TaskUs (TASK) Q2 2023 Earnings Call Transcript

TaskUs (TASK 2.57%)
Q2 2023 Earnings Call
Aug 09, 2023, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon, and welcome to the TaskUs second quarter 2023 investor call. My name is John, and I'll be your conference facilitator today. And now I would like to introduce Alan Katz, vice president of investor relations. Thank you, Alan.

You may begin.

Alan Katz -- Vice President, Investor Relations

Good afternoon, and thank you for joining us for the TaskUs second quarter 2023 earnings call. Joining me on the call today are Bryce Maddock, our co-founder and chief executive officer; and Balaji Sekar, our chief financial officer. Full details of our results and additional management commentary are available in our earnings release, which can be found on the investor relations section of our website at ir.taskus.com. We have also posted supplemental information on our website, including an investor presentation and an Excel-based metrics file.

Please note that this call will be simultaneously webcast on the IR section of our website. Before we start, I would like to remind you that the following discussion contains forward-looking statements within the meaning of the Federal Securities Laws, including but not limited to, statements regarding our future financial results and management's expectations and plans for the business. These statements are neither promises nor guarantees and involve risks and uncertainties that may cause actual results to differ materially from those discussed here. You should not place undue reliance on any forward-looking statements.

Factors that could cause actual results to differ from those forward-looking statements can be found in our annual report on Form 10-K, which was filed with the SEC on March 6, 2023. This filing is accessible on the SEC's website and on our website at ir.taskus.com, and may be supplemented with subsequent periodic reports we file with the SEC. Any forward-looking statements made on today's conference call, including responses to questions, are based on current expectations as of today and TaskUs assumes no obligation to update or revise them, whether as a result of new development or otherwise, except as required by law. The following discussion contains non-GAAP financial measures.

For a reconciliation of each of these non-GAAP financial measures to the most directly comparable GAAP metrics, please see our earnings press release, which is available in the IR section of our website. I will now turn the call over to Bryce Maddock, co-founder and chief executive officer of TaskUs. Bryce?

Bryce Maddock -- Co-Founder and Chief Executive Officer

Thank you, Alan. Good afternoon, everyone, and thank you for joining us. In the second quarter, we outperform both our revenue and adjusted EBITDA guidance ranges. We delivered $229.2 million in revenue compared to the top end of our guidance range of $228 million.

We delivered adjusted EBITDA of $54.7 million for an adjusted EBITDA margin of 23.8%, also above our guidance of a 23% margin. These results were once again stronger than our expectations. This is the result of the tireless efforts of our global team. However, similar to other players in our industry, a number of our clients in the tech space have continued to focus on driving efficiencies, thereby reducing volume expectations for the remainder of the year.

As a result of this reduction, and the continued lengthening of our sales pipeline, our revenue outlook for the remainder of the year has decreased. We've updated our guidance range to reflect this. Given the lower revenue outlook and the investments that we're making to drive growth, we've returned our adjusted EBITDA guidance to 23% for the full year in line with our initial guidance. Our team has made great progress on our efficiency program, which has protected our margins, despite top line headwinds.

I'll spend some time going through the details of our Q2 performance and signings, and we'll then discuss in more detail some of the investments that we're making to drive our three strategic growth initiatives. Balaji will then walk through our financials, as well as our updated guidance ranges for Q3 and the remainder of 2023. Starting with growth with our current clients, revenue from our top 20 clients declined by 12% year over year in Q2, impacted by the transition of work offshore at our largest client, and the declines in volume at our largest crypto, and equity trading clients. If we exclude those three clients, our largest 17 clients grew 7% year over year.

Revenue from clients outside the top 20 also grew by 7% year on year. Looking at our service offerings, digital customer experience revenue declined by 9.9% compared with Q2 of 2022, as expansions with existing clients and new client signings were more than offset by the decline in revenues from crypto and equity trading clients, and the impact of lower volumes from certain other clients. In terms of major DCX signings, we are winning business from the competition, and are continuing to see internal volumes from certain clients shipped to us to drive cost savings. In Q2, we had strong wins in the retail space.

We signed DCX deals with two large, well-known global retail clients. For the first client, a global sports brand will be providing Spanish language support for their Latin American customers from our site in Cali, Colombia. This major brand ultimately chose to work with us because of our ability to support Spanish at scale, our heavy focus on driving volume to digital channels, and our ability to effectively help customers while driving revenue through commercial conversations. We will be providing support for another high-end retail brand out of our operations in Mexico.

We won this business due to our ability to enhance the overall learning experience for the frontline, and we expect to deliver significant cost savings for this client without sacrificing the quality of service. We continue to see strong demand for our near-shore solutions. In fact, revenue from this region has increased by approximately 70% year over year. Based on this demand, we opened our newest site in Medellin Colombia, and launched our first client in that site last month.

We also signed two new DCX contracts with clients in the health tech space. The first, a fast growing non-emergency medical transportation service was experiencing high levels of attrition and inconsistent quality with their prior provider. They turn to TaskUs as an experienced near-shore supplier with mature operational capabilities to stabilize and grow their member experience operations. The second client is a disruptive mental health start-up that helps patients connect with therapists they can afford.

TaskUs is supporting patient eligibility and provider verification services and will soon be adding other operational support services. This client selected TaskUs to help streamline current operations so they can scale more efficiently. We were selected based on our reputation as a provider that leverages innovative technologies and data driven insights for our clients. Moving on to trust and safety.

Revenues in this service offering declined by 2.4% compared with Q2 of 2022, driven by the impact of our largest client moving work to our locations in the Philippines and India. However, our volumes in the trust and safety service offering continued to grow in Q2. The number of trust and safety teammates at TaskUs increased 31% year over year as volumes grew across our clients. This quarter, we signed a contract with a leading web browser to provide content moderation out of the Philippines for their upcoming social media platform launch.

Designed with us based on our expertise in content moderation, and industry leading wellness program. We won additional work from one of the world's leading multi channel social communications platforms. We started working with this client about a year ago and have already expanded into additional service lines and geographies. We're now moving our trust and safety work into Malaysia after delivering strong performance for them from the Philippines.

Expansion into Malaysia will allow us to support a group of Asian languages, as well as provide alternatives for low cost English support. We also signed an expansion with a client in the fintech space for dispute support, adding to the DCX work that we already do for them. We won this business based on our ability to drive cost savings, while improving performance. The client has told us that our performance has consistently been the highest out of all their outsourcing partners.

Moving on to our AI service offering. Revenue grew 1% in Q2 compared with Q2 of 2022, driven primarily by growth with new clients, including those in the Generative AI space. This quarter, we began working with a leading measurement data and analytics provider to provide data training and annotation support in Spanish, Portuguese and French. We will be providing new services out of India, which has become a very attractive location for tagging work across multiple languages.

We see the opportunity to expand with this client to provide Korean, German and Japanese support in the near future. We've also been leveraging our TaskVerse platform to bring in specific talent for the Generative AI space. Finding nuance experts in certain fields is unique capability that positions us to win against competitors. This past quarter we also combined the TaskVerse platform with TaskGPT to streamline the research and copywriting process at one of our clients.

This is a great example of how our investments in the new technologies are positioning us to win share and drive savings and our clients. We also highlighted the launch of TaskGPT this quarter with our inaugural client MoneyLion. This is a great partner of fast paced forward thinking fintech that is looking to leverage our expertise and technology to drive efficiency and augment our teammates performance. We integrated TaskGPT to expand and enhance our customer service capabilities across this client's business.

Before I move on to our verticals, given the impact across our service offerings, I wanted to discuss our largest client. Our relationship here remains strong, and we believe we are continuing to take share from our competitors. That said, we've seen a continued focus on cost savings and efficiency. In addition, we've also seen a continued shift away from certain R&D projects, leading to additional impacts on our projected revenues from this client.

We have multiple opportunities with this client in the pipeline. But as of today, we would expect to show a double-digit revenue decline from them in 2023, and likely a more modest decline in 2024 revenues, given the annualization of the changes we're currently making. Turning to our industry verticals, we're seeing particular strength from our technology vertical, which grew at 50% year over year. This was largely driven by our continued traction with some of the world's largest technology companies.

We are also seeing strength in our entertainment and gaming vertical, which grew in the mid-teen percentages year over year. Our work with the leading multi channel social communications platform that I mentioned earlier, as well as growth with our largest gaming and streaming media clients is driving this traction. In terms of other trends, last quarter, I highlighted our margin expansion at one of our large clients where we use an outcome based pricing model. We continue to make progress this quarter driving process improvement.

These process improvement initiatives drove lower teammate counts and revenues in the near-term, but you have improved service level performance for the client, while expanding our margins, which positions us well to keep or even take share from our competitors. As a result of efficiency gains, as well as lower volumes from certain clients, we ended Q2 with 47,000 teammates, up by 4% compared with Q2 of last year, but down slightly from the prior quarter. At the start of this year, we discussed three areas of focus to return to revenue growth, expanding with our large technology and enterprise accounts, serving increasingly global clients and new geographies, and focusing on our specialized services. Let me discuss some of the investments that we're making to support these growth initiatives.

First, in terms of expanding with our global technology and enterprise accounts, we've made significant progress. Over the past year, we highlighted signings with some of the largest global tech companies and some of the world's largest retailers. Since that time, we've expanded with these clients. For example, one of these clients typically has increased seasonal volumes around the holidays, and we would have expected them to reduce volumes in the first half of this year.

Not only were we able to maintain volumes, but this client has grown with us every sequential quarter since we sign them. For another client, one of the world's largest technology companies, we have a multiyear partnership to provide highly skilled learning experience services out of the U.S., including instructional design, graphic design work, and more. Recently, we expanded this partnership to the Philippines while keeping the work that we do in the U.S. In terms of investment, we've built out our client service and engagement team, bringing on additional talent to manage client relationships at some of the largest global tech and retail companies in the world.

These individuals are uncovering new opportunities to add value to our clients. Second, we've continued to expand to serve clients in new geographies. We're seeing particularly strong traction in Latin America, where we have increased revenues by 70% year over year. We opened operations last year in Malaysia, and we're seeing strong demand for this region to cover Asian languages.

We also continue to grow our operations in Greece and Croatia, providing European language services to our global clients. We're expanding our go-to-market talent in key geographies, and our investment here is beginning to pay off. We've seen the number of European clients increased by approximately 30% compared with Q2 of last year. Lastly, in terms of specialized services, we're seeing traction across our offerings.

We're working with our clients to build Generative AI into their workflows to drive efficiencies. We've already launched with a number of clients, including MoneyLion, which I mentioned earlier. We expect to see this technology embedded in additional client processes this quarter. As I mentioned, we have continued to expand our learning experience services with some of the biggest technology companies in the world, turning to us for instructional design and LMS maintenance.

We also continue to see global demand for our trust and safety work, expanding into Malaysia to support one of the world's leading multi channel social communication apps. Furthermore, inside trust and safety, our fraud and investigation for it has continued to gain traction over the past several quarters. This past quarter, we signed an expansion with an eCommerce client for fraud and investigations work. We started working with this client less than a year ago during Tier 1 fraud work.

Their Tier 2 risk and chargeback work was being done by internal teams in the U.S and Japan, as well as another outsourced partner. But given our strong performance, they centralized all this work with us. In terms of investment, we've launched our Technology and Innovation Center in Chennai, India. This office is our hub for Generative AI talent to support pass GPT.

Also, within our sales organization, we continue to bring on talent with specific expertise selling AI services. Our progress on these growth initiatives is encouraging. And I'm confident they will drive revenue growth over time. However, we no longer expect to return to growth by the end of 2023 and have lowered our revenue outlook for the remainder of the year.

We now expect that revenue for the full year will be between $900 million and $910 million. At the top end of our range, we would expect to see a stabilization in sequential revenues by year-end. In terms of margins, we're continuing to focus on our cost structure and have made very good progress on this front. Our multiyear efficiency program is more than offsetting the impact of lower revenue.

However, we're also focused on making investments to get back to growth. Given these investments, our adjusted EBITDA margin for the year is now approximately 23%. We would expect to return to higher margins as revenue stabilize and we return to growth. Our outlook on free cash flow has not changed.

We continue to expect to deliver greater than $100 million of free cash flow at any point in our guidance range, excluding the earn out payment associated with the heloo acquisition. We're optimizing working capital and balancing capex investments with current growth needs. In this environment, we're very focused on using our cash to drive shareholder value. As I discussed, our first priority is to invest in the business to drive growth.

We continue to see M&A as a potential use of cash to drive value in the future. However, we've not seen private market valuations match with public market realities. Given our low leverage ratio of just half a turn, we're well-positioned to move quickly on M&A when the valuations look more attractive. Given the current public valuation of TaskUs, we see repurchases as the most attractive use of cash today.

As of the quarter end, we've repurchased almost 5.3 million shares since the start of our share repurchase program. We were much more active in the market during the second quarter driven by our dynamic repurchase plan that allows us to purchase more shares at lower prices. We see repurchasing our stock is a very attractive use of capital and believe that as growth returns our repurchases at these levels will result in significant value creation. We remain focused on executing against our strategic initiatives and investing for growth, while at the same time remaining diligent on our cost structure.

With that said, I will hand it over to Balaji to go through the Q2 financials in a bit more detail and provide our outlook for Q3 and the year ahead.

Balaji Sekar -- Chief Financial Officer

Thanks, Bryce, and good afternoon, everyone. I'm going to discuss our financial results for the second quarter of 2023. Please note that some of these items are non-GAAP measures and the relevant reconciliations are attached to the press release we issued earlier today. In the second quarter, we earned total revenues of $229.2 million, a decrease of 7% compared to Q2 of 2022.

We outperformed compared to our guidance as a result of revenues from new client signings coming in slightly stronger-than-expected, primarily within our digital customer experience service line. In the second quarter, our DCX offering generated $150.9 million for a year-over-year decline of 9.9% driven by the impact of lower revenue As from our largest client, and from crypto and equity trading clients, as well as the impact of process improvement at an outcome baseline. Our Trust and Safety business declined by 2.4% compared to Q2 of 2022, resulting in $45.2 million of revenues. This decline was the result of the geographic mix shift from our largest client moving volumes offshore and lower volumes from one of our equity training clients.

Our AI services business grew 1% year over year for revenues of $33 million. As a result of expansion, with both existing and new clients partially offset by the geographic mix shift from our largest client moving volumes offshore. Our client base has continued to diversify in Q2. Our revenue concentration with our largest client was approximately 19%, down from 22% in Q2 2022, primarily driven by the shift from onshore to offshore.

Our top 10 and top 20 clients accounted for 55% and 69%, down from 58% and 73% in Q2 of last year. In the second quarter, we generated 55% of our revenues in the Philippines, 16% of our revenues in the United States, 13% of our revenues in India, and 16% of our revenues from the rest of the world. We saw particularly strong growth in Latin America and Asia. Our cost of service as a percentage of revenues was 58.3% in the second quarter compared to 58.2% in Q2 of the prior year.

The increase was due to wage inflation and return to office expenses, as we have more people back in the office compared with last year, which was partially offset by the gains from the stronger dollar in the current quarter compared with Q2 of 2022 and the transition of work from our onshore to offshore locations, which have a lower cost of service. In the second quarter, our SG&A expenses were $58.2 million, or 25.4% of revenue. This compares to SG&A in Q2 of 2022 of $68.9 million, or 28% of revenue. Excluding the impact of severance cost, the earn out accrual associated with our heloo acquisition and stock-based compensation for the quarter, SG&A as a percentage of revenue would have been 18.6%.

The impact of our cost optimization and other efficiency efforts will continue to drive improvement in our G&A spend. However, as we invest in sales and marketing to drive growth, and we see the impact of lower revenues, we expect total SG&A as a percentage of revenue could increase in the back half of the year. In the second quarter of 2023, we earned adjusted EBITDA of $54.7 million, a 23.8% margin compared to $55.7 million and 22.6% in the second quarter of 2022 mainly driven by the cost optimization initiative in G&A that I just discussed. We came in higher than our guidance for the quarter driven by our higher-than-expected revenues, and operational efficiency gains.

Adjusted net income for the quarter was $31.8 million and adjusted earnings per share was $0.32. By comparison, in the year ago period, we earned adjusted net income of $38.7 million and adjusted EPS of $0.38. The decline in adjusted net income was primarily due to higher financing expenses compared to last year due to the impact of higher interest rates and a higher accrual for taxes due to increased income before taxes. Now, moving on to the balance sheet.

Cash and cash equivalents were $153.6 million as of June 30, 2023 compared with the December 31, 2022 balance of Harlan $34 million. In the quarter, we utilized approximately $38 million share repurchases, Buying back approximately 3.2 million shares at an average price of $11.76. As of quarter end, we had approximately $134.8 million of authorization left on our plan. Our net leverage ratio continues to be healthy and was .5x as of quarter end.

Cash generated from operations was $38.5 million for the second quarter of 2023, as compared to $36.1 million in Q2 of 2022. Our capital expenditure decrease in the second quarter of 2023 to $9.8 million, compared to $11.6 million in Q2 of 2022. The decrease was primarily driven by lower technology and facilities related expenses As employees have returned to the office. We know expect capex to be $35 million for the year.

Free cash flow was $28.7 million, or 52.6% of adjusted EBITDA. Given our current outlook for capex spend and working capital, we expect to see a slightly lower conversion rate for the remainder of the year. Year-to-date, we have generated $67.2 million of free cash flow, representing 61.1% conversion rate from adjusted EBITDA. In terms of our financial outlook for the remainder of the year, we updated our guidance.

We now anticipate full year 2023 total revenues to be in the range of $900 million to $910 million. We expect to earn a full year 2023 adjusted EBITDA margin of approximately 23%, which aligns with our outlook at the start of the year. And we expect to deliver greater than $100 million of free cash flow at any point in our guidance range, excluding the note payment associated with the heloo acquisition, which implies a conversion rate of 45% to 50% of adjusted EBITDA. For the third quarter, we expect revenue to be in the range of $220 million to $222 million.

And we expect our adjusted EBITDA margin to be approximately 22.4% for the quarter. This adjusted EBITDA margin guidance for the third quarter and full year is based on current ForEx rates, so any change to currency rates would impact our margin. As a reminder, the majority of our revenue is built and collected in U.S dollars. So we do not see the impact of U.S dollar fluctuation in our revenues.

I'll now hand it back to Bryce before we take your questions.

Bryce Maddock -- Co-Founder and Chief Executive Officer

Thank you, Balaji. Before we open for questions, I want to share another TaskUs teammates story. Next month, TaskUs will celebrate our 15th anniversary. One of the most meaningful parts of our incredible journey is seeing our teammates grow here at TaskUs.

Almost as long as TaskUs has been around, I've worked with Faith Colonia. Faith has been with us for over 13 years. She began her journey as a teammate in the Philippines right after graduating from college. Over the years Faith demonstrated strong skills and a dedication to her work, leading to a promotion to team leader.

And today Faith is an operations manager for our brand new site in Molina Philippines, which we call greenhouse, she's doing a tremendous job. One of the things that makes me most proud is how TaskUs has supported Faith's personal journey. As a single mom, Faith was among the first recipients of our TaskUs scholars program. And for the past seven years, we've paid almost 100% of her son's tuition fees at private school.

As part of our commitment to fostering even greater impact, we recently announced the expansion of the program for our 15th anniversary, aiming to provide tuition support to 1,500 students worldwide. Faith story shows the potential of our people first culture in creating rewarding lives and careers for our teammates. With that, I'll ask the operator to open our line for question-and-answer session. Operator?

Questions & Answers:

Operator

Thank you, sir. [Operator instructions] Thank you. And the first question comes from the line of Puneet Jain with J.P. Morgan.

Please proceed with your question.

Puneet Jain -- JPMorgan Chase and Company -- Analyst

Yes. Hi. Thanks for taking my question. Quick questions on the guidance cut.

So first, what gives you confidence that the worst is behind you and there should not be any incremental surprises this year. And also given the exit rate implied for Q4 and high single digits or maybe low double-digit decline, can you share qualitative comments on next year's growth rate?

Bryce Maddock -- Co-Founder and Chief Executive Officer

Yes, Puneet, thanks so much for the question. So, clearly, over the past 18 months we've seen our clients shift their focus to cost reduction. Many of our clients have laid off internal employees, and they have cut their outsourcing budgets, they've driven efficiency into their outsource relationships by shifting work from high cost, low cost geographies, in some cases, improving their own product and process to contain more contacts, and finally deciding to simply stop supporting certain non-critical workflows. Mix shits at our clients have been a headwind to revenue growth, and they've also slowed our sales as companies reducing spending are less likely to introduce new vendors.

With that being said, there is a limit to how much these efficiency improvements can drive volumes down. There remain millions of customer interactions to respond to millions of pieces of content to moderate, in addition to exciting new investment areas like creating and reading content from Generative AI applications. So while I'm not ready to predict exactly where we're at in this cycle of efficiency, I do believe that we're closer to the end than the beginning. And while we're not providing guidance for 2024, at this stage, I do feel confident we will return to growth next year.

Puneet Jain -- JPMorgan Chase and Company -- Analyst

That's fair. And then, your largest customer said the weakness there stem from content moderation volume, or was it like some other initiatives that you had been working on for that client? And the clarification, like in Balaji's comments like about increased offshore mix there, I'm assuming that year on year change not necessarily on sequential basis.

Bryce Maddock -- Co-Founder and Chief Executive Officer

So let me take the first question. And then, I'll hand the second question to Balaji. At our largest client, we continue to have a very strong relationship. We have more people supporting our largest client, currently than we did at this stage last year.

So we've seen volume growth. The revenue decline has been driven primarily by moving work from high cost onshore markets to low cost offshore markets, which we obviously described prior. And Balaji, I will have you jump in on the next question.

Balaji Sekar -- Chief Financial Officer

Yes, Puneet, you're right. So the numbers that I provided is year-on-year comparison, therefore, the largest client, where we were approximately at 19%, when compared to 22% in Q2 of 2022.

Puneet Jain -- JPMorgan Chase and Company -- Analyst

Got it? So on sequential basis, there is -- there was no incremental increase in low cost labor mix there. Because that is -- it was already low as of last quarter.

Bryce Maddock -- Co-Founder and Chief Executive Officer

Yes, last quarter, we were approximately at about 20 person, and this quarter, we are about 90%.

Puneet Jain -- JPMorgan Chase and Company -- Analyst

Got it. All right. Thank you.

Operator

And the next question comes from the line of Maggie Nolan with William Blair. Please proceed with your question.

Maggie Nolan -- William Blair and Company -- Analyst

Thank you. On the volumes, can you help translate that into what kind of visibility you have into the guidance that you put out, what kind of factors specifically are impacting those volumes? And then, are you assuming any sort of recovery in the back half of any of those volumes?

Bryce Maddock -- Co-Founder and Chief Executive Officer

Yes, so as we've demonstrated in the past, we've got very strong visibility into the current quarter. Given that we're already more than halfway through the year and halfway through Q3, we've got less potential variability in our range than we had when we guided at the start of this year. We've incorporated every main risk from a client perspective into our forecast, and have embedded further conservatism into our expectations around new sales and around client volumes. We feel reasonably confident in our visibility into client volumes headed into 2024 as well.

Maggie Nolan -- William Blair and Company -- Analyst

And then, can you give us some idea of how you're viewing AI and Generative AI in terms of the opportunity and threat from a more granular level, like across your different service lines, I imagine there'd be different impacts there.

Bryce Maddock -- Co-Founder and Chief Executive Officer

Yes, we ultimately believe that Generative AI is going to be a net positive for us. We launched past GPT, which is our generative AI agent assist tool that's based on open AIs, GPT 4 API, we've been integrating past GPT into client workflows driving efficiency gains that we're sharing with clients. And we believe that our progress on this front is increasing our competitiveness. We do believe that certain digital customer experience workflows are likely to be further automated.

However, our customer support work is mostly complex, involving real time interactions with multiple systems and changing variables. We believe that this work is less likely to be automated in the near-term. Additionally, we believe strongly that Chat GPT and generative AI, in general is going to create significant demand for trust and safety services. It's hard to imagine all of the workflows that are going to be created as a result of this.

But when you think about the amount of content, both image video and text that is going to be generated using these Generative AI tools. The potential here is massive. We also believe that we're going to continue to see growth and demand for AI services to support the development of these Generative AI models. So ultimately, we're very aware that Generative AI may automate some of the work that we do today, but we believe it has the potential to create a lot more work as well.

Maggie Nolan -- William Blair and Company -- Analyst

Thanks, Bryce.

Operator

And the next question comes from the line of Ryan Potter with Citi. Please proceed with your question.

Ryan Potter -- Citi -- Analyst

Hey. Thanks for taking my question. I want to double click on the lowered outlook one more time. I guess regarding the demand environment, where would you say things have moved incrementally worse since last earnings in terms of service offerings and verticals? And is the softer client volumes concentrated more in larger clients.

Or is it more of a broad base? No, no, I'm seeing across the general client base.

Bryce Maddock -- Co-Founder and Chief Executive Officer

Yes, let me comment on this. And I'll have Balaji add any color. You know, ultimately, the lower outlook is being driven by lower volumes and existing clients and a slowdown in our overall sales pipeline. The size of the pipeline remains robust, but the velocity is significantly slower than it was at this stage last year.

We're seeing existing clients really push the boundaries of how they can drive efficiency. We've gone through a wave of moving work from high cost years to low cost years. We have worked with clients to automate certain workflows and follow client's instructions on not supporting certain non-critical workflows. As I said, I do believe that we're closer to the end of this efficiency cycle than we are to the beginning.

But those are the things that have been driven to review the revised guidance. Balaji, do you have anything you want to add to that?

Balaji Sekar -- Chief Financial Officer

No, I just kind of reiterate what Bryce mentioned just from a forecasting process perspective. So one is that we do have very strong visibility in the current quarter. So for this year, we are halfway through the year, halfway through Q3. So we have less potential variability.

And also in terms of risk assessment, we do capture name risk at the client level, and then further conservatism into the expectations are on both client volumes and new sales from a forecast perspective.

Ryan Potter -- Citi -- Analyst

Got it. And then, on your U.S delivery. Have you seen any incremental client reductions away from the U.S beyond the client? They kind of called out last quarter? Is there any change your expectations in terms of U.S delivery fall into 10%, in terms of what's embedded in the outlook?

Bryce Maddock -- Co-Founder and Chief Executive Officer

Yes, so between last call and this call, there hasn't been a material change in our expectations for U.S delivery. This revision and guidance has been driven more by volume reductions across clients at a global scale. So we would still expect the U.S to represent 10%, or perhaps more of our revenues at the end of the year, and into next year.

Ryan Potter -- Citi -- Analyst

Got it. Thank you.

Operator

And the next question comes from the line of Matt VanVliet with BTIG. Please proceed with your question.

Matt VanVliet -- BTIG -- Analyst

Yes. Good afternoon. Thanks for taking the question. I guess wanted to dig in a little bit on the health tech vertical, it's an area that has been emerging for you.

And I'm curious what you're seeing in terms of trends there, really kind of outside of the bigger tech realm, but curious on how much you're seeing, you called out the mental health start-up, but any other commentary that you can have to give us some directionality on that group?

Bryce Maddock -- Co-Founder and Chief Executive Officer

Yes, health tech has been a huge driver and growth for us. In the past year, we've seen a lot of demand from mental health start-ups, both counselors, and psychiatrists that are available remotely to patients. And we've developed a real expertise in that area, as well as across the health tech space more generally. Right now, what we need to do is use our credentials in the health tech space to get into the enterprise healthcare space.

We've been making solid progress, but have yet to close any material deals. In that area. I think that represents a potential upside as we continue to expand into more enterprise customers.

Matt VanVliet -- BTIG -- Analyst

And then, I guess on a similar vein, earlier -- over the last several quarters, you've talked about getting into kind of newer areas of or newer business units across more traditional enterprise customers. Any updates on maybe a potential new business or at least pipeline generation, trying to get into traditional enterprise that are looking to be a little more disruptive, or guard against other disruptors coming into their space?

Bryce Maddock -- Co-Founder and Chief Executive Officer

We've made really good progress on the retail front here. We signed two enterprise class retailers in this past quarter, both to deliver out of our Latin American operations. And we see meaningful upside there. Right now healthcare is an area, obviously, that's very interesting for us, yet to make significant progress in terms of closing deals, but have a strong pipeline.

We're also interested in more traditional banking and financial services. We're making investments to bring on sales leaders who have Enterprise expertise. And we expect that to accelerate our sales pipeline going forward.

Matt VanVliet -- BTIG -- Analyst

All right. Great. Thank you.

Operator

And the next question comes from the line of James Faucette with Morgan Stanley. Please proceed with your question.

James Faucette -- Morgan Stanley -- Analyst

Great. Thanks a lot. I wanted to ask in terms of the efficiency programs, etc. And Bryce, I understand that the comments that we may be near the end, particularly for those that have been undertaking that for the last few quarters, but how are you feeling about the broader segment of clients that you have and where they're at in those processes? And do you think that they're like -- what are the things that you're looking forward to? That may be indicators that they may want to start to undertake their own efficiency programs, etc.?

Bryce Maddock -- Co-Founder and Chief Executive Officer

Yes, so the bulk of the efficiency programs have been at our largest clients. And as we said, in the past, we've gone on a journey with many of our clients, from Venture funded start-ups to publicly traded enterprises. And this is a chapter in that journey as they shift their focus from growth at all costs to being more efficient and profitable. And so, at this stage, we have seen early signs of demand reviving at certain of our larger clients.

We're actively in discussions that most of them about new exciting opportunities in areas of potential expansion, but clearly in the near-term we've seen a decline just as a result of the three factors I mentioned earlier.

James Faucette -- Morgan Stanley -- Analyst

Got it. Got it. And then, you made interesting comments there on outcome based pricing. Can you break down percentage of contracts maybe that are outcome based right now versus time and materials and just kind of help us think through what the potential trajectory is for outcome based pricing and the impact that could have on the business and what kind of timeframe?

Bryce Maddock -- Co-Founder and Chief Executive Officer

Yes, as we said, we've got one large client that we have on an outcome based agreement. And over the past two quarters, we've seen material improvements in their margins, as we've driven additional efficiencies into the business. This has resulted in lower top line revenue, but expanded margins and a strong relationship with the client. At this stage, we've got a low double-digit percentage of our revenue that is derived from outcome based contracts.

But in an environment in which our clients are so focused on efficiency, we continue to have lots of conversations about making the shift. We believe that the future of the business will be more outcome based agreements supported by tech enabled talent.

James Faucette -- Morgan Stanley -- Analyst

Got it. Got it. Great. Appreciate that.

Operator

And the next question comes from the line of Cathy Chen with Bank of America. Please proceed with your question.

Cathy Chen -- Bank of America Merrill Lynch -- Analyst

Hey, guys. Thanks for taking my questions. So first, I just wanted to ask a little bit about geography. You guys mentioned some strong faction, and you were countries in Latin and Europe, for example, Colombia I guess how much and then at the same time, you guys mentioned, your headcount sort of declined 700 -- about 700,000 to 47k.

So two part question. The first is, how much of that is net versus gross, voluntary versus involuntary. And then, the expectations for headcount in the back half of the year. And then, the second is related to that offshore and geography pieces.

How big is offshore in terms of your total global delivery model now? And are you expecting any margin impact from continuing to expand offshore?

Bryce Maddock -- Co-Founder and Chief Executive Officer

Yes, Cathy, thanks so much for the question. So, clearly, the Latin American near-shore region has been a huge driver of growth over the course of the last year. We grew revenues by approximately 70% there. The slight decrease in headcount over the course of the last quarter was driven mostly in the United States.

Although we have seen, I would say, a modest flattening of growth in our offshore regions. Philippines and India continue to be the bulk of our business, and that's good because we make higher margins in those geographies and feel like we've got a more robust product to sell. But in recent quarters, we've seen our clients really more interested in buying a near-shore product versus the offshore product. And so, we'll have to keep an eye on that going forward.

Cathy Chen -- Bank of America Merrill Lynch -- Analyst

OK. And then, switching gears, I saw that you guys also launched TaskGPT with MoneyLion, I think that's pretty new. That's exciting. Can you just give us a little bit of insight about how that partnership has been going, who initiated that conversation initially? And are you guys able to maybe take that as an initial use case and then easily implement that with other customers? Are you seeing some interest in that as well? Thank you.

Bryce Maddock -- Co-Founder and Chief Executive Officer

Yes. So the product is totally applicable to other customers. In fact, we've launched with a number of other clients. But we've made great progress with MoneyLion, increasing the efficiency and accuracy of the teammates that we have supporting their clients.

So we are very excited about that, and we expect to see similar results across our other clients.

Cathy Chen -- Bank of America Merrill Lynch -- Analyst

OK. Thanks, guys.

Operator

There are no further questions at this time. Now, I would like to turn the floor back over to Bryce for any closing comments.

Bryce Maddock -- Co-Founder and Chief Executive Officer

Thanks so much. In closing, I wanted to thank every one of our incredible teammates around the globe. In the face of challenges, this team has continued to work tirelessly to return TaskUs to growth. We look forward to updating you on our progress toward that goal on our next earnings call.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Alan Katz -- Vice President, Investor Relations

Bryce Maddock -- Co-Founder and Chief Executive Officer

Balaji Sekar -- Chief Financial Officer

Puneet Jain -- JPMorgan Chase and Company -- Analyst

Maggie Nolan -- William Blair and Company -- Analyst

Ryan Potter -- Citi -- Analyst

Matt VanVliet -- BTIG -- Analyst

James Faucette -- Morgan Stanley -- Analyst

Cathy Chen -- Bank of America Merrill Lynch -- Analyst

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