, we filed a motion to dismiss, which is currently pending. This case is currently stayed.
On September 16, 2022, a lawsuit captioned My Choice Software, LLC vs. TaskUs, Inc., Tassilo Heinrich, Shopify, Inc., Shopify Holdings (USA) Inc., Shopify (USA) Inc., Does 1-50, No. 22-cv-1710 was filed in the United States District Court, Central District of California. The complaint alleges the defendants profited off of the plaintiff's information. The complaint seeks unspecified damages and an award of costs and expenses, including reasonable attorneys’ fees, as well as equitable and injunctive relief. On February 13, 2023, we filed a motion to dismiss the amended complaint. In May 2023, the Court issued an Order dismissing certain parties, staying the case as to the Company and denying as moot the Company's previously filed motion to dismiss. This case is currently stayed.
Indemnification
In addition, in the ordinary course of business, we enter into agreements of varying scope and terms pursuant to which we agree to indemnify clients, vendors and other business partners with respect to certain matters, including, but not limited to, losses arising out of breach of such agreements, cybersecurity breach, services to be provided by us or from intellectual property infringement claims made by third parties. Historically, we have not experienced significant losses on these types of indemnification obligations.
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11. Stock-Based Compensation
The following table summarizes the stock option and restricted stock unit ("RSU") activity for the nine months ended September 30, 2023:
OptionsRSUs
Number of
options
Weighted -
average
exercise price
Number of
RSUs
Weighted -
average
grant date fair value
Outstanding at January 1, 2023
7,723,711 $12.98 3,895,224 $28.00 
Granted
770,937 $18.11 1,671,414 $17.03 
Exercised or released(140,216)$3.95 (1,105,514)$25.68 
Forfeited, cancelled or expired(741,741)$7.61 (360,702)$25.25 
Outstanding at September 30, 2023
7,612,691 $14.19 4,100,422 $24.39 
The weighted-average grant-date fair value of options granted during the nine months ended September 30, 2023 was $8.85. There were 3,373,417 performance stock units ("PSUs") outstanding at January 1, 2023 and September 30, 2023.
The following table summarizes the components of stock-based compensation expense recognized for the periods presented:
Three months ended September 30,Nine months ended September 30,
(in thousands)2023202220232022
Cost of services$687 $1,149 $2,602 $2,689 
Selling, general, and administrative expense13,146 15,077 39,735 52,075 
Total$13,833 $16,226 $42,337 $54,764 
As of September 30, 2023, there was $10.2 million, $44.2 million and $3.0 million of unrecognized compensation expense related to the Company’s unvested stock options, RSUs and PSUs, respectively, that is expected to be recognized over a weighted-average period of 1.0 year, 1.3 years and 1.4 years.
12. Income Taxes
In determining its interim provision for income taxes, the Company used an estimated annual effective tax rate, which is based on expected income before taxes, statutory tax rates and tax planning opportunities available in the various jurisdictions in which the Company operates. Certain significant or unusual items are separately recognized in the period in which they occur and can be a source of variability in the effective tax rate from quarter to quarter.
The Company recorded provision for income taxes of $4.6 million and $3.9 million in the three months ended September 30, 2023 and 2022, respectively. The effective tax rate was 31.8% and 42.1% for the three months ended September 30, 2023 and 2022, respectively.
The Company recorded provision for income taxes of $17.9 million and $12.3 million in the nine months ended September 30, 2023 and 2022, respectively. The effective tax rate was 37.9% and 33.2% for the nine months ended September 30, 2023 and 2022, respectively. The difference between the effective tax rate and the 21% federal statutory rate in the nine months ended September 30, 2023 was primarily due to nondeductible compensation of officers and Global Intangible Low-Taxed Income ("GILTI") inclusion. The difference between the effective tax rate and the 21% federal statutory rate in the nine months ended September 30, 2022 was primarily due to GILTI inclusion, tax benefits of income tax holidays in foreign jurisdiction, nondeductible earn-out consideration and nondeductible compensation of officers.
13. Earnings Per Share
The Company has Class A common stock and Class B common stock outstanding. Because the only difference between the two classes of common stock are related to voting, transfer and conversion rights, the Company has not presented earnings per share under the two-class method, as earnings per share are the same for both Class A common stock and Class B common stock.
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The following table summarizes the computation of basic and diluted earnings per share for the three and nine months ended September 30, 2023 and 2022:
Three months ended September 30,Nine months ended September 30,
(in thousands, except share and per share data)2023202220232022
Numerator:
Net income$9,772 $5,365 $29,413 $24,680 
Denominator:
Weighted-average common shares outstanding – basic92,480,316 98,299,612 95,522,026 97,854,944 
Effect of dilutive securities1,554,795 3,620,801 2,207,204 5,218,264 
Weighted-average common shares outstanding – diluted94,035,111 101,920,413 97,729,230 103,073,208 
Net income per common share:
Basic$0.11 $0.05 $0.31 $0.25 
Diluted$0.10 $0.05 $0.30 $0.24 
The Company excluded 6,487,091 and 5,809,048 potential common stock equivalents from the computation of diluted EPS for the three and nine months ended September 30, 2023, respectively, and 3,486,107 and 2,696,701 potential common stock equivalents from the computation of diluted EPS for the three and nine months ended September 30, 2022, respectively, because the effect would have been anti-dilutive. There were 5,208,719 and 4,657,008 potential common stock equivalents outstanding as of September 30, 2023 and 2022, respectively, with market conditions which were not met at that date, that were excluded from the calculation of diluted EPS.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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 ended December 31, 2022 (the "Annual Report"), as filed with the Securities 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 for TaskUs, 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 ended September 30, 2023 and 2022. India, which was previously included in Rest of World, is now reported separately within revenue disaggregation by geographical location. As a result, the comparison of service revenue by delivery geography for the three and nine months ended September 30, 2022 has been recast for comparability.
Overview
We are a provider of outsourced digital services and next-generation customer experience to the world's most innovative companies, helping our clients represent, protect and grow their respective brands. We serve our clients to support their end customers’ urgent needs, navigate an increasingly-complex compliance landscape, handle sensitive tasks, including online content moderation and enable artificial intelligence technology and automation.
Our global, omni-channel delivery model is focused on providing our clients three key services – Digital Customer Experience ("Digital CX"), Trust and Safety and Artificial Intelligence ("AI") Services. 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.
Recent Financial Highlights
For the three months ended September 30, 2023, we recorded service revenue of $225.6 million, a 2.8% decrease from $232.1 million for the three months ended September 30, 2022. For the nine months ended September 30, 2023, we recorded service revenue of $690.1 million, a 3.9% decrease from $718.3 million for the nine months ended September 30, 2022.

Net income for the three months ended September 30, 2023 increased to $9.8 million from $5.4 million for the three months ended September 30, 2022. This increase is due primarily to the impact of foreign currency exchange rate changes, as well as lower earn-out consideration, lower stock-based compensation expense, and cost optimization, partially offset by rising interest rates. Adjusted Net Income for the three months ended September 30, 2023 decreased 16.3% to $30.0 million from $35.8 million for the three months ended September 30, 2022. Adjusted EBITDA for the three months ended September 30, 2023 decreased 4.6% to $52.9 million from $55.5 million for the three months ended September 30, 2022. Adjusted Net Income and Adjusted EBITDA are non-GAAP financial measures. For definitions and reconciliations to net income, the most directly comparable measure in accordance with GAAP, see "Non-GAAP Financial Measures."
Net income for the nine months ended September 30, 2023 increased to $29.4 million from $24.7 million for the nine months ended September 30, 2022. This increase is due primarily to the impact of foreign currency exchange rate changes as well as lower stock-based compensation expense and cost optimization, partially offset by rising interest rates, higher income taxes and earn-out consideration. Adjusted Net Income for the nine months ended September 30, 2023 decreased 13.9% to $94.3 million from $109.5 million for the nine months ended September 30, 2022. Adjusted EBITDA for the nine months ended September 30, 2023 decreased 1.5% to $162.8 million from $165.3 million for the nine months ended September 30, 2022.
The operating results in any period are not necessarily indicative of the results that may be expected for any future period.
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2023 Developments
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 have increased their focus on cost reduction resulting in certain customers electing to shift work from our onshore locations to our offshore delivery locations, partnering with service providers to find cost-efficient arrangements, or reducing vendor spend across the board. 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 clients.
Cost management and financial flexibility
During the nine months ended September 30, 2023, we continued to focus on cost management and financial flexibility. We reviewed our cost structure in order to drive efficiencies across functions. While we incurred certain costs associated with these changes, including severance in some cases, we believe these actions will have long-term benefits to the goal of enabling our future growth and profitability. We generated net cash flow from operating activities of $103.9 million and Free Cash Flow of $81.0 million, respectively.
Generative AI
Generative AI, including Large Language Models (“LLMs”), has developed significantly in recent years and has had further advancement in 2023. We believe this technology has the potential to impact most industries, including business process outsourcing, further automating simple, repeatable tasks, and even streamlining some more sophisticated workflows. Certain of our clients have begun experimenting with this technology. As this technology develops, demand for certain service offerings could decrease, further reducing our clients' spend, which could have a negative impact on our revenue.
We also believe that this technology will provide new opportunities and workflows. We have historically differentiated our value proposition with a frontline first culture, which aligns with and allows us to be an extension of our clients’ brands, as well as our focus on driving efficiency, seeking opportunities to eliminate simple, routine work so our teammates can deliver higher value services. We have been using Generative AI for nearly two years and believe the future of this technology is one of augmentation rather than automation, enabling our talented teammates to leverage these tools and continue to meaningfully improve client outcomes and operational efficiencies. During the nine months ended September 30, 2023, we launched TaskGPT, a next generation customer support technology, enabling rapid expansion and enhancements to our customer service capabilities by leveraging AI technology.
New technology also produces demand for novel services. We have demonstrated an ability to quickly discover and launch services in new markets and believe we are well positioned to discover these needs and deliver them for our innovative clients. We believe that there is an opportunity to integrate Generative AI throughout our offerings, including:
AI Services: TaskUs provides annotation and evaluation support services to help train algorithms, improving the models’ performance and aligning them with human values. We built a Prompt Engineering team that creates and refines prompts for AI systems.
Trust and Safety: We expect to see increased demand for Trust and Safety services in a world of infinite content creation and deepfake technology. We also work with Generative AI companies to ensure the safety and soundness of their AI (e.g., ensuring responses of LLMs do not violate company policies).
Digital Customer Experience: We believe that there may be a decrease in volumes of certain workflows; however, there may also be revenue opportunities for systems integrators and service providers to build, integrate and deploy this technology. We have launched a consultative model that helps leading enterprises innovate by building new capabilities powered by Generative AI across a spectrum of tasks, from automating the routine to assisting in creative work. TaskUs consults with companies to drive customer engagement, improve customer service and enhance operations through the use of technology.
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Results of Operations
Comparison of the Three Months Ended September 30, 2023 and 2022
The following tables set forth certain historical consolidated financial information for the three months ended September 30, 2023 and 2022:
Three months ended September 30,Period over Period Change
(in thousands, except %)20232022($)(%)
Service revenue$225,626 $232,130 $(6,504)(2.8)%
Operating expenses:
Cost of services130,139 134,544 (4,405)(3.3)%
Selling, general, and administrative expense57,114 62,348 (5,234)(8.4)%
Depreciation9,762 9,428 334 3.5 %
Amortization of intangible assets5,027 5,087 (60)(1.2)%