10-Q
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Table of Contents
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM
10-Q
 
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2021
or
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
                    
to
                    
Commission File Number:
001-40482
 
 
TaskUs, Inc.
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
 
83-1586636
State or other jurisdiction of
incorporation or organization
 
I.R.S. Employer
Identification No.
   
1650 Independence Drive, Suite 100
New Braunfels, Texas
 
78132
Address of principal executive offices
 
Zip Code
(888)
400-8275
Registrant’s telephone number, including area code
N/A
Former name, former address and former fiscal year, if changed since last report
 
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
 
Trading
s
ymbol(s)
 
Name of each exchange on which registered
Class A Common Stock, par value $0.01 per share
 
TASK
 
The Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☐    No  ☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
 
Large accelerated filer      Accelerated filer  
       
Non-accelerated
filer
     Smaller reporting company  
       
         Emerging growth company  
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    
Yes  ☐    No  
As of August
5
,
 2021, the number of shares outstanding of the registrant’s common stock was as follows: Class A common stock, par value $0.01 per share: 15,180,000; Class B common stock, par value $0.01 per share: 82,110,174.
 
 
 

Table of Contents
TASKUS, INC.
QUARTERLY REPORT ON FORM
10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2021
TABLE OF CONTENTS
 
 
 
 
  
Page No.
 
  
1
 
  
2
PART I.
 
  
3
Item 1.
 
  
3
 
  
3
 
  
4
 
  
5
 
  
6
 
  
7
 
  
8
Item 2.
 
  
21
Item 3.
 
  
38
Item 4.
 
  
39
PART II.
 
  
40
Item 1.
 
  
40
Item 1A.
 
  
40
Item 2.
 
  
41
Item 3.
 
  
42
Item 4.
 
  
42
Item 5.
 
  
42
Item 6.
 
  
43
  
44

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form
10-Q
(this “Quarterly Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which involve certain known and unknown risks and uncertainties. Forward-looking statements include all statements that are not historical facts. In some cases, you can identify these forward-looking statements by the use of words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “could,” “seeks,” “predicts,” “intends,” “trends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words. Such forward-looking statements are subject to various risks and uncertainties. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. Our actual results or outcomes may differ materially from those anticipated. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made. We assume no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Our actual results may differ significantly from any results expressed or implied by any forward-looking statements. A summary of the principal risk factors that might cause our actual results to differ from our forward-looking statements is set forth below. The following is only a summary of the principal risks that may materially adversely affect our business, financial condition and results of operations. This summary should be read in conjunction with the more complete discussion of the risk factors we face, which are set forth under “Risk Factors” in our prospectus dated June 10, 2021 (the “prospectus”), as filed with the Securities and Exchange Commission (the “SEC”) on June 14, 2021 pursuant to Rule 424(b)(4) under the Securities Act, and in this Quarterly Report, as such risk factors may be updated from time to time in our periodic filings with the SEC, which are accessible on the SEC’s website at www.sec.gov. Such risks and uncertainties include, but are not limited to, the following:
 
   
our business is dependent on key clients, and the loss of a key client could have an adverse effect on our business and results of operations;
 
   
a loss of business or
non-payment
from significant clients could materially affect our results of operations;
 
   
we may fail to cost-effectively acquire new, high-growth clients, which would adversely affect our business, financial condition and results of operations;
 
   
if we provide inadequate service or cause disruptions in our clients’ businesses or fail to comply with the quality standards required by our clients under our agreements, it could result in significant costs to us, the loss of our clients and damage to our corporate reputation;
 
   
unauthorized or improper disclosure of personal or other sensitive information, or security breaches and incidents, whether inadvertent or purposeful, including as the result of a cyber-attack, could result in liability and harm our reputation, each of which could adversely affect our business, financial condition, results of operations and prospects;
 
   
because content moderation is a large portion of our business we may be subject to negative publicity or liability or face difficulties retaining and recruiting employees, any of which could have an adverse effect on our reputation, business, financial condition and results of operations;
 
   
our failure to detect and deter criminal or fraudulent activities or other misconduct by our employees could result in loss of trust from our clients and negative publicity, which would have an adverse effect on our business and results of operations;
 
   
global economic and political conditions, especially in the social media and meal delivery and transport industries from which we generate most of our revenue, could adversely affect our business, results of operations, financial condition and prospects;
 
   
our business is heavily dependent upon our international operations, particularly in the Philippines and India, and any disruption to those operations would adversely affect us;
 
   
our business is subject to a variety of U.S. and international laws and regulations, including those regarding privacy and data security, and we or our clients may be subject to regulations related to the handling and transfer of certain types of sensitive and confidential information; any failure to comply with applicable privacy and data security laws and regulations could harm our business, results of operations and financial condition;
 
   
our business depends in part on our capacity to invest in technology as it develops, and substantial increases in the costs of technology and telecommunications services or our inability to attract and retain the necessary technologists could have a material adverse effect on our business, financial condition, results of operations and prospects;

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our results of operations and ability to grow could be materially affected if we cannot adapt our services and solutions to changes in technology and client expectations;
 
   
fluctuations against the U.S. dollar in the local currencies in the countries in which we operate could have a material effect on our results of operations;
 
   
our business depends on a strong brand and corporate reputation, and if we are not able to maintain and enhance our brand, our ability to expand our client base will be impaired and our business and operating results will be adversely affected;
 
   
competitive pricing pressure may reduce our revenue or gross profits and adversely affect our financial results;
 
   
the success of our business depends on our senior management and key employees;
 
   
our management team has limited experience managing a public company;
 
   
the ongoing
COVID-19
pandemic, including the resulting global economic uncertainty and measures taken in response to the pandemic, has adversely impacted our business, financial condition and results of operations, and may continue to do so;
 
   
affiliates of The Blackstone Group Inc. and our
Co-Founders
Bryce Maddock and Jaspar Weir control us and their interests may conflict with ours or yours in the future; and
 
   
the dual class structure of our common stock will have the effect of concentrating voting control with those stockholders who held our common stock prior to the completion of our initial public offering, and it may depress the trading price of our Class A common stock.
We urge you to carefully consider the foregoing summary together with the risks discussed under “Risk Factors” in the prospectus and in Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations in this Quarterly Report.
WEBSITE AND SOCIAL MEDIA DISCLOSURE
We use our website and our social media outlets, such as Facebook, Instagram, Youtube, LinkedIn, and Twitter as channels of distribution of Company information. The information we post through these channels may be deemed material. Financial and other important information regarding the Company is routinely posted on and accessible through the Company’s website at ir.taskus.com, its Facebook page at facebook.com/TaskUs/, its Instagram page at instagram.com/taskus/, its LinkedIn page at linkedin.com/company/taskus/, its YouTube account at youtube.com/c/Taskus/, and its Twitter account at twitter.com/taskus. Accordingly, investors should monitor these channels, in addition to following our press releases, SEC filings and public conference calls and webcasts. In addition, you may automatically receive email alerts and other information about the Company when you enroll your email address by visiting the “Email Alerts” section at of our investor relations website at ir.taskus.com. The contents of our website and social media channels are not, however, a part of this Quarterly Report.

Table of Contents
PART I — FINANCIAL INFORMATION
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.
 
3

Table of Contents
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.
 
4

Table of Contents
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.
 
5

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.
 
6
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.
 
7
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.
 
8

 
(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.
 
9

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.
 
10

Table of Contents
 
(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.
 
11

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  
    
 
 
    
 
 
    
 
 
    
 
 
 
 
12

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.
13

    
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  
    
 
 
    
 
 
 
 
14

(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. 
15

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. 
 
16

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
 
17

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:
 
18

(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  
    
 
 
    
 
 
    
 
 
    
 
 
 
 
19

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. 
 
20

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited consolidated financial statements and related notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q (this “Quarterly Report”), the financial statements and related notes included in our prospectus dated June 10, 2021 (the “prospectus”), as filed with the Securities and Exchange Commission (the “SEC”) on June 14, 2021 (the “prospectus”) and the information included under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the prospectus. In addition to historical data, the following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed in our forward-looking statements as a result of various factors, including but not limited to those discussed under “Cautionary Statement Regarding Forward-Looking Statements” in this Quarterly Report and under “Risk Factors” in the Quarterly Report and the prospectus.
This
Quarterly
Report
includes
certain
historical
consol
i
dated
financial
and
other
data
for
Tas
k
Us, Inc.
(“we,”
“us,” “our”
or
the
“Company”). The
following
discussion
provides
a
narrative
of
our
results
of op
e
rations
and
financial
condition
for
the
three
and
six
months
ended
June
30,
2021
and
2
0
20.
 
21

Overview
We are a digital outsourcer, focused on serving high-growth technology companies to represent, protect and grow their brands. We support some of the world’s most disruptive brands such as Zoom, Netflix, Uber, Coinbase and Oscar
.
Our global, omni-channel delivery model is focused on providing our clients three key services – 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. We believe our ability to deliver “ridiculously good” outsourcing will enable us to continue to grow our client base.
At TaskUs, culture is at the heart of everything we do. Many of the companies operating in the Digital Economy are well-known for their obsession with creating a world-class employee experience. We believe clients choose TaskUs in part because they view our company culture as aligned with their own, which enables us to act as a natural extension of their brands and gives us an advantage in the recruitment of highly engaged frontline teammates who produce better results.
Recent Financial Highlights
For the three months ended June 30, 2021, we recorded service revenues of $180.0 million, or a 57.4% increase from $114.4 million for the three months ended June 30, 2020. For the six months ended June 30, 2021, we recorded service revenues of $332.9 million, or a 53.5% increase from $216.8 million for the six months ended June 30, 2020.
Net (loss) income for the three months ended June 30, 2021 decreased to $(105.9) million from $8.0 million for the three months ended June 30, 2020. This decrease included expenses related to the one-time phantom shares bonuses and non-recurring teammate bonuses associated with the IPO of $133.7 million. Adjusted Net Income for the three months ended June 30, 2021 increased 84.9% to $31.4 million from $17.0 million for the three months ended June 30, 2020. Adjusted EBITDA for the three months ended June 30, 2021 increased 67.3% to $44.1 million from $26.4 million for the three months ended June 30, 2020.
Net (loss) income for the six months ended June 30, 2021 decreased to $(89.4) million from $9.5 million for the six months ended June 30, 2020. This decrease included expenses related to the one-time phantom shares bonuses and non-recurring teammate bonuses associated with the IPO of $133.7 million. Adjusted Net Income for the six months ended June 30, 2021 increased 119.6% to $59.6 million from $27.1 million for the six months ended June 30, 2020. Adjusted EBITDA for the six months ended June 30, 2021 increased 90.9% to $83.7 million from $43.8 million for the six months ended June 30, 2020.
 
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The operating results in any period are not necessarily indicative of the results that may be expected for any future period.
2021 Developments
Initial Public Offering
On June 10, 2021, our registration statement on Form
S-1
relating to our initial public offering (“IPO”) was declared effective by the U.S. Securities and Exchange Commission, and our Class A common stock began trading on the NASDAQ on June 11, 2021. Our IPO closed on June 15, 2021.
TaskUs, Inc. issued and sold 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 issuance, together with cash on hand, to satisfy payments of approximately $127.5 million in respect of vested phantom shares.
As a result of becoming a public company, we expect to incur additional costs related to audit, legal, and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance premiums and investor relations costs associated with being a public company.
Amendment and Restatement of Certificate of Incorporation
Prior to the completion of the IPO, we amended and restated our certificate of incorporation to effect a
ten-for-one
forward stock split of our outstanding common stock and authorized three classes of ownership interests: (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 then outstanding shares of common stock were reclassified into an equal number of shares of Class B common stock (the “Class B Reclassification”).
Equity Incentive Plans
At the IPO date, we concluded that our public offering represents a qualifying liquidity event that would cause the performance conditions of stock options issued under our 2019 Stock Incentive Plan to be probable of occurring. As such, we started to recognize stock-based compensation expense in relation to the stock options issued under the 2019 Stock Incentive Plan.
In connection with the IPO, we adopted the 2021 Omnibus Incentive Plan, which became effective on the date our registration statement was declared effective. Under the 2021 Omnibus Incentive Plan, we granted time-based restricted stock units (“RSUs”), performance-based restricted stock units (“PSUs”), and time-based stock options, in each case relating to shares of our Class A common stock.
For additional information, see Note 9, “Employee Compensation” in the Notes to Unaudited Condensed Consolidated Financial Statements of this Quarterly Report.
COVID-19
During the first quarter of 2020, there was a global outbreak of
COVID-19,
which has spread to over 200 countries and territories, including all states in the United States. The global impact of the outbreak has been rapidly evolving and many countries have reacted by instituting quarantines and restrictions on travel, closing financial markets and/or restricting trading, and limiting operations of
non-essential
businesses. Such actions created disruption in global supply chains, increased rates of unemployment and adversely impacted many industries.
 
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The outbreak could have a continued adverse impact on economic and market conditions, and the full extent of the impact and effects of the
COVID-19
pandemic will depend on future developments, including, among other factors, the duration and spread of the outbreak, including new strains and variants of the virus, and the success of vaccination programs, along with related travel advisories, quarantines and restrictions, the recovery time of the disrupted supply chains and industries, the impact of labor market interruptions, the impact of government interventions, and uncertainty with respect to the duration of the global economic slowdown. 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.
As a result of the unpredictable and evolving impact of the pandemic and measures being taken around the world to combat its spread, the timing and trajectory of the recovery remain unclear at this time, and the adverse impact of the pandemic on our operations could be material. See “Risk Factors—Risks Related to Our Business and Industry—The ongoing COVID-19 pandemic, including the resulting global economic uncertainty and measures taken in response to the pandemic, has adversely impacted our business, financial condition and results of operations, especially in the first half of 2020, and may continue to do so” in our prospectus.
Operational Enablement
In early March 2020, in response to the COVID-19 pandemic, we implemented a virtual operating model to protect the health and safety of our employees, and ensure continued service for our clients. As part of the transition to working virtually, we made additional investments in our employees in the form of internet and Wi-Fi connectivity to their homes as well as hotel and shuttle costs for employees who were displaced by the pandemic.
In February 2021, we announced the continuation of our company-wide work from home policy through October 2021. However, where there have been specific client requirements to return to our facilities and, where it has been safe to do so, we have begun transitioning some of our employees back to the office. We continued to incur operational enablement costs, however, during the three and six months ended June 30, 2021.
Revenue and Sales Generation
While we initially saw a reduction in spend from some clients, including ride sharing, live event ticketing, movie ticketing, travel and retail companies, our business performance rebounded in the second half of 2020 despite the uncertainty and initial impact of the pandemic. Our strong market position within our industry verticals as well as our operational agility enabled us to act as a key partner to clients in industry segments such as social media, e-commerce, streaming media, gaming, food delivery and FinTech, which saw an increase in demand driven by a surge in online commerce and content consumption. This trend has continued through the first half of 2021.
Cash and Cost Management
Throughout 2020 and the first half of 2021 we were able to meet our liquidity needs with cash generated from operations and we do not have significant liquidity or operational concerns. We continue to closely monitor the outbreak and the impact on our operations and liquidity.
Subsequent Events
For a description of subsequent events, see Note 14, “Subsequent Events” in the Notes to Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report.
Results of Operations
Comparison of the Three Months Ended June 30, 2021 and 2020
The following tables set forth certain historical consolidated financial information for the three months ended June 30, 2021 and 2020.
 
    
Three
months
ended

June 30,

2021
    
Three
months
ended

June 30,

2020
    
Period over

Period

Change ($)
    
Period
Over

Period

Change
(%)
 
Service revenue
   $ 180,022      $ 114,400      $ 65,622        57.4
Operating expenses:
                                   
Cost of services
     103,798        64,135        39,663        61.8
Selling, general, and administrative expense
     177,810        25,709        152,101        591.6
Depreciation
     6,729        5,815        914        15.7
Amortization of intangible assets
     4,712        4,712        —          —    
Loss on disposal of assets
     1        —          1        100.0
Contingent consideration
     —          3,570        (3,570      (100.0 )% 
    
 
 
    
 
 
    
 
 
    
 
 
 
Total operating expenses
     293,050        103,941        189,109        181.9
         
Operating (loss) income
     (113,028      10,459        (123,487      (1,180.7 )% 
Other income
     (1,659      (1,137      (522      45.9
Financing expenses
     1,594        1,959