• Revenue of $225.6 million, down 2.8% YoY, but slightly ahead of company’s guidance; but revenue has declined in back-to-back quarters and guidance suggests no reprieve in the near term. Q1’24 also expected to see YoY decline. Only good news might be Q4 is now projected to be flat vs Q3, arresting the trend of sequential decline.
• Adjusted EBITDA of $52.9 million (23.5% margin) vs $55.5 million (23.9% margin) a year ago.
• EPS of $0.32 vs $0.35 a year ago.
• Free cash flow of $13.8 million in the quarter; YTD is $81 million.
• Maybe management should stop giving guidance!!!
• Q4’22 — Fiscal’23 revenue guide was $940 million to $990 million (vs $961 million in fiscal’22) Q1’23 — Fiscal’23 revenue range reduced to $925 million to $950 million Q2’23 — Fiscal’23 revenue range reduced again, now to $900 million to $910 million Q3’23 — Fiscal’23 revenue range increased to $915 million to $917 million FCF guidance increased to $115 million+ (previously was $100 million+). Note this excludes the earn-out payment related to an acquisition so not really true FCF.

Call Commentary

• Revenue from top 20 clients declined by 7% YoY. Decline driven by offshoring of Meta’s work and “operational efficiency initiatives at certain other clients”.
• Outside of top 20 revenue increased 8% YoY. “We expanded our relationship with one of the world’s largest technology companies. We’re providing complex work to authenticate and validate submissions from their developer community to their app marketplace. We won this work from a competitor with the client was unsatisfied with due to a lack of innovation. This win represents an important entry point for our trust and safety solutions to a client with massive addressable spend.” —> This might be Alphabet’s Google Play Store. Company would like to do M&A but private market valuations haven’t pulled back enough, so they continue to opportunistically buyback shares.
• Cash & equivalents were $115 million.

Valuation & Concluding Thoughts

• Enterprise Value ~ $1,270 million
• Fiscal 2023 FCF expected to be ~ $100 million (I’m excluding earn-out payments).
• FCF yield ~ 7.9%; that’s an attractive FCF yield assuming they can steady the ship in due course. One would think there’s a limit to cost cutting and tech/digital natives would once again go back to growing and that would drive need for outsourcing services. Further, once we cycle through 2023, the comparisons become easier.
• P/E (Next twelve months) is sitting at 10x … that shows how pessimistic the market is. The company’s management of Wall St expectations has certainly been abysmal. If you can’t provide reliable guidance maybe just provide some directional thoughts or don’t provide is at all!
• That said, TaskUs isn’t alone when it comes to contraction in the IT Services sector. Other companies are also doing it tough but TaskUs’ valuation has seen quite the contraction. Another way to think about the current valuation assuming they can keep generating around $100 million in FCF; they can buyback the entire company in 12 years!

This remains a high risk idea given the company’s limited public market history; there’s also the risk that it is taken private at a dirt cheap valuation leaving us as bag holders.