Return to Growth
Q: What are the incremental headwinds expected for 2024?
A: Our #1 goal is to return to year-over-year growth. Given strong performance in Q4 and Q1, we're cautiously optimistic we'll achieve this. We aim to drive revenues toward the top end of our guidance by executing on four growth strategies: taking share from competitors, growing relationships with enterprise, healthcare, and financial clients, cross-selling specialized services, and leading in Generative AI deployment. Trends are positive on all fronts, and we believe we'll return to year-over-year growth in the back half of 2024 and sustain it into 2025.

Margin Outlook
Q: Will margins hold up without more offshore shifts?
A: While we benefited from offshore mix shifts in 2023, we'll continue to find efficiencies in operations and G&A. As growth improves, especially in higher-margin offshore locations and specialized services, margins will expand. Growing our specialized service lines, which are higher margin, is a focus area. We'll deliver the margins we're guiding to in 2024 through these efforts.

Free Cash Flow
Q: Can free cash flow stay strong amid headwinds?
A: Despite revenue and margin headwinds, we delivered $131 million in free cash flow in 2023, about 60% adjusted EBITDA conversion, excluding the Hallo acquisition payment. This was due to proactive efficiency efforts, optimizing CapEx, and managing working capital. These activities are now part of our ongoing business. We're confident we'll continue to generate strong free cash flows despite changes in the business environment.

Second Half Visibility
Q: How confident are you about second-half growth?
A: We have strong visibility into the first half, historically forecasting accurately due to strong client relationships and contractual protections. For the second half, our confidence is based on budget conversations with clients. Last year, our top 3 clients' revenue declined by double digits; this year, we forecast that group to grow by single digits. Moving from substantial decline to modest growth gives us confidence that the base of the business is more secure in 2024 and that strong sales momentum will get us back to growth.

Capital Allocation
Q: Any changes in capital allocation with growth returning?
A: We'll be investing more in sales, marketing, and technology. The #1 use of capital will be funding the expansion of our growth team. We expect these investments to pay off in the near term, getting back to growth in the back half of the year. Beyond that, we're considering uses of capital from CapEx to potential share repurchases at the right prices and potential M&A.

Enterprise Clients Focus
Q: Progress on targeting enterprise clients?
A: We're expanding our sales and client service teams, recruiting industry veterans with deep experience in the enterprise space. We successfully signed a leading credit union in Q4, among other banking, financial services, and healthcare clients. Enterprise forms a more stable revenue base; while not ripe for exponential growth, they avoid the decline seen in high-growth tech areas. Pairing this with being a leading provider in high-growth tech, we believe this combination will lead us back to growth.

Client Growth Dynamics
Q: Why is average client size smaller despite more signings?
A: In 2023, we closed the highest number of clients since 2018. Initial deal sizes were smaller partly because more clients are interested in offshore deals, which have lower dollar values despite similar work volumes. Maintaining sales velocity is important as each client has the potential to scale exponentially if their business grows. Challenges faced in 2023 with large clients optimizing spend have stabilized; our top 3 clients' revenue will increase by single digits in 2024.

Offshoring Progress
Q: Are offshoring initiatives complete?
A: In 2023, U.S. revenues declined by over $100 million, ending at about $148 million. The U.S. was the only region that declined; Philippines, India, and the rest of the world grew year-over-year. While there's still nearly $150 million in U.S. revenue, any further onshore to offshore shifts won't be as significant as in 2022 and 2023. We expect U.S. revenue to remain above 10% of overall revenue.

Specialized Services Growth
Q: When will specialized services show significant growth?
A: We're seeing a real increase in demand for our specialized services. The number of clients using two or more specialized services has increased substantially in 2023 over 2022. Growth in our trust and safety offerings, including risk and response work for financial crimes and compliance, is encouraging. We expect to lap the impact of declines in AI services by the back half of 2024. We're seeing an uptick in customers using our AI services, especially from the Generative AI space. While projects start small, there's massive potential upside. We're excited about the continued increase in demand for our specialized services.

AI Assist Strategy
Q: How do you balance internal AI investment vs. clients' own?
A: Assist AI is a platform our teammates use to improve productivity and quality, baked into our service free of charge to clients. We believe service providers need to bring a combination of teammates and technologies. By being the best and most efficient provider, we capture more client spend. We've seen an uptick in demand from Generative AI companies for our core trust and safety and AI services. Most clients are interested in partnering with companies like TaskUs, rather than building their own Generative AI technology for core workflows.