TaskUs, Inc. Q4 FY2021 Earnings Call

Good afternoon. And welcome to the TaskUs Investor Call. My name is Olivia and I will be your conference facilitator today. At this time, all lines have been placed on mute to avoid background noise. After the speakers' remarks, there will be a question-and-answer session. I will now like to introduce Alan Katz, Vice President of Investor Relations. Alan, you may begin.

Good afternoon. And thank you for joining the TaskUs Fourth Quarter and Year-End 2021 earnings call. Joining me on the call today are Bryce Maddock, Co-Founder and Chief Executive Officer of TaskUs, and Balaji Sekar, Chief Financial Officer. Full details of our results and additional management commentary are available in our earnings release, which can be found on the Investor Relations section of the website at ir.taskus.com. We also plan to post supplemental information on our website, including an investor presentation and other materials following this call. Please note that this call is being simultaneously webcast on the Investor Relations section of the company's corporate website. Before we start, I would like to remind you that the following discussion contains forward-looking statements within the meaning of the federal securities laws, including, but not limited to statements regarding TaskUs' future financial results and management's expectations and plans for the business. These statements are neither promises nor guarantees and involve risks and uncertainties that may cause actual results to differ materially from those discussed here. You should not place undue reliance on any forward-looking statements. Factors that could cause actual results to differ from forward-looking statements can be found in our updated prospectus filed with the SEC on October 22nd, 2021, which is accessible on the SEC's website, as well as in the Investor Relations section of our website, and may be supplemented with subsequent periodic reports we filed with the FTC. Any forward-looking statements made in this conference call, including responses to questions, are based on current expectations as of today. And TaskUs assumes no obligation to update or revise them, whether as a result of new developments or otherwise, except as required by law. The following discussion contains non-GAAP financial measures. For reconciliation of each of these non-GAAP financial measures to the most directly comparable GAAP metric, please see our earnings press release, which is available in the IR section of our website.

Thank you, Alan. Good afternoon everyone and thank you for joining us. 2021 was a very strong year for TaskUs. Our team delivered growth in the fourth quarter that once again came in above the high-end of our guidance range and we set ourselves up for another year of solid growth in 2022. Before I dive into the financial results, I want to take a minute to acknowledge the great work of our team in keeping our teammates safe and healthy. The pandemic and recent world events have impacted everyone in different ways. Many of us have seen our mental health impacted. In response, our global wellness and resiliency team stepped up to support our teammates during this difficult year. They completed nearly 30,000 group one-to-one counseling sessions with TaskUs teammates across the globe. At TaskUs, our teammates are the most important asset in our company. Our highest priority is to support them and keep them safe. Moving to our financials, Q4 was another very strong quarter of top and bottom line growth. Revenue grew organically by 63.4% year-on-year to $226.8 million, above the top end of our guidance range of $217 million. Adjusted EBITDA grew 70.5% year-on-year to $56.2 million for an adjusted EBITDA margin of 24.8%, also above the top end of our guidance range of 23.3%. For the full-year, we achieved $760.7 million in revenue and a $187.9 million in adjusted EBITDA, for an adjusted EBITDA margin of 24.7%, again, above the top end of our guidance ranges. We ended the year with top-line growth of over 59% while maintaining margins that we believe are among the highest in the industry. To say that I'm proud of what we accomplished this year would be an understatement. 2022 is off to a strong start. The theme for the year will be growth driven by a broad and diversified client base. For 2022, we expect to grow revenues organically at 30% at the midpoint of our guidance range. Balaji will provide a more detailed breakdown of our guidance later in the call. For now, I'll turn back to Q4. We continued to make great progress across our five growth levers this past quarter. We executed particularly well on the first two growth levers, expanding with our current high-growth clients and adding new clients across verticals. In digital customer experience, we grew revenue by 69% compared to Q4 2020, driven by expansion with existing clients and new client signings. A big part of our success in this area has been driven by our investments in the FinTech and cryptocurrency space, where we're delivering the specialized services these high-growth businesses need to grow and protect their brands. We also saw continued expansion with our ride-sharing and food delivery clients. These clients' business models continue to evolve and grow and we're being asked to take on more complex work, handling premium customers and dedicating teams to support critical rider and driver safety lines, as well as investigate and manage fraud and disputes. Content Security revenues grew by 23% compared to Q4 2020, largely driven by volume growth with existing clients. We expect Content Security growth to be a bit more lumpy than the rest of the business as volumes from this service are still highly concentrated among three leading social media companies. We currently provide these services to one of these companies and believe the other two companies represent meaningful growth opportunities. We have continued to grow our content security services with other clients, such as dating apps, eCommerce sites, and exciting new NFT marketplaces. Finally, our AI operations revenues continued to grow tremendously in Q4. Revenue from AI operations grew by 128% year-on-year in the quarter, driven primarily by expansions with new and existing clients in social media, FinTech, and eCommerce as well as a large autonomous vehicle company. We've been investing heavily in AI operations, developing a crowdsourcing platform that we call the TaskVerse. TaskVerse.com is now live and accepting sign-ups. This platform will enable gig workers with varying skill sets from across the globe to perform micro-tasks for our high-growth tech clients. We believe the most common use case for this platform will be collecting and annotating datasets for machine learning projects, but we're excited to see what our clients demand and our community delivers. We're in the process of rebranding AI Operations as AI Services to better represent our breadth of offerings and align with industry nomenclature. Going forward, I will refer to this service as AI Services, which will be made up of the same types of work that we've previously described as AI Operations. Moving on to signings. Growth from existing clients again accounted for approximately 2/3 of our signings in Q4. We had our largest signing in the quarter with one of our FinTech clients. This client is a major player in the cryptocurrency space. We will be expanding the customer experience work that we do for them today, increasing our support for institutional clients, and providing security analysis of blockchain transactions. We signed an expansion with our largest HealthTech client, a digital health insurance provider, to meet their rapid growth needs. We're providing both inbound and outbound services for their patients and providers, and expect revenue from this client to roughly triple in 2022. We added some great new clients in Q4, including an NFT marketplace, a fast-growing outdoor retailer with a cult-like following, and a large online genealogy business. Finally, we landed our first contract with one of the largest tech companies in the world. Here, we're helping them to scale their learning and development function by delivering instructional designers, technical writers, and learning specialists. Overall, 2021 was a tremendous year for our sales and client service teams. We ended the year with a new client win rate of 49% and a total new business win rate of 60%. Our net revenue retention rate for the year was 141% up from 117% in 2020 because we retained our high-growth clients and helped them to scale aggressively. As we head into 2022, we have a strong pipeline of opportunities with both new and existing clients. Before we move on, I want to provide an update on our largest client. As we said in the past, this client is not only our largest client, but also continues to be one of our strongest client relationships. In fact, we did more business with them in Q4 than in any other prior quarter. In January of this year, we began discussing a project to optimize our global delivery footprint for this client. Based on this analysis, we plan to shift hundreds of roles to our operations in the Philippines and India. We continue to grow our teammate population globally with this client and expect to have more teammates supporting them at the end of the year than we do currently. But given the changing geographic mix, we are not forecasting any year-on-year revenue growth from this client in our 30% revenue growth outlook for 2022. This optimization project will begin in Q2 and be completed before the end of the year. Once the transition is complete, we will continue to have teammates supporting this client in all four countries from which we provide them services today. We expect this client to continue to be our largest client for the foreseeable future. It's also important to note that with robust demand across our broadening client base, we do not anticipate having to eliminate any jobs as a result of this transition. Teammates supporting this client today, whose roles will be transitioned, will move to support some of our most exciting and fast-growing clients. As I said at the start of the call, we expect 2022 to be a year of diversified growth across a growing portfolio of high-tech clients. We did a great job laying the foundation for this last year. For example, in 2020, we had 46 clients at $1 million a year or more in revenue, including eight clients at over $10 million a year. In 2021, we grew to 72 clients with over $1 million a year in revenues and the number of clients for whom we delivered $10 million or more in services doubled to 16 clients. We also continued to expand the number of specialized services that we deliver to our largest clients. In 2020, seven of our top 20 clients used two or more of our specialized services. In 2021, this number more than doubled to 15 of our top 20 clients. That segue is nicely into our third growth lever: expansion of our service offerings. We increased our investments in financial crime and risks in the fourth quarter. In Q4, we appointed our former Head of Legal to lead this new business line. We also began hiring a team of experienced broad risking compliance practitioners and cryptocurrency experts to lead our go-to-market strategy for these offerings. We see this as a natural expansion of our capabilities for FinTech clients and see a tremendous opportunity ahead. We're also expanding our learning experience services. In addition to the signing that I mentioned earlier, we have multiple clients now turning to us to manage learning and training across their enterprise. We're helping them to modernize their learning strategies, deliver learning analytics, and maintain their instructional and knowledge-based content. This service area is born out of our ability to train and develop our own teammates. We're excited to continue our investments and thought leadership in people development by broadening our suite of services. We will announce this new offering publicly this quarter branding it as TaskUs Learning Experience Solutions or LXF. During the fourth quarter, we also made progress on our fourth lever, geographic expansion. We expanded into Japan and Malaysia, and expect to expand into Poland and Romania this year. We're also growing in our current geographic footprint, adding capacity in India, the Philippines, the U.S. and Latin America. Lastly, in terms of M&A, our fifth growth driver, we continue to look at deals and have seen some interesting opportunities. We're focusing on companies that are accretive to our long-term growth rates, margin targets, and most importantly, our culture. We're particularly interested in M&A to accelerate our growth in Europe or add to our specialized service capabilities. It's important to note that any M&A completed in 2022 will be incremental to the revenue guidance we're providing today. Our progress on these five growth levers and our broadening base of high-growth clients positions us to deliver on our medium-term revenue growth target of 25% or above for the years to come. Our success in 2021 was equally impacted by our operations. Across the industry, we've heard about the challenges of attracting and retaining talent. In Q4, we added approximately 4,500 net new TaskUs teammates and met our clients' hiring requirements. Attracting great talent is key, but retaining talent is equally as important. Our attrition rate for the year as measured by voluntary attrition after 180 days of employment was 15.3%. Our Glassdoor rating was 4.6 stars at the end of the year, down 0.1 stars from last quarter, but well above our peers. As of December 31st, approximately 90% of TaskUs frontline teammates around the globe continued to work safely from home. We expect to begin to return some teammates to our offices starting in Q2, but given the recent variants, we're taking a cautious approach here. A portion of our global teammate population will likely continue to work from home for the foreseeable future. 2022 is off to a strong start. Our growth is being driven by a broadening base of innovative clients. We're expanding our geographic delivery footprint and deepening the specialized services our clients rely on us for. We are well-positioned to deliver 30% organic revenue growth at the midpoint of our guidance range. With that, I'll hand it over to Balaji to go through the financials in a bit more detail and provide our outlook for Q1 and the year ahead.

Thanks Bryce, and good afternoon everyone. I will focus my comments on our financial results for the fourth quarter. Some of these items are non-GAAP measures, and the relevant reconciliations are included in the press release we issued earlier today. In the fourth quarter, we generated total revenues of $226.8 million, reflecting a 63% increase compared to the prior year, resulting in total annual revenues of $760.7 million and growth of over 59%. We experienced year-over-year growth in all three of our specialized service offerings. Our digital customer experience offering brought in $148.1 million for a year-over-year growth rate of 69%. Our Content Security business grew by 23% compared to Q4 2020, generating $44.6 million in revenue. Our AI operations business achieved a remarkable 128% year-over-year growth, resulting in revenues of $34.1 million. In Q4, we noted diversification in our revenue base, growing revenue with our top two clients while surpassing growth rates with the rest of our clients. Consequently, revenue concentration with our largest client decreased to 25%, down from 27% in Q3 and 32% in 2020. Even with this positive trend, our largest client’s revenue grew quarter-over-quarter by approximately $3 million. Our second-largest client accounted for 9% of our revenue, down from 11% in the previous quarter, due to our success in helping them enhance their global footprint and cost structure. We anticipate returning to sequential revenue growth with this client starting Q1 of 2022, with continued sustained growth throughout the year. In Q4 of 2021, our top 10 and top 20 clients represented 60% and 75% of our revenue, respectively, compared to 66% and 80% in the prior year, illustrating an ongoing trend of revenue diversification. For the fourth quarter, we generated 52% of our revenues in the Philippines, 31% in the United States, and 17% from the rest of the world, primarily through our operations in India and Mexico. Our cost of service as a percentage of revenues decreased to 56.2% in Q4, down from 57.1% the previous year. This decrease was primarily due to the depreciation of the Philippine peso. We expect our cost of service as a percentage of revenue to remain relatively steady in 2022, as wage inflation and expenses related to transitioning our team back to the office will be balanced by geographical mix and cost of living adjustments in our contracts. In Q4, our General and Administrative expenses were $65.7 million or 29% of revenue, compared to $29.9 million or 21.5% in Q4 2020. This increase in G&A for Q4 2021 included a full quarter of public company-related expenses and stock-based compensation, which were not present when we were a private company. Stock-based compensation and transaction costs comprised roughly 10% of revenue, and without these costs, our revenue margin would have been about 19%. We recorded adjusted EBITDA of $56.2 million with a margin of 24.8% in Q4, compared to $32.9 million and a 23.7% adjusted EBITDA margin in the same quarter last year. Our revenue growth and reduced cost of service more than compensated for the rise in public company costs and investments in digital initiatives. For the full year, we achieved $187.9 million in adjusted EBITDA with a margin of 24.7%, both at the upper end of our guidance range. Adjusted net income for the quarter was $37.1 million, resulting in adjusted earnings per share of $0.34. In the prior year, our adjusted net income was $20 million, with adjusted EPS at $0.22. For the full year, adjusted net income was $[Indiscernible] million with adjusted earnings per share of $1.26. Turning to cash flow and balance sheet matters, cash from operations was $30.8 million for the fourth quarter, up from $13.2 million in Q4 2020, driven by revenue growth. Cash and cash equivalents totaled $63.6 million as of December 31, 2021, compared with $61.3 million on September 30. The improvement in Days Sales Outstanding and accounts receivable was offset by partial payments of our year-end bonuses and increased capital expenditures linked to technology infrastructure and office enhancements. Our Days Sales Outstanding decreased from 71 days in Q3 to 65 days in Q4 due to improvements in our order-to-cash process, with potential for further enhancements in 2022. In the first half of 2021, our DSO increased due to revenue growth, leading to higher unbilled receivables than the expected 33% or one month of in-period revenues. Additionally, a significant client began adhering to their contractual payment terms, negatively impacting working capital in 2021, although they have continued to pay on or ahead of schedule. Capital expenditures rose in the fourth quarter to $20.8 million or 9% of revenues, compared to $7 million or 5% of revenues in Q4 2020. For the entire year, Capex reached $59.4 million or 8% of revenue, a slight increase compared to fiscal 2020, driven mainly by computer equipment purchases due to headcount expansion and facility upgrades linked to our return to office plans. We expect Capex to remain relatively stable as a percentage of revenue in 2022, as we expand into new regions and invest in technology systems. Looking ahead, we anticipate total revenues for the full year 2022 to range from $918 million to $1 billion, which represents a year-over-year growth rate of 30.1% at the midpoint. We expect an adjusted EBITDA margin of approximately 23% for the full year 2022. For Q1 2022, we project revenues to be between $229 million and $232.2 million, equating to a year-over-year growth of 50.8% at the midpoint, along with an expected adjusted EBITDA margin of around 22.5%. The spread of Omicron caused increased absenteeism in January, and while attendance has normalized in February, our Q1 revenues will be affected by approximately $2 million, as reflected in our Q1 guidance. Additionally, Q1 typically has fewer working days compared to other quarters. Despite these challenges, we expect to achieve over 50% growth at the midpoint. Regarding margins, several of our contracts contain cost of living price escalators, which will help counterbalance inflation throughout the year as contracts come to their anniversary dates. We also expect to benefit from our geographic mix as some clients move work to offshore regions and from currency appreciation against the rupee and peso compared to last year. Year-over-year comparisons of adjusted EBITDA margins will still be influenced by public company expenses in the first two quarters of the year, along with planned expenses related to welcoming more of our team members back to the office. Lastly, we are committed to investing in technology development, enhancing our service expertise, and expanding our sales and client organizations to drive growth. Overall, we are well-positioned to meet our revenue growth and margin targets for this year and to meet our medium-term goals of at least 25% year-over-year revenue growth and an adjusted EBITDA margin target of 25% or higher. Thank you. Now I’ll hand it back to Bryce before we address any questions.

Thank you, Balaji. Before we move into our Q&A session, I wanted to share another TaskUs teammate's story. In December 2021, Typhoon Odette devastated parts of the Philippines and especially impacted our site in Bohol. When it became clear that Odette was going to hit the site, we mobilized as a company and our people and customers rallied to ensure the safety and well-being of our teammates. Janice and Mediator Voisa are two teammates who work at Lizzie's playground, our site in Bohol. Janice and Mediator's home was destroyed by the typhoon. During the typhoon, our team grew concerned as both teammates were unreachable by phone. The day after the typhoon, our door-to-door rescue team was able to locate Janice and Mediator, and our team provided them temporary shelter in a hotel, free food, and transportation services. Despite having lost their home, Janice and Mediator told us that they were ready to report back to work. So we transformed the second floor of our office into a temporary shelter for teammates and their families, like Jonathan and Mediator, who were affected by the typhoon. During their stay, all teammates were provided free food, medicine, and toiletries. And today I'm proud to report that Jonathan and Mediator are having their homes rebuilt by TaskUs teammates as part of our TaskUs Home Rebuilding program. Our clients and teammates around the world donated their time, money, and resources to make this happen. With quarantine restrictions now lifted, I'm finally going back to the Philippines next quarter and plan to visit our site in Bohol to thank our team there personally. For now, I want to give a heartfelt and public thank you to all of our teammates, their leaders, and our incredible clients whose compassion made this possible. With that, I'll ask our Operator to open our line for the question and answer session.

Please stand-by while we compile the Q&A roster. Our first question is from Maggie Nolan with William Blair. Your line is now open.

Hi. Thank you and huge congrats to you guys for surpassing expectations. Bryce, you said you're optimizing the global delivery footprint for your largest client. Can you talk a little bit more about what does this mean for the relationship and for profitability at the account? And then, do you expect this pattern in other large accounts?

Yes. Thanks, Maggie. So the relationship with our largest client remains one of our strongest client relationships. At the start of the year, we came together and we put together a plan to optimize our global delivery footprint. Under that plan, we're going to move hundreds of roles to the Philippines and India before the end of this year. As we said in the past, we make lower revenue per employee in the Philippines and India, and that's the reason we're not forecasting any annual revenue growth from this client currently. With that said, since we put this plan in place, we've been awarded two new lines of business that will add hundreds of additional roles to our teams supporting this client globally. So by the end of this year, we're going to have more roles supporting this client globally than we do today, to the tune of hundreds more roles. It is also worth noting that the Philippines and India are our highest margin geographies. So once the transition is complete, the margins we earn from the client will expand. And finally, we're seeing very robust growth from our other clients across our global regions. So every single teammate supporting this client today, whose roles will be transitioned, will be offered new roles supporting some of our most exciting and fast-growing clients.

Thank you. That's helpful. And then, Gregg guide, including the outlook for Q1, can you talk a little bit about the sales trends on the pipeline so far this year, and how that compares to the prior year and Q1 in the prior year. Thank you.

2021 was one of our strongest, actually our strongest sales year ever and I previously shared that Q1 of 2021 was the best quarter that we've ever had in terms of sales in our company's history. Q1 of 2022 is off to a very fast start and it feels reminiscent of Q1 of last year. So I'm excited to tell you more about the specifics of the wins we've had so far when we report our Q1 results.

Our next question coming from the line of James Faucette, with Morgan Stanley. Your line is now open.

Thank you very much. I wanted to ask if you're seeing any incremental wage pressure in the market right now, and how that is maybe impacting your expectations for margin evolution through the course of the year?

Yes. I'll let Balaji talk a little bit about this in specific, but let me just talk a little about the hiring environment. We are seeing a very competitive hiring environment. And it's in environments like this that we see the investments that we have made in our employee value proposition since day one really pay off. The hiring environment today allows us to further distinguish ourselves from the competition. In 2021, we added over 16,000 net new positions. And we actually added progressively more roles in each quarter, and delivered against our client's very aggressive hiring timelines. At the start of 2022, we're seeing the competition intensify and that's certainly putting pressure on wages. We're seeing this most acutely in the U.S. and for our global leadership positions. But despite this, we anticipate adding as many or more roles in Q1 than we did in Q4 of 2021, which really underlines our ability to attract and retain talent in almost any market. Balaji, do you want to comment further on margins?

Yeah, thanks Bryce. So we are seeing great pressure across all delivery locations most significantly in the U.S. and the attention actually depends on geography, the performance and tenure, but these are then factored into the margin guidance that I provided today. We believe that we are seeing current market rise to geographies in which we operate. So we're not in a situation now playing catch up. And this question will be offset by pricing provisions in our contracts, the margin mix with offshore geography that we're starting to see this year, and positive currency environment. We believe that cost of service as a percent of revenues will be roughly flat from 2021 in 2022.

Got it. And then, if we look at your guide for this year and with changes in delivery mix, etc., what do you think is the adequate number of net headcount additions, at least on a quarterly basis to support the revenue growth? And I guess as part of that, Bryce, you mentioned acquisitions could be incremental to your guide, but what are the other potential upside drivers that you see to your growth rate for this year? Thanks.

Yes, thanks for that question, James. So to start, we anticipate continuing to add well north of 4,000 net new teammates in every quarter of this year. And we're very confident in our ability to continue to do that for our clients. As far as the 30% growth forecast that we've provided at the midpoint, 2022 is off to a very, very strong start. We've got visibility to around 95% of the forecast that we provided today, and we're continuing to see robust demand across our broadening portfolio of clients. With the exception of our largest client, we expect that the other four of our top five clients will grow revenue significantly year-on-year. We expect two of our top five clients to grow revenue by double-digit percentage points year-on-year, and the other two to grow by triple-digit percentages year-on-year. And what's best about that is that we're already in the midst of aggressive hiring efforts for these clients today. So a large portion of this growth will be ramped by the end of Q1. As I've already said, Q1 sales are off to a very strong start in Q1 of 2022, and it feels reminiscent of our record sales quarter for Q1 of 2021. And I'll just finish by saying that we've reported three quarters now as a public company. So hopefully, they’re getting the sense that we only provide guidance that we have a high degree of conviction that we can meet or exceed.

Thank you very much, everyone.

Our next question coming from the line of Puneet Jain with JPMorgan. Your line is open.

Thanks for taking my question. Bryce or Balaji, can you talk about the margin profile of some of the new services that you are adding, and how should we think about margins beyond this year — just qualitatively in terms of levers, puts, and takes we should consider as we model margins beyond this year?

Yes, thank you for that question Puneet. So, to start, in the past we pointed out that the main driver of margin is geography rather than service line. With that said, we're seeing higher margins in some of our new service lines, such as financial crimes, learning experience solutions, and the more advanced areas of AI Services. So as these areas make up a larger percentage of our revenues, they are going to help us to expand our margins. Balaji, I'll let you comment maybe on the midterm margin guidance.

Yes. So we have indicated about 23% in adjusted EBITDA margin for this year. Medium-term, we will be able to deliver above 25+ percentage from adjusted EBITDA margins. I've talked about 25% in adjusted EBITDA margin. A couple of things that is going to drive that positive operating leverage are growth. We would see that both in our cost of service and overhead line items. And second is the geographic mix shift that we spoke about earlier towards offshore, which is margin accretive. And lastly, the growth in specialized services that Bryce just spoke about, which have better pricing leading to growth in margins.

Got you. And can you also talk about your use of cash priorities? I know you talked about M&A and organic investments in business. Can you talk about which areas you're looking for deals and which areas you're looking to invest in?

Yeah. We're investing this year to continue our growth into 2023 and beyond. Specifically, we're making investments to deepen our specialized services, expand into new geographies, and to further accelerate our development and technology to help our clients drive efficiencies into their business. We're also expanding our sales and go-to-market team to accelerate our growth. As we've indicated, we absolutely intend to pursue acquisitions, to accelerate all of these efforts, and we do not expect to let cash build up on the balance sheet.

And Puneet, just to add on to what Bryce said, we have a very comfortable cash situation, and our net leverage ratio compared to adjusted EBITDA was about 0.9x as of the year-end, which is below our debt covenant of approximately 3.75.

And our next question coming from the line of Dave Koning with Baird, your line is open.

Congratulations on a very impressive performance. One notable aspect is the guidance around 30%. Despite facing a headwind from the geoshift, could you provide your expectation for volume growth? It appears that it might be significantly above 30% to start with.

Dave, yes, that's correct. And I think what's underlying this is the strength of growth that we're seeing from across the rest of our client portfolio. With the exception of our largest client, we expect the other two of our top five clients to grow revenue year-over-year by either double or triple-digit percentage points. And that is going to lead to this really broad diversified base of customers that will help us to meet or exceed that 30% revenue growth guide.

Got it, thanks. For the second question, do you still anticipate being able to grow by 25% a year beyond this year now that the base continues to expand? Are there potential acquisitions that could help maintain the same growth rate across different vertical markets?

Yeah. To answer the first question, we do. When we think about medium-term, we think about the next two to three years, and so we absolutely believe we can grow revenue at 25% or above for the next two to three years at a minimum. When we look at our acquisitions, we started by focusing on modestly-sized acquisitions that will be easier for a company of our size to digest. And fortunately, those companies are growing revenue at a percentage that's comparable or in some cases better than ours. And so we're excited to focus on that type of company when we do our first acquisition.

And our next question coming from the line of Jason Kupferberg with Bank of America. Your line is open.

Thanks, guys. Congrats on this quarter. I know there's been a lot asked on revenues and margins, but I'll ask on DSO and cash flow because I thought that was quite impressive as well. And Balaji, I know you've mentioned the improvement in the DSO, I think from 71 to 65 quarter-over-quarter. Can you give us the breakdown on the unbilled portion of the DSO there and any thoughts on that metric for 2022 and for free cash for that matter? Thank you.

Yes. From an analyst perspective, I previously mentioned that we anticipate an improvement in the numbers for the third and fourth quarters of 2021. In the first half of 2021, the unbilled amount as a percentage of payable revenues was around 9%. This was influenced by the increased backlog of invoices due to the growth we experienced in 2021. Moving into the third and fourth quarters and ahead in this business, unbilled typically exceeds one month of quarterly revenues. In the fourth quarter, we were at approximately 3%, and we expect to continue seeing this trend as we enter 2022.

Okay. And then I know you guys mentioned FinTech a couple of times. Curious what you might be able to tell us in terms of size and growth of those verticals combined at this point, sounds like it's becoming much more relevant for you.

Thanks for that question. So actually in 2021, FinTech, HealthTech, and retail, and e-commerce all grew revenues at triple-digit percentage points year-over-year. And we're seeing that growth sustained into 2022, particularly for FinTech and HealthTech. We've been working with some of the industry leaders in both the FinTech and cryptocurrency space. In addition to providing customer support, we're also providing financial crimes work where we're analyzing blockchain security transactions during any money laundering and know your customer work. And so, while we've seen robust growth over the last year, we think we're just getting started in the overall growth potential in this space.

Alright. Well, thanks for the comments. Appreciate it.

Our next question coming from the line of Brian Essex with Goldman Sachs. Your line is open.

Hi, good afternoon and thank you for taking the question and congratulations on what I assume is a strong quarter. I wanted to follow up with Matt regarding your largest customer and the migration effort. How long does this process typically take from start to finish? Could you provide some insight into how this conversation unfolded? Was it primarily their effort to address rising costs on their end, or has this approach been part of the plan from the start? Is the transition scheduled for a specific quarter, or is it more of a continuous migration throughout the year?

Thanks for your question, Brian. So we, as a company, go through these migrations with customers over time. We tend to start with clients when they are very small scale very quickly and then look to optimize our clients' spend. And so all of these efforts are done in conjunction and collaboration between TaskUs and our clients. And so this was a conversation that began in January of this year as we looked for ways to optimize our clients' spend and we made a recommendation to shift a large portion of these roles to the Philippines and to India. The transition will start in Q2 and we expect it to be completed in Q3. So there will be a relatively low impact to Q1 revenues and you'll see a full impact to our Q4 revenues. And would that said I will just say again that we continue to win very exciting new business from this client. We've won two opportunities since putting this plan in place, and that'll add hundreds of additional headcount to our global delivery footprint for the client this year. So we're very optimistic about our ability to grow with this client again, in 2023.

Got it. That's super helpful. So thank you for that. And maybe just a quick follow-up just on the top ten clients, just backing out the first two largest for the quarter, it looks like clients three through ten more than doubled, if my math is halfway right. Could you give us a little bit of color in terms of the dynamics at play there, was that a relatively diverse set of customers in the top ten where there are ones that swapped in or out and what were some of the core drivers of that growth?

Yes. So it is a very diverse set of customers, and we've got on-demand transportation clients, FinTech clients, eCommerce clients, all in our top ten customers. And we've seen really strong growth across that group as you said, about 100% when you back out the top two clients year over year. And as I said, as we look forward to 2022, among our top five other than our largest customer, four of those clients are going to be growing between double and triple percentage points year-on-year. So we're really excited about the broad base of growth that we're seeing in 2022.

Next question coming from the line of Dan Perlin with RBC Capital. Your line is open.

Thank you, and I want to express my appreciation for the excellent numbers. I have a question regarding the scope of work and how it has evolved over the past year. Bryce, you mentioned that FinTech, HealthTech, and retail have all experienced triple-digit growth. It seems like these new clients are providing you with more specialized work, which appears to be creating a positive shift in both the variety of opportunities and potentially long-term margin benefits. Could you share your thoughts on how the scope of work has changed over, let's say, the past year?

Yes, thank you for your question, Dan. We have seen increasing demand for more sophisticated services. As an example, inside AI Services, going from doing things like data annotation into software quality operations. We've seen demand inside our financial technology services going from doing customer support into supporting institutional clients, or doing financial crimes work. We just signed a deal this quarter with one of the largest technology companies in the world, a client that we've been pursuing for a long time. And instead of getting in there doing standard customer support work, we're going to be providing learning experience solutions, actually writing their training content and maintaining their knowledge base. And all of those are services where we will make higher margins. We're beginning to see this specialized service strategy pay off in the form of higher margins.

Is there something, as just a follow-up, unique as we think about FinTech, crypto, HealthTech becoming larger and larger percentages of the mix of your business that we need to be mindful of? Do they tend to want to be a little bit more in lower GEO areas, which helps in addition to the specialized services that you're providing, or is it just the nature of the work that's coming your way now?

Yes, I think that in both of these categories, we're supporting industry leaders, and these are companies that really care about the quality of service that they're delivering. When it comes to things like regulation, in many ways they're helping to champion some of those regulations, and we believe that those regulations will actually lead to an increase in demand for our services. But when we think about the geographic delivery footprint, some of our FinTech and HealthTech clients demand that we keep work onshore for either regulatory reasons or just client preferences. And so I think that there's probably a lower probability of the geographic footprint optimization that we're going through with some other clients at the moment, but ultimately time will tell.

Our next question coming from the line of Matt VanVliet with BTIG. Your line is open.

Congrats guys. Thanks for taking the question. I guess first Bryce, you've talked about learning services opportunity, both at a large tech company and maybe expanding that out. So wanted to dig in a little bit more there. Is this something that you've been doing for a number of your clients for a while and it's now just becoming maybe a little bit more of a formalized product offering? Or is this something you've really just developed in the last several months or a couple of quarters and are now ready to go to market with it?

Yes. Thanks for the question, Matt. So actually what happened here was really interesting. We've always invested a huge amount in the employee experience, and that starts with making sure that we are training our teammates in the most exciting and innovative way possible. So we've got an incredible learning leader, a gentleman named Dhairya Sharma, who has really championed our approach to teaching our teammates the skills they need to support our clients and putting our leadership through a really robust leadership development program. So that work has attracted one of our large clients a couple of years back. And this is a large autonomous vehicle company and they were interested in us taking over a team that was working on training content for them. This is a rebadge of the team based in the United States. We did that successfully and have since scaled that offering to multiple clients using a combination of domestic and offshore resources to maintain knowledge-based content and put together instructional content. In many cases, actually conduct the training sessions on behalf of our clients.

And then you talked about a couple of times, both with your largest customer and maybe second and many others, as they start to use more of TaskUs, they tend to look at the offshore markets, maybe a little bit more focused. Can you give us a sense of maybe how many of all your customers are using some form of offshore today? Maybe not just revenue mix, but just maybe longer-term, what the opportunity is, how that might have puts and takes in the model overall?

Yes. We began our delivery operations exclusively in the Philippines, and it wasn't until 2016 that we expanded to the U.S. Most of our customers now utilize some aspect of our offshore delivery model. Currently, we operate in 10 different countries, and we are experiencing strong demand from customers who want to diversify their sources for reasons such as business continuity, language coverage, and finding the right talent at competitive prices. Our clients are increasingly utilizing two, three, or four of our locations to provide their services.

Alright, great. Thank you for taking my questions.

I'm showing no further questions at this time. I would now like to turn the call back over to Bryce Maddock, TaskUs CEO and Co-Founder for closing remarks.

Thanks, Olivia. And just in closing, I want to thank our teammates, our clients, and our shareholders. We've had a very strong 2021 and we're looking forward to delivering another very strong year in 2022. Look forward to our next call in May. Talk soon.

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.