Summary
SUMMARYThis summary highlights information contained elsewhere in this prospectus and does not contain all of the information you should consider before investing in shares of our Class A common stock. You should read this entire prospectus carefully, including the section entitled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and the related notes thereto included elsewhere in this prospectus, before you decide to invest in shares of our Class A common stock. Unless otherwise indicated, references to our “common stock” include our Class A common stock and Class B common stock.
Technology is changing the world, and this transformation is being led by the Digital Economy, an expanding set of modern companies using a combination of internet, cloud and mobile infrastructure to deliver economic value to consumers. These companies are responsible for revolutionizing many aspects of our daily lives, including the ways in which we socialize, shop, dine, date, travel and invest.
The impact of the Digital Economy has also radically altered the market landscape. As of December 31, 2020, technology companies represented 66% of the total market capitalization of the world’s twenty most highly valued public companies, up from just 16% in 2010. In the global private markets, as of December 2020, there were more than 580 companies with greater than a $1 billion valuation (“unicorns”), including more than 30 with greater than a $10 billion valuation (“decacorns”), as compared to 80 unicorns and eight decacorns as of January 2015.
These high growth companies are focused on developing new products or services and often lack the desire, expertise, scale and/or geographic presence to build the operational infrastructure to support their growth. We are the outsourcing partner of choice for many of the most disruptive brands in the world. We help support the growth of our innovative clients by providing technology-enabled outsourcing solutions purpose-built for the Digital Economy.
TaskUs presents a diversified opportunity to participate in the growth of the Digital Economy and has a strong track record of profitability.
We are a digital outsourcer, focused on serving high-growth technology companies to represent, protect and grow their brands. We serve our clients to support their end customers’ urgent needs, navigate an increasingly-complex compliance landscape, and handle sensitive tasks, including online content moderation. As of December 31, 2020, we had over 100 clients spanning numerous industry segments within the Digital Economy, including social media, e-commerce, gaming, streaming media, food delivery and ride sharing, HiTech, FinTech and HealthTech. Between 2019 and 2023, the verticals we prioritize are projected to grow at a compound annual growth rate (“CAGR”) of 18%.
As our clients grow, we are the beneficiary of increased outsourcing volumes and incremental revenue as we enable our clients to focus on their core businesses. Between 2017 and 2020, our current clients with publicly disclosed financials grew their revenue at an estimated unweighted average CAGR of 40%. Over the same period, TaskUs achieved a revenue CAGR of 60% as we grew with our existing clients and added new clients.
Our global, omni-channel delivery model is focused on providing our clients three key services – Digital Customer Experience, Content Security and AI Operations. 96% of our revenue in 2020 was delivered from non-voice, digital channels or omni-channel services. Non-voice channels allow us to utilize resources efficiently, thereby driving higher profitability.
Our differentiated set of digitally focused service offerings are leveraged by many of the world’s most recognizable technology brands, including Zoom, Netflix, Uber, Coinbase and Oscar.
Our Digital Customer Experience offerings serve the needs of the modern consumer, whose habits have drastically changed in the past decade and revolve around the smartphone. Whether it’s an app being used to deliver food instantly, securely buy and sell stocks or stream their favorite shows, it is easy to forget that these pocket luxuries were nascent or nonexistent ten years ago. Each of these are examples of emerging industries that have become strategic growth drivers for TaskUs. In particular, Zoom, Netflix, Uber, Coinbase and Oscar are representative clients in HiTech, streaming media, food delivery and ride sharing, FinTech and HealthTech verticals, respectively, each of which turned to us when it faced logistical challenges during its rapid growth cycle and none of which represented more than 6% of our revenue in 2019 and 2020.
With the explosive growth of user-generated content and social media, issues of censorship, community moderation and foreign interference in democratic election processes have become some of the most important socio-political issues of our time. Our Content Security offerings include content monitoring and moderation services (“Content Security”), the need for which is increasingly critical to protect the sanctity of the open internet. Our artificial intelligence (“AI”) Operations offerings include providing high quality, human-annotated data sets and algorithm training services to our clients as they navigate significant increases in the prevalence of disruptive AI technology.
We have a track record of using thesis-led prospecting strategies to identify attractive and emerging industry segments in their infancy, win marquee clients and establish thought leadership and operating best practices. Our early-mover position and the willingness of our clients to serve as references have had a snowball effect in winning additional new clients, which continues to reinforce our market leadership.
Our agile and responsive operational model allows us to selectively target high-potential clients who have never outsourced before. Since 2017, over 50 of our clients trusted TaskUs to be their first outsourcer in our areas of service, driven by their understanding that we have the rare ability to support clients on their journey from startup to global enterprise.
Our delivery model is tailored to meet the needs of high-growth companies. Our cloud-based technology infrastructure is designed to enable clients to set up operations quickly and seamlessly and allows clients to outsource many of their core processes at earlier stages of their company lifecycle. We prioritize data science and process automation to achieve technology-driven efficiency gains. We continually analyze massive amounts of data obtained from customer interactions we manage for our clients. We leverage these insights and end customer-driven feedback to drive workflow efficiencies, deliver insights on predictive behaviors that lead to lower customer churn and help our clients innovate their core product offerings and develop new product features.
At TaskUs, culture is at the heart of everything we do.
Our Co-Founders, who started TaskUs twelve years ago and still lead us today, believe that serving frontline employees helps us better serve our clients. As we have expanded across the globe, we strive to champion our Co-Founders’ vision of operational excellence through an employee-centric culture at every site. As of December 31, 2020, we had approximately 23,600 employees across eighteen locations in eight countries. In 2020, our employee net promoter score (“eNPS”) was 72, and 79% of our employees who participated rated us 9 or 10 on a scale of 10. Glassdoor ranked us number 40 on their 2019 Best Places to Work list among U.S. employers with at least 1,000 employees, and we held a rating of 4.6 out of 5.0 as of March 2021.
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. We use eNPS and client net promoter scores (“cNPS”) to measure the satisfaction each group has with TaskUs. Our 2020 full year cNPS was 75. We believe both our eNPS and cNPS metrics to be industry-leading.
Recurring revenue model with a track record of high growth and profitability at scale.
We believe that we have delivered industry-leading growth and profitability. In 2020, over 99% of our revenues came from recurring revenue contracts, and we achieved a net revenue retention rate of 117% in 2020. In 2020, we delivered revenue of $478.0 million, net income of $34.5 million at a net income margin of 7.2%, Adjusted Net Income of $69.4 million at an Adjusted Net Income Margin of 14.5% and Adjusted EBITDA of $106.9 million at an Adjusted EBITDA Margin of 22.4%. From 2017 to 2020, our revenue grew organically at a 60% CAGR, our net income grew at a 56% CAGR, and our Adjusted EBITDA grew at a 72% CAGR.
For reconciliations of Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income and Adjusted Net Income Margin to the most directly comparable measures calculated in accordance with generally accepted accounting principles in the United States (“GAAP”), information about why we consider such measures useful and a discussion of the material risks and limitations of these measures, please see “Selected Historical Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures.”
The aggregate size of our market opportunity is over $100 billion, and consists of the following service offerings:
Digital Customer Experience: IDC estimates that global customer care outsourcing services spend was $77 billion in 2020. We focus on the fast growing digitally enabled consumer brands and traditional players catering to their customers in multiple channels. According to Everest Group, the digital customer experience market is projected to grow at a 20-25% CAGR from 2018 to 2021 and will continue to drive overall industry growth.
Content Security: According to Domo, every minute, Facebook users upload 147,000 photos, Instagram users post 347,222 stories and YouTube users upload 500 hours of video. JC Market Research estimates that the content moderation solutions market was $5.3 billion in 2020. Further, Everest Group estimates that the market will grow at a CAGR of 40-50% from 2016 to 2021.
Artificial Intelligence (AI) Operations: The development of Artificial Intelligence technology often requires massive amounts of data that has been annotated by human experts and must be refined through ongoing manual training. These factors have significantly contributed to the growth of the AI services market served by our AI Operations service offering, which includes data labelling and algorithm training. IDC predicts that the worldwide AI services market will grow from $18.4 billion in 2020 to $37.8 billion in 2024 at a CAGR of 20% over the four-year period.
Sources: Everest Group (Digital CX and Content Security); IDC, Worldwide Artificial Intelligence Services Forecast, 4 year CAGR from 2020-2024, August 2020 (AI Services).
Our strategy is to target the intersection of these high growth service offerings across attractive vertical markets in the Digital Economy. According to the U.S. Bureau of Economic Analysis, the Digital Economy accounted for 9% of U.S. gross domestic product in 2018, or $1.8 trillion, and grew at four times the rate of overall U.S. economic growth from 2006 to 2018.
The vertical markets we prioritize are projected to grow at an unweighted average CAGR of 18% from 2019 to 2023:
Sources: The Business Research Company; TechSci Research; Technavio; Allied Market Research; and eMarketer.
As technology and the internet have fundamentally transformed the way consumers seek to engage with their favorite brands, a number of trends have emerged that benefit our clients and increase their demand for our solutions, including:
Rapid growth in the Digital Economy: New and emerging digital trends such as the Internet of Things (“IoT”), cloud computing, mobile web services and AI are radically changing the business ecosystem and creating new opportunities for economic growth. Their success is evidenced by the rise in the volume of technology initial public offerings along with venture capital and private equity investments over the past 10 years.
Technology companies are outsourcing at an accelerating pace: As technology companies scale, they must dedicate resources across product development and operations. However, they often lack the physical capacity or desire to develop operational infrastructure internally as they focus on growing their core offerings. As a result, we believe technology companies are increasingly willing to outsource at earlier stages of their lifecycles and are driving outsized growth within the overall outsourcing industry.
COVID-19 accelerating outsourcing spend: As businesses are forced to learn how to work remotely, we believe it is becoming less important where employees are physically located or whether they are employed directly or by an outsourced partner. According to a recent survey by a third-party outsourcing company of more than 200 business leaders and decision-makers, 52% of respondents with 1,000 to 10,000 employees and 61% of respondents with 10,000 to 50,000 employees planned to outsource for the first time or increase the use of outsourcing in 2021.
Alignment of vendor company culture: We believe that vendor company culture is the number one selection criteria when digital economy companies evaluate outsourcing vendors. Companies understand that consumers increasingly want to feel a personal connection to the brands they interact with. This trend accelerates the need for next-generation outsourcers to act as extensions of their clients’ brands so that end customers receive the personal experiences they desire.
Customer experience is a critical retention and growth lever, rather than a cost center: According to a PricewaterhouseCoopers study on customer experience, 59% of Americans will walk away from a brand they love after several bad experiences and 17% after just one bad experience. This direct impact of negative experiences on brand affinity coupled with relatively high customer acquisition costs for new economy companies, underscores the importance of active customer retention efforts.
Significant increase in user and advertiser generated content and the need for content moderation: According to Technavio, there were nearly four billion social media users worldwide as of 2020, leading to unprecedented amounts of user generated content. As a result, social media platforms have attracted billions of advertising dollars from a significant number of advertisers. There are regulatory and reputational risks, as well as billions of dollars of revenue streams at stake, for these platforms if sensitive content is not properly moderated.
Advancement of AI technologies requires large sets of annotated data: AI use cases are growing quickly and the success of AI companies will be determined in large part by the accuracy of their algorithms, which are inextricably linked to the quality of underlying data sets which must be manually annotated by trained experts. We believe that as AI continues to grow, so too will outsourcing opportunities.
We have distinguished ourselves as a leader in next-generation technology-enabled outsourced services by leveraging several competitive strengths, including:
High Growth Technology Is Not a Segment of Our Business, It Is Our Business: We view technology as a macro trend that transcends all industries, whereas we believe most of our competitors view technology as one of their many client verticals. We have been able to develop deep expertise across several sub-verticals that comprise this high growth market, including food delivery, e-commerce, FinTech and social media. We facilitate millions of interactions between our clients and their respective end customers on a daily basis. We leverage insights from this constant flow of activity to better understand the particular challenges and trends in each niche market, which enables us to drive best practices across our client base. We believe each additional satisfied client enhances our brand’s reputation as the top provider of outsourced services for high growth technology companies.
The following chart shows our percentage of clients by vertical, as of December 31, 2020:
Digitally Native: Being a 12-year-old outsourcer means we were “born on the web and grew up in the cloud,” allowing us to enter the market without investing in legacy infrastructure. We are adept at executing work in digital channels such as chat, native in-app messaging, short message service (“SMS”), and social channels. 96% of our revenue in 2020 was delivered from non-voice, digital channels or omni-channel services, and our technology infrastructure is cloud-based.
Agility and Responsiveness at Scale: We know how to get the job done—quickly. We move swiftly and we think differently. From the pre-contract engagement of our Project Management Organization to our decentralized “Site ‘CEO’ Model,” we are purpose built for speed to support our clients’ ever-changing needs. We believe these characteristics provide a differentiated ability to thrive in high growth and large-scale environments. We reacted to the novel coronavirus (“COVID-19”) pandemic swiftly, enabling over 90% of our workforce to work-from-home soon after the commencement of lockdowns.
Leadership in Content Security: The growth of social media platforms and the need to secure the user and advertiser generated content on these platforms has led to an explosion in demand for content moderation services. As of December 31, 2020, we had 3,800 front line teammates performing work in Content Security dealing with misinformation, offensive content, and critical policy issues. To care for their health and wellbeing, we have developed the TaskUs Resiliency Studio, a clinician-led and evidence-based psychological health and safety program. We couple this with advanced policy management expertise and an agile product development team focused on tools and innovation. We believe our revenue CAGR of 157% in this service offering from 2017 to 2020 is evidence that our clients view this offering as critical and differentiated.
Employer of Choice: Our culture has been recognized internationally, with accolades such as number 40 on Glassdoor’s 2019 Best Places to Work among large U.S. employers and Platinum Employer of the Year in 2018, according to Investors in People. We believe our eNPS of 72 in 2020 is higher than any other tech-enabled service provider with over 1,000 employees. We believe this not only drives higher quality work and lower attrition, but also enables us to nimbly recruit additional employees to accommodate growth. For example in 2020, 38% of our new hires came from internal referrals, helping us achieve a 101% fill rate.
Founder-Led, Organic Growth Engine: Our Co-Founders and seasoned management team have meticulously built our employer brand and the agile operating model we rely upon to deliver for high growth clients. We believe we are the only company in our sector with over $250 million in annual revenues that has grown 100% organically, leading to consistency in operations and culture which provides a strong foundation for future potential growth, organic or inorganic. This strategy has helped TaskUs deliver 60% CAGR in revenues from 2017 to 2020.
We intend to continue our accelerated growth trajectory through several attractive and actionable opportunities, including:
Growing with our Current Clients: As of December 31, 2020 we served over 100 of the world’s leading technology companies, and between 2017 and 2020, our current clients with publicly disclosed financials grew their revenue at an estimated unweighted average CAGR of 40%. As our clients’ revenue and scale have grown at rapid rates, so have our outsourcing volumes, revenue and service relationships. Revenue from TaskUs clients who have been with us since 2017 grew by 448% through the end of 2020, based on 29 clients who generated $500,000 or more in revenue for each of those years. In addition, our average annual net revenue retention rate between 2018 and 2020 was 125% and our cNPS score has increased from 35 in 2017 to 75 in 2020.
Extending Solutions with Current Clients: We have a significant opportunity to enhance the penetration of current services as well as cross-sell new services. We aim to bolster our portfolio of highly complementary service capabilities by integrating consultative expertise, process automation, and technology that further expand our value proposition to clients. Services such as Content Security, which grew at a CAGR of 157% between 2017 and 2020, anti-money laundering, fraud prevention and data science are areas we believe are particularly attractive and highly relevant for our forward-leaning technology client base.
New Client Wins: We are well positioned within multi-billion dollar commercial markets with massive addressable spend opportunities where we focus on culturally aligned, agile companies that plan to scale rapidly. We plan to take advantage of our brand position and highly effective sales team, modeled after software-as-a-service (“SaaS”) industry practices, to continue to diversify our client base and add more enterprise-class technology brands to our client list. We had a total of 36 new clients in 2020, and win rates of 56%. Our total new client win rate from 2018 to 2020 was 42%.
Expanding Geographically: Global presence and multilingual capabilities are of increasing importance to our multinational clients and potential clients. The number of clients working with TaskUs in multiple geographies more than doubled from 2017 to 2020. New geographies mean new languages and/or capabilities to offer to our clients and increasing opportunities to win new business.
Pursuing Opportunistic M&A: We intend to continue to evaluate M&A opportunities to expand into higher value services, add new geographies or add additional capabilities to support our teammates in delivering exceptional service.