Item 1. Financial Statements
Item 1. Financial Statements.
TASKUS, INC.
Unaudited Condensed Consolidated Balance Sheets
(in thousands, except share data)
Assets
June 30,
2021
December 31,
2020
Current assets:
Cash
$
195,927
$
107,728
Accounts receivable, net of allowance for doubtful accounts of $ 2,691 and $ 2,294 , respectively
127,867
87,782
Other receivables
439
105
Prepaid expenses
9,667
13,032
Income tax receivable
—
1,606
Other current assets
2,471
1,051
Total current assets
336,371
211,304
Noncurrent assets:
Property and equipment, net
63,060
56,957
Deferred tax assets
575
585
Intangibles
230,871
240,295
Goodwill
195,735
195,735
Other noncurrent assets
3,006
2,630
Total noncurrent assets
493,247
496,202
Total assets
$
829,618
$
707,506
Liabilities and Shareholders’ Equity
Liabilities:
Current liabilities:
Accounts payable and accrued liabilities
$
43,494
$
41,935
Accrued payroll and employee-related liabilities
171,690
21,994
Current portion of debt
48,510
45,984
Current portion of income tax payabl e
1,586
—
Deferred revenue
5,810
4,711
Deferred rent
303
218
Total current liabilities
271,393
114,842
Noncurrent liabilities:
Income tax payable
2,988
2,988
Long-term debt
193,525
198,768
Deferred rent
2,573
2,194
Accrued payroll and employee-related liabilities
2,640
2,641
Deferred tax liabilities
40,474
50,936
Total noncurrent liabilities
242,200
257,527
Total liabilities
513,593
372,369
Commitments and Contingencies (See Note 8)
Shareholders’ equity:
Class A Common stock, $ 0.01 par value. Authorized 2,500,000,000 ; 15,180,000 and no shares
issued and
outstanding as of June 30, 2021
and December 31, 2020, respectively
152
—
Class B Convertible Common stock, $ 0.01 par value. Authorized 250,000,000 ; 82,110,174 and 91,737,020 shares
issued and
outstanding as of June 30, 2021
and December 31, 2020, respectively
821
917
Additional paid-in
capital
519,817
398,202
Accumulated deficit
( 206,834
)
( 67,398
)
Accumulated other comprehensive income
2,069
3,416
Total shareholders’ equity
316,025
335,137
Total liabilities and shareholders’ equity
$
829,618
$
707,506
See accompanying notes to unaudited condensed consolidated financial statements.
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TASKUS, INC.
Unaudited Condensed Consolidated Statements of Operations
(in thousands, except share and per share data)
Three months ended
June 30,
Six months ended June 30,
2021
2020
2021
2020
Service revenue
$
180,022
$
114,400
$
332,893
$
216,829
Operating expenses:
Cost of services
103,798
64,135
191,828
125,918
Selling, general, and administrative expense
177,810
25,709
209,308
51,440
Depreciation
6,729
5,815
12,932
10,529
Amortization of intangible assets
4,712
4,712
9,424
9,424
Loss (gain) on disposal of assets
1
—
28
( 5
)
Contingent consideration
—
3,570
—
3,570
Total operating expenses
293,050
103,941
423,520
200,876
Operating (loss) income
( 113,028
)
10,459
( 90,627
)
15,953
Other (income) expense
( 1,659
)
( 1,137
)
( 905
)
260
Financing expenses
1,594
1,959
3,175
4,202
(Loss) income before taxes
( 112,963
)
9,637
( 92,897
)
11,491
(Benefit from) provision for income taxes
( 7,020
)
1,629
( 3,461
)
1,968
Net (loss) income
$
( 105,943
)
$
8,008
$
( 89,436
)
$
9,523
Net (loss) income per common share, basic and diluted
$
( 1.14
)
$
0.09
$
( 0.97
)
$
0.10
Weighted-average number of common shares outstanding, basic and diluted
92,957,493
91,737,020
92,347,257
91,737,020
See accompanying notes to unaudited condensed consolidated financial statements.
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TASKUS, INC.
Unaudited Condensed Consolidated Statements of Comprehensive (Loss) Income
(in thousands)
Three months ended June 30,
Six months ended June 30,
2021
2020
2021
2020
Net (loss) income
$
( 105,943
)
$
8,008
$
( 89,436
)
$
9,523
Retirement benefit reserves
( 3
)
3
( 8
)
2
Foreign currency translation adjustments
( 489
)
1,230
( 1,339
)
1,007
Comprehensive (loss) income
$
( 106,435
)
$
9,241
$
( 90,783
)
$
10,532
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
capital
Class A Common stock
Class B Common stock
Additional
paid-in
capital
Accumulated
Deficit
Accumulated
other
comprehensive
income
Total
shareholders’
equity
Shares
Amount
Shares
Amount
Balance as of December 31, 2019
—
$
—
91,737,020
$
917
$
398,202
$
( 101,931
)
$
312
$
297,500
Net income
—
—
—
—
—
1,515
—
1,515
Other comprehensive loss
—
—
—
—
—
—
( 224
)
( 224
)
Balance as of March 31, 2020
—
$
—
91,737,020
$
917
$
398,202
$
( 100,416
)
$
88
$
298,791
Net income
—
—
—
—
—
8,008
—
8,008
Other comprehensive income
—
—
—
—
—
—
1,233
1,233
Balance as of June 30, 2020
—
$
—
91,737,020
$
917
$
398,202
$
( 92,408
)
$
1,321
$
308,032
Capital stock and additional paid-in
capital
Class A Common stock
Class B Common stock
Additional
paid-in
capital
Accumulated
Deficit
Accumulated
other
comprehensive
income
Total
shareholders’
equity
Balance as of December 31, 2020
—
$
—
91,737,020
$
917
$
398,202
$
( 67,398
)
$
3,416
$
335,137
Net income
—
—
—
—
—
16,507
—
16,507
Other comprehensive loss
—
—
—
—
—
—
( 855
)
( 855
)
Balance as of March 31, 2021
—
$
—
91,737,020
$
917
$
398,202
$
( 50,891
)
$
2,561
$
350,789
Issuance on Class A Common stock in the
initial public offering primary offering,
net of underwriters’ fees and offering
costs
5,553,154
56
—
—
115,844
—
—
115,900
Conversion
of
Class
B
Common
s
tock
9,626,846
96
( 9,626,846
)
( 96
)
—
—
—
—
Stock-based compensation expense
—
—
—
—
5,771
—
—
5,771
Distribution of dividends ($ 0.55 per
share)
—
—
—
—
—
( 50,000
)
—
( 50,000
)
Net loss
—
—
—
—
—
( 105,943
)
—
( 105,943
)
Other comprehensive loss
—
—
—
—
—
—
( 492
)
( 492
)
Balance as of June 30, 2021
15,180,000
$
152
82,110,174
$
821
$
519,817
$
( 206,834
)
$
2,069
$
316,025
See accompanying notes to unaudited condensed consolidated financial statements.
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TASKUS, INC.
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
Six months ended June 30,
2021
2020
Cash flows from operating activities:
Net (loss) incom e
$
( 89,436
)
$
9,523
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation
12,932
10,510
Amortization of intangibles
9,424
9,424
Amortization of debt financing fees
247
228
Loss (gain) o
n disposal of assets
28
( 5
)
Provision for losses on accounts receivable
465
1,297
Unrealized foreign exchange losses for forward contracts
1,730
178
Deferred taxes
( 10,462
)
( 2,157
)
Stock-based compensation expense
5,771
—
Changes in operating assets and liabilities:
Accounts receivable s
( 41,195
)
( 22,007
)
Other receivables, prepaid expenses, and other current assets
( 4,398
)
( 430
)
Other noncurrent assets
( 415
)
( 343
)
Accounts payable and accrued liabilities
5,537
7,976
Accrued payroll and employee-related liabilities
150,543
4,003
Income tax payable
3,304
2,896
Deferred revenue
1,100
970
Deferred rent
502
540
Net cash provided by operating activities
45,677
22,603
Cash flows from investing activities:
Purchase of property and equipmen t
( 23,453
)
( 18,815
)
Net cash used in investing activities
( 23,453
)
( 18,815
)
Cash flows from financing activities:
Proceeds from borrowing, Revolving credit facility
—
39,878
Payments on long-term debt
( 2,625
)
( 525
)
Payments for debt financing fees
( 340
)
—
Issuance of common stock, net of underwriters’ fees
120,698
—
Distribution of dividends
( 50,000
)
—
Net cash provided by financing activities
67,733
39,353
Increase in cash and cash equivalents
89,957
43,141
Effect of exchange rate changes on cash
( 1,758
)
1,429
Cash and cash equivalents at beginning of period
107,728
37,541
Cash and cash equivalents at end of period
$
195,927
$
82,111
See accompanying notes to unaudited condensed consolidated financial statements.
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TASKUS, INC.
Notes to Unaudited Condensed Consolidated
Financial Statements
(1) Description of Business and Organization
TaskUs, Inc. (formerly known as TU TopCo, Inc.) (“TaskUs” and, together with its subsidiaries, the “Company,” “we,” “us” or “our”) was formed by investment funds affiliated with The Blackstone Group Inc. (formerly known as The Blackstone Group L.P.) (“Blackstone”) as a vehicle for the acquisition of TaskUs Holdings, Inc. (formerly known as TaskUs, 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.
In connection with the Company’s June 2021 initial public offering (“IPO”), on June 10, 2021, the Company amended and restated its certificate of incorporation to effect
a ten
-for-one
forward stock split of its outstanding common stock and authorized two classes of ownership interests. See Note 11, “Shareholders’ Equity” for additional information.
We are a digital outsourcer focused on serving high-growth technology companies to represent, protect and grow their brands. Our global, omni-channel delivery model is focused on Digital Customer Experience, Content Security and artificial intelligence (“AI”)
Operations. We have designed our platform to enable us to rapidly scale and benefit from our clients’ growth. Through our agile and responsive operational model, we deliver services from multiple delivery sites that span globally from the United States, Philippines, 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.
•
Content Security
: Principally consists of review and disposition of user and advertiser generated content for purposes which include removal or labeling of policy violating, offensive or misleading content.
•
AI Operation
s: Principally consists of data labeling, annotation and transcription services performed for the purpose of training and tuning AI algorithms through the process of machine learning.
(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 prospectus dated June 10, 2021 (the “prospectus”), as filed with the Securities and Exchange Commission (the “SEC”) on June 14, 2021, includes a discussion of the significant accounting policies used in the preparation of our consolidated financial statements. There were no material changes to our significant accounting policies during the six months ended June 30, 2021.
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, 2020 included in our prospectus. 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 June 30, 2021 and its results of operations, comprehensive (loss) income and shareholders’ equity for the three and six months ended June 30, 2021 and 2020, and cash flows for the six months ended June 30, 2021 and 2020. The condensed consolidated balance sheet at December 31, 2020, was derived from audited annual financial statements but does not contain all of the footnote disclosures from the annual financial statements.
The accompanying financial statements and related notes to the financial statements give retroactive effect to the stock split for all periods presented. See Note 11, “ Shareholders’ Equity” for additional information.
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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; valuation of forward contracts receivable; valuation of equity based compensation; valuation and impairment of intangibles and goodwill and reserves for income tax uncertainties and other contingencies. As of June 30, 2021, the impact of the novel coronavirus (“COVID-19”)
pandemic, including as a result of new strains and variants of the virus, continues to unfold. As a result, many of our estimates and assumptions required increased judgement and carry a higher degree of variability and volatility. We continue to closely monitor the outbreak and the impact on our operations and liquidity. As events continue to evolve and additional information becomes available, our estimates may change materially in the future.
(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 involvement with variable interest entities.
(d)
Concentration Risk
Most of the Company’s customers are located in the United States. Customers outside of the United States are concentrated in Europe and Canada.
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For the three and six months ended June 30, 2021 and 2020, the following customers represented
greater than 10 % of the Company’s service revenue:
Service revenue percentage
Three months ended June 30,
Six months ended June 30,
Customer
2021
2020
2021
2020
A
27
%
33
%
28
%
32
%
B
12
%
16
%
12
%
14
%
As of June 30, 2021 and December 31, 2020, the following customers represented greater than 10 % of the Company’s accounts receivable:
Accounts receivable percentage
Customer
June 30, 2021
December 31, 2020
A
14
%
22
%
B
16
%
16
%
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.
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(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 December 2019, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2019-12,
Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 was issued as a means to reduce the complexity of accounting for income taxes for those entities that fall within the scope of the accounting standard. The guidance is to be applied using a prospective method, excluding amendments related to franchise taxes, which should be applied on either a retrospective basis for all periods presented or a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. ASU 2019-12
is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. The Company adopted this standard in the first quarter of 2021; the adoption did not have a material impact on its consolidated financial statements.
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Recently issued accounting pronouncements
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842), which supersedes FASB Accounting Standards Codification (ASC), Leases (Topic 840). The standard is intended to increase the transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheets and disclosing key information about leasing arrangements. In June 2020, the FASB postponed the effective date for ASC 842 for private companies. This ASU will be effective for the Company beginning in fiscal year 2022, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2016-02
on the Company’s consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13,
Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. 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. This ASU will be effective for the Company beginning in fiscal year 2023 with early adoption is permitted. The Company is currently evaluating the impact of adopting ASU 2016-13
on the Company’s consolidated financial statements.
(3) Revenue
Disaggregation of Revenue
Our revenues are derived from contracts with customers related to business outsourcing services that we provide. The following table presents the breakdown of the Company’s revenues by service offering:
Three months ended June 30,
Six months ended June 30,
(in thousands)
2021
2020
2021
2020
Digital Customer Experience
$
113,566
$
71,345
$
213,277
$
136,562
Content Security
42,995
31,076
79,122
57,614
AI Operations
23,461
11,979
40,494
22,653
Service Revenue
$
180,022
$
114,400
$
332,893
$
216,829
The majority of the Company’s revenues are derived from contracts with customers who are located in the United States. However, we deliver our 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 June 30,
Six months ended June 30,
(in thousands)
2021
2020
2021
2020
Philippines
$
95,681
$
62,842
$
180,259
$
118,716
United States
58,930
43,429
109,687
84,074
Rest of World
25,411
8,129
42,947
14,039
Service Revenue
$
180,022
$
114,400
$
332,893
$
216,829
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Contract Balances
Accounts receivable, net of allowances includes $ 71.7 million and $ 47.4 million of unbilled revenues as of June 30, 2021 and December 31, 2020, respectively.
(4) Forward Contract Receivable
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 2021 and 2020, the Company entered into foreign currency exchange rate forward contracts, with a commercial bank as the counterparty, with maturities of generally 12 months or less, to reduce the volatility of cash flows primarily related to forecasted costs denominated in Philippine pesos. 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 (income) expense in the consolidated statements of operations.
For the three months ended June 30, 2021 and 2020 the Company settled forward contracts with total notional amounts of approximately $ 22.8 million, and $ 18.0 million, respectively and for the six months ended June 30, 2021 and 2020 the Company settled forward contracts with total notional amounts of approximately $ 45.6 million, and $ 36.0 million, respectively. For the three months ended June 30, 2021 and 2020,
realized gains of approximately $ 0.6 million and $ 0.9 million, respectively, resulting from the settlement of forward contracts were included within other (income) expense. For the six months ended June 30, 2021
and 2020,
realized gains of approximately $ 1.4 million and $ 1.6 million, respectively, resulting from the settlement of forward contracts were included within other (income) expense.
As of June 30, 2021 and December 31, 2020, the Company had outstanding forward contracts with notional amounts of approximately
$ 116.6 million and $ 109.2 million, respectively. The forward contract receivable resulting from change in fair value was recorded under other
current assets. For the three months ended June 30, 2021 and 2020, the unrealized gains on the forward contracts of $ 0.1 million and $ 1.3 million, respectively, were included within other (income) expense. For the six months ended June 30, 2021 and 2020, the unrealized losses on the forward contracts of $ 1.7 million and $ 0.2 million, respectively, were included within other (income) expense.
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 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.
The following table presents information about the Company’s assets that are measured at fair value on a recurring basis at June 30, 2021 and December 31, 2020 and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value.
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Fair value measurements using
June 30,
2021
Level 1
inputs
Level 2
inputs
Level 3
inputs
(in thousands)
Forward contract receivable
$
50
$
—
$
50
$
—
Fair value measurements using
December 31,
2020
Level 1
inputs
Level 2
inputs
Level 3
inputs
(in thousands)
Forward contract receivable
$
1,780
$
—
$
1,780
$
—
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.
(5) Property and Equipment, net
The components of Property and equipment, net at June 30, 2021 and December 31, 2020 were as follows:
June 30,
2021
December 31,
2020
(in thousands)
Leasehold improvements
$
30,972
$
31,654
Technology and computers
62,678
47,572
Furniture and fixtures
4,023
4,203
Construction in process
8,724
5,194
Other property and equipment
6,309
5,995
Property and equipment, gross
112,706
94,618
Accumulated depreciation
( 49,646
)
( 37,661
)
Property and equipment, net
$
63,060
$
56,957
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 the geographic location as of June 30, 2021 and December 31, 2020:
June 30,
2021
December 31,
2020
(in thousands)
Philippines
$
39,825
$
37,823
United States
10,019
8,983
Rest of World
13,216
10,151
Total Property and equipment, net
$
63,060
$
56,957
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(6) Goodwill and Intangibles
The carrying amount of goodwill as of June 30, 2021 and December 31, 2020 was $ 195.7 million.
Intangible assets consisted of the following as of June 30, 2021 and December 31, 2020:
Intangibles,
Gross
Life
(Years)
Accumulated
Amortization
Intangibles,
Net
(in thousands)
Customer relationships
$
240,800
15
$
( 44,148
)
$
196,652
Trade name
41,900
15
( 7,681
)
34,219
Balance as of June 30, 2021
$
282,700
$
( 51,829
)
$
230,871
Intangibles,
Gross
Life
(Years)
Accumulated
Amortization
Intangibles,
Net
(in thousands)
Customer relationships
$
240,800
15
$
( 36,121
)
$
204,679
Trade name
41,900
15
( 6,284
)
35,616
Balance as of December 31, 2020
$
282,700
$
( 42,405
)
$
240,295
(7) Long-Term Debt
The balances of current and non-current
portions of debt consist of the following as of June 30, 2021:
(in thousands)
Current
Noncurrent
Total
Term Loan
$
9,188
$
194,775
$
203,963
Revolver
39,878
—
39,878
Less: Debt financing fees
( 556
)
( 1,250
)
( 1,806
)
Total
$
48,510
$
193,525
$
242,035
2019 Credit Agreement
On September 25, 2019, the Company entered into a credit agreement (the “2019 Credit Agreement”) that included a
$ 210.0 million term loan (the “Term Loan Facility”) and a
$ 40.0 million revolving credit facility (the “Revolving Credit Facility” and, together with the Term Loan Facility, the “2019 Credit Facilities”). On April 30, 2021, the Company entered into Amendment No. 1 to our 2019 Credit Agreement with the existing lenders providing for
$ 50.0 million incremental revolving credit commitments on the same terms as our existing revolving credit facility. We accounted for this amendment as a debt modification and recorded $ 0.3 million of debt financing fees which will be amortized, along with previously deferred fees, over the remaining term of the Revolving Credit Facility.
Principal payments on the Term Loan Facility are due quarterly in arrears
equal to installments in an aggregate annual amount equal to (i) 1.0 % per annum of the original principal amount in the first year, (ii) 2.5 % per annum of the original principal amount in the second year, (iii) 5.0 % per annum of the original principal amount in the third year, (iv) 7.5 % per annum of the original principal amount
in the fourth year and (v) 10.0 % per annum of the original principal amount in the fifth year, with the remaining principal due in a lump sum at the maturity date of September 25, 2024 . The interest rate in effect with respect to the Term Loan Facility as
of June 30, 2021 was 2.345 %.
The Revolving Credit Facility provides the Company with access to a
$ 15.0 million letter of credit facility and a $ 5.0 million swing line facility, each of which, to the extent used, reduces borrowing availability under the Revolving Credit Facility. The Revolving Credit Facility expires
on
September 25, 2024 ,
and requires a commitment fee of
0.4 % on undrawn commitments paid
quarterly in arrears. As of June 30, 2021, the interest rate in effect was 2.345 % on outstanding borrowings under the Revolving Credit Facility. As of June 30, 2021, we had $ 50.1 million of borrowing availability under the Revolving Credit Facility.
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The 2019 Credit Agreement contains certain restrictive financial covenants and also limits additional borrowings, capital expenditures, and distributions. The Company was in compliance with these covenants as of June 30, 2021. Substantially all assets of TU Midco, Inc. and its material domestic subsidiaries are pledged as collateral under this agreement, subject to certain customary exceptions.
(8) Commitments and Contingencies
(a)
Legal Proceedings
From time to time, the Company may become subject to legal proceedings, claims, and litigation arising in the ordinary course of business. The Company is not currently a party to any material legal proceedings, nor is the Company aware of any pending or threatened litigation that would have a material adverse effect on the Company’s business, operating results, cash flows, or financial condition should such litigation be resolved unfavorably.
(b)
Contingent Consideratio
n
On October 1, 2018, Bidco acquired 100 % of the outstanding shares of TaskUs Holdings, Inc. at a purchase price of $ 429.4 million (the “Transaction”). As a part of the Transaction, the Company entered into a Stock Purchase Agreement, which provides that the sellers of TaskUs, Inc. are entitled to receive cash payments for certain tax benefits, if any, realized as a result of the Blackstone Acquisition that are received by the Company for a specified period after the closing date. The Company recorded a liability of $ 3.6 million for the expected payment to the sellers, which is included within accounts payable and accrued liabilities in the condensed consolidated balance sheets as of June 30, 2021 and December 31, 2020. The Company received payment for the tax benefits in the six months ended June 30, 2021.
(9) Employee Compensation
Phantom Stock Plan
On June 19, 2015, TaskUs Holdings’ board of directors officially adopted a companywide phantom stock plan and related phantom share agreements.
The number of outstanding phantom shares at June 30, 2021 and December 31, 2020 were 511,489 and 651,436 , respectively. There were 139,947 phantom shares forfeited during the six months ended June 30, 2021. Because the change in control became probable upon the IPO, the Company recognized expense in the amount of the expected cash
settlement totaling
$ 127.5 million recorded in selling, general, and administrative expense on the condensed consolidated statements of operations for the three and six months ended June 30, 2021. The associated liability was recorded in accrued payroll and employee-related liabilities on the condensed consolidated balance sheets as of June 30, 2021. Pursuant to the terms of the plan, payment to the phantom shareholders in settlement of their vested phantom shares must occur within 30 days following the close of the IPO, or no later than July 15, 2021, at which point there will be
zero phantom shares outstanding.
2019 Stock Incentive Plan
On April 16, 2019, the Company established an equity incentive plan pursuant to which the Company has granted option awards to selected executives and other key employees (the “2019 Plan”).
The option awards contain service, market and performance conditions. Stock options under this plan contingently vest over a period of two years in the event of a change in control and over a period of three years in the event of an IPO (each as defined in such plan), with the vesting period beginning on the date of the performance event so long as the holder remains employed. The amount of options eligible for vesting is contingent upon Blackstone’s return on invested capital in the Company. These options have contractual lives of 10 years. Following the IPO and establishment of the 2021 Omnibus Incentive Plan (the “2021 Plan”)
as further discussed below, it is not expected that any additional awards will be issued under the 2019 Plan.
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At the date of the IPO, the Company concluded that the public offering represents a qualifying liquidity event that would cause the stock option’s performance condition to be probable of occurring. As such, the Company has begun to recognize compensation expense in relation to the stock options.
2021 Omnibus Incentive Plan
In connection with the IPO, the Company adopted the 2021 Plan,
which provides for the issuance of non-qualified
stock options, incentive stock options, stock appreciation rights (“SARs”), restricted shares of Class A common stock, restricted stock units (“RSUs”), or other equity-based or cash-based awards. A total of 12,160,929 shares of Class A common stock were initially reserved for issuance under the 2021 Plan, subject to automatic annual evergreen increases. On June 10, 2021 in connection with the IPO, the Company granted time-based RSUs, performance-based restricted stock units (“PSUs”), and time-based stock options to its founders and certain other officers and employees under the 2021 Plan.
Stock Options
On June 10, 2021, the Company granted 1,565,398 of stock options to its founders and certain officers and employees with a weighted-average grant date fair value of $ 8.15 . The stock options issued to such officers and employees (including founders) generally vest quarterly or annually over four years and expire ten years from the date of the grant. The grant date fair value of the stock options was
estimated using the Black-Scholes option pricing method with the following assumptions:
Dividend yield (%)
0.0
%
Expected volatility (%)
35
%
Risk-free interest rate (%)
0.8 - 1.1
%
Expected term (years)
5.1 - 7.0
As of June 30, 2021, there were 9,139,456 options outstanding with a weighted-average exercise price of $ 8.23 per share. As of June 30, 2021, there was $ 17.3 million of unrecognized compensation expense related to the Company’s unvested stock options that is expected to be recognized over a weighted-average period of 2.3 years.
RSUs
On June 10, 2021, the Company granted 2,528,621 RSUs to
its founders and certain officers and employees with a weighted-average grant date fair value of $ 23.00 . The RSUs are typically subject to service-based vesting conditions and will vest in equal quarterly or annual installments over four years . The related stock-based compensation expense is recognized using a graded vesting method.
As of June 30, 2021, there was $ 55.6 million of unrecognized compensation expense related to the Company’s unvested RSUs that is expected to be recognized over a weighted-average period of 2.2 years.
PSUs
On June 10, 2021, the Company granted 3,307,060 of PSUs to its founders with a weighted-average grant date fair value of $ 3.98 . The PSUs contain three tranches and service and market conditions. The PSUs vest
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contingently in annual installments over four years. The amount of PSUs eligible for vesting is contingent upon the achievement of certain enterprise value CAGR targets. The Company will recognize the related stock-based compensation expense using a graded vesting method. The grant date fair value of the PSUs were estimated using the Monte Carlo simulation method with the following assumptions:
Dividend yield (%)
0
%
Expected volatility (%)
40
%
Risk-free interest rate (%)
0.1 - 0.5
%
As of June 30, 2021, there was $ 12.8 million of unrecognized compensation expense related to the Company’s unvested PSUs that is expected to be recognized over a weighted-average period of 2.8 years.
The following table summarizes the components of stock-based compensation expense recognized in the Company’s condensed c o
nsolidated statements of operations for the periods presented:
Three months ended
June 30,
Six months ended
June 30,
2021
2020
2021
2020
(in thousands)
Cost of services
$
51
$
—
$
51
$
—
Selling, general ,
and administrative expense
133,216
—
133,216
—
Total
$
133,267
$
—
$
133,267
$
—
(10) 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 (benefit from) provision for income taxes of $
( 7.0 ) million and $ 1.6 million in the three months ended June, 2021 and 2020, respectively. The effective tax rate was 6.2 % and 16.9 % for the three months ended June 30, 2021 and 2020, respectively.
The Company recorded (benefit from) provision for income taxes
of
$( 3.5 ) million and $ 2.0
million in the six months ended June, 2021 and 2020, respectively t
he effective tax rate was 3.7 % and 17.1 % for the six months ended June 30, 2021 and 2020. The difference between the effective tax rates and the 21 % federal statutory rate in the six months ended June 30, 2021 was primarily due to global intangible low-taxed income (“GILTI”) inclusion, tax benefits of income tax holidays in foreign jurisdiction, and nondeductible compensation of officers. The difference between the effective tax rates and the 21 % federal statutory rate in the six months ended June 30, 2020 was primarily due to GILTI inclusion, FDII deduction and tax benefits of income tax holidays in foreign jurisdiction.
The Company is subject to income tax in the United States federal, state and various foreign jurisdictions. Federal income tax returns of the Company are subject to IRS examination for the 2017 through 2019 tax years. State income tax returns are subject to examination for the 2016 through 2019 tax years.
The Company’s practice and intention are to indefinitely reinvest the earnings of its non-U.S.
subsidiaries. Determination of the amount of any unrecognized deferred income tax liability on the temporary difference is not practicable because of the complexities of the hypothetical calculation.
(11) Shareholders’ Equity
Dividend Distribution
On April 9, 2021, prior to the IPO, the board of directors declared a cash dividend in the aggregate amount of $ 50.0 million to holders of our common stock. The cash dividend was paid on April 16, 2021.
Amendment and Restatement of Certificate of Incorporation
On June 10, 2021, the Company amended and restated its certificate of incorporation to effect a ten -for-one
forward stock split of its outstanding common stock and authorized three classes of ownership interests:
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(i) 250,000,000 shares of Preferred Stock, par value $ 0.01 per share, (ii) 2,500,000,000 shares of Class A common stock, par value $ 0.01 per share, and (iii) 250,000,000 shares of Class B common stock, par value $ 0.01 per share. After giving effect to the ten-for-one
stock split, all outstanding shares of common stock were reclassified into an equal number of shares of Class B common stock (the “Class B Reclassification”) and the selling shareholders participated equally in the Class B Reclassification.
The rights of the holders of Class A common stock and Class B common stock are identical, except with respect to voting, transfer and conversion rights. Each share of Class A common stock is entitled to one vote per share. Each share of Class B common stock is entitled to ten votes per share and is convertible into one share of Class A common stock at any time or automatically upon certain conditions but no later than 7 years following the filing and effectiveness of the amendment on June 10, 2021.
Initial Public Offering
On June 15, 2021, the Company closed its IPO of 5,553,154 shares of Class A common stock (the “primary” offering) and selling stockholders sold 9,626,846 shares (the “secondary” offering), including shares sold by the selling stockholders pursuant to the underwriters’ full exercise of their option to purchase additional shares, at a public offering price of
$ 23 per share. The Company received net proceeds of
$ 120.7 million after deducting underwriting discounts and commissions, but before deducting offering expenses. The Company used the proceeds from the primary offering, together with cash on hand, to satisfy payments of approximately
$ 127.5 million in respect of vested phantom shares in the third quarter of 2021.
(12) (Loss) Earnings Per Share
Following the effectiveness of the amended and restated certificate of incorporation, the Class B Reclassification and the IPO, 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. The accompanying financial statements and related notes to the financial statements give retroactive effect to the stock split for all periods presented. See Note 11, “Shareholders’ Equity” for additional information.
The computation of basic net (loss) income per share (“EPS”) is based on the weighted-average number of shares that were outstanding during the period, including shares of common stock that are issuable at the end of the reporting period. The computation of diluted EPS is based on the number of basic weighted-average shares outstanding plus the number of common shares that would be issued assuming the exercise of all potentially dilutive common stock equivalents. Common stock equivalents consist of shares issuable upon the exercise of stock options and vesting of RSUs and PSUs.
The following table summarizes the computation of basic and diluted EPS for the three and six months ended June 30, 2021 and 2020:
Three months ended June 30,
Six months ended June 30,
(in thousands, except share and per share data
)
2021
2020
2021
2020
Numerator:
Net (loss) income Available to Common Shareholders
$
( 105,943
)
$
8,008
$
( 89,436
)
$
9,523
Denominator:
Weighted-average common stock outstanding –
basic and diluted
92,957,493
91,737,020
92,347,257
91,737,020
Net (loss) income per share:
Basic and diluted
$
( 1.14
)
$
0.09
$
( 0.97
)
$
0.10
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Since we were in a net loss position for the three and six months ended June 30, 2021, diluted EPS is equal to basic EPS for such periods as the inclusion of potential common stock equivalents would have been anti-dilutive. We excluded 58,513
and 29,256 potential common stock equivalents from the computation of diluted EPS for the three and six months ended June 30, 2021, respectively, because the effect would have been anti-dilutive. In addition, we excluded 4,599,736
and 2,299,868
potential common stock equivalents from the computation of diluted EPS for the three and six months ended June 30, 2021, respectively, since we were in a net loss position; however, these awards would have been dilutive if we were in a net income position. As of June 30, 2021, there were
5,352,056 potential common stock equivalents outstanding, with market conditions which were not met at that date, that were excluded from the calculatio n
of diluted EPS.
(13) Related Party
From time to time, the Company does business with a number of other companies affiliated with Blackstone, which cannot be presumed to be carried out at an arm’s-length basis. During the periods presented, Blackstone had an interest in Alight, Inc. (“Alight”), Custom Ink and Mphasis Limited (“Mphasis”), entities that supply TaskUs with certain consulting services and promotional items. During the three months and six months ended June 30, 2021, the Company made payments of
$ 0.1 million and $ 0.4 million, respectively to Alight. During the six months ended June 30, 2021, the Company made payments of
$
0.2 million to Custom Ink. During the six months ended June 30, 2020, the Company made payments of $ 0.2 million to Mphasis.
During the periods presented, Blackstone had an interest in Vivint Smart Home, Inc. (“Vivint”),
North American Bancard, and Custom Ink, entities that are TaskUs customers. During the three months ended June 30, 2021, t
he Company received payments of $ 0.5 million, $ 0.5 million, and $ 0.5 million from Vivint, North American Bancard and Custom Ink, respectively. During the six months ended June 30, 2021, t
he Company received payments of $ 0.8 million, $ 0.6 million, and $ 0.7 million from Vivint, North American Bancard and Custom Ink, respectively.
Underwriting of IPO
Blackstone Securities Partners L.P
., an affiliate of Blackstone, served as underwriter of
1,380,000 of the
15,180,000 million shares of Class A common stock sold in the IPO, with underwriting discounts and commissions of
$ 1.265 per share paid by the Company and selling stockholders.
(14) Subsequent Events
Employee Compensation
On August 5, 2021, the Company granted
895,820 equity awards under the 2021 Omnibus Incentive Plan to certain officers. On that date, the Board also authorized management to make grants and awards of cash or options or other equity securities to non-executive officers of the Company under the 2021 Omnibus Incentive Plan in compliance with the plan, of which
1,357,838 equity awards were granted on August 9, 2021.
Phantom shares
In the third quarter of 2021, the Company used the net proceeds received by it from the IPO, together with cash on hand, to satisfy payments relating to vested phantom shareholders that became due upon the completion of the IPO. See Note 9, “Employee Compensation” for additional information.
Contingent consideration
On July
9 ,
2021 , the Company made payments of $
3.6 million to the sellers of TaskUs Holdings, Inc, in relation to the contingent consideration arising from certain tax benefits realized as a result of the Blackstone Acquisition. See Note 8(b), “Commitments and Contingencies” for additional information.
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