- Earnings call transcript Q3 2022

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Unidentified Company Representative

Hello, everyone, and welcome to Thoughtworks' Earnings Call for the Third Quarter of 2022.

We will be recording today's call. And during the presentation, all lines will be on listen-only.

Joining us today will be Thoughtworks President and CEO, Guo Xiao; and CFO, Erin Cummins. The earnings press release was issued earlier today and is also available on our Investor Relations page at thoughtworks.com, if you want to review or download a copy.

report and we'll are this are described forward-looking known unknown matters expected including subject Form with today's in annual XX-Q the to reports may discussed file not and outlook and SEC of and our from time. XX-K, but release the business Risk and risks other Form of press discuss section quarterly those the time Factors in call, on our our on reports on to limited Some to, including, factors uncertainties, as we such, results These the differ risks and uncertainties could from cause on actual expressed to those materially call. caution made We these are only on as reliance of when place not made. you the undue were they forward-looking statements because date to they

today, measures, we non-GAAP information certain useful provide call which believe investors. reference financial for will our we During

thoughtworks.com. call. be this Relations of for to on to Xiao. or website financial now our Thoughtworks no We at should framework GAAP. growth in measures excluding rate release a prepared presented as non-GAAP reconciliations exhibit assumes constant for in not performance will businesses an the our furnished currency effect of X-K, revise information assessing fluctuations. of conference also non-GAAP obligation financial update as performed, rates section Form superior Investor hand financial measures underlying available currency provided our GAAP to considered of measures on our is substitute foreign a include the our measures provide which the press in We to to as how The financial or I the over accordance with

Guo Xiao

results I'd open update take business third start business, our then our we then of like financial our to and in overall will sharing Thank you, by more Q&A. detail. Sean. provides will Welcome, to for guidance of share through quarter I before Erin quarter some and highlights third the Erin an you earnings everyone, call.

recap We a consultancy design modern with global innovation. Let about disruptors strategy, me Thoughtworks. enterprises businesses. digital engineering to as that enable technology technology start integrates digital a and and drive We're to thrive

pleased XX.X% achieved fostering a year-on-year $XX.X demand We established adjusted we Now to in million, our continued of in growth digital In adjusted margin quarter, of let and me leadership thought report transformation EBITDA for and the third currency. a EBITDA financials. of for strong culture. revenue in our driven the of XX.X% Thoughtworks reflecting the quarter, to of $XXX by XXXX, services. the results and XX.X%. cultivating unique quarter delivered third constant reflecting million turn has I'm reputation

The culture to like Our the managing supply a world retain uncertainty. And economic higher continue to and the in rigor our level track what our clients diverse and close of with thank to and we're resilient the we adaptive be best proactive and them demand to in our create change driving business Today, helping they world them discipline, technology excellence face the and impact extraordinary we of clients, achieve be stay to to our through around industry. global and culture. talent for every believe and I Thoughtworker continues to the the would faces a Throughout unpredictability. to with this help value industry by as being areas from period, technology biggest KPMG executives geographies, a and Thoughtworks best are and of published has as return that the in data in the to to like of set one and we technologies talent XXXX, Thoughtworks X,XXX our technology cited XX% surveyed across our globe, global the lack differentiator. the the across engineering The and of services. which continue believe business. people and better emerging that found the XX% for XXXX. technology the industries to their in challenges businesses responded We that diversified embrace science is report According business clients report, budgets. September key this see talent

seen are to themes help uncertainty. to are innovation demand clients and prevailing. looking have third navigate them our quarter, digital better-than-expected We Strong in

We're me products Let how us demand develop our for and customer-facing in strong together. platforms. seeing interest Thoughtworks' customer can We're and bringing removing are monetization and in share enhancing from seeing solid and looking from clients new services, expertise some their data examples. businesses. Clients services data in clients enterprise transform friction scale experiences, to digital services for and

for the and also boosting as retention a continue of critical improving talents. interest investment technology on platforms We to budgets engineering see in of developer return key by productivity experience client enabler the

market. For is the Thoughtworks well these that reasons, we in positioned believe

me share let We revenue At clients growth around with the growth and with deepening our logos. our focused the from is core, and geographic strategies. new details then expansion. partners this strategies Now relationships existing of supplement M&A winning

our can their capabilities and we of to expertise that our through our clients outcomes. from first right portfolio. of depths address help Turning breadth means strategy client business to all challenges The

remain with ability the clients them we Our value to confident and sustain our appreciate pricing. our in and create premium position

care data scale to of Atlassian taken Thoughtworks At in at terms improve Thoughtworks agency, enables migration XX% saw States time requests outcomes. to successful Affairs, Atlassian been their Atlassian's Mesh to migrate outage cabinet co-repositories to on the reduction the to to XX% services was due day. health technology customer this public VA companies, Department one build in example, to challenge previously of military through federal a Australia's have platform-as-a-service, was through processes has of completed flagship we XX improvement of which providing center, Data AWS. veterans and on platforms. billion one Veteran a and the mammoth and which What software Thoughtworks challenge scale and together data average in United a of months. own by health Atlassian's web transform most enabled Bitbucket's organization products, working customers to client, VA, cloud. a Atlassian's three its per million support a eligible For worked built at our Atlassian, on response years transactions just Bitbucket, posed data long-term would is security. in one is have performance. in level managing order Bitbucket

as Data possession taking MPR Mental uses data an a platform ratio MPR, VA view adhering the product, clinicians Suicide XX% to reduction example, to Health Office Thoughtworks who veterans delivered data well are fully critical Prevention VA's by control For provide introduced is be to medication domain patient regimen. a paired for MPR how calculation, which with a processing a medication medication. data to and We're in manage core principle of a on is the of and to Mesh enables with time. managed teams. enhance

data Azure scalable the catalog product enterprise Analytics assets. platform, Data a new a HDAP implemented and Thoughtworks data became HDAP. for Health providing The insight Platform, MPR Microsoft data the inventory Additionally, first data the product of

Now turning to new clients.

a value focused have digital We work the from transformation. approach we to to rapid helping clients, business organizations with deliver new

We quarter. contracted from clients first the of half year, continued third have momentum the and the new with in XX we

working that of a me with provide have been we client example let recently. new Now

Thoughtworks integrate its LLC, and delivery, market it indefinite share takes base government-wide directly. development last an PCI forward allow Thoughtworks, a big creating federal greater will the XX quantity We're wholly the awarded an with Inc. supply a have years first with their indefinite its a provides therapies Thoughtworks goal systems application This five to us Services, Federal agreement to Federal bring to periods. in journey awarded the chain, by its global grants We organization. identifies to U.S. platform data is Multiple step to and the life-changing seamlessly Schedule to PCI optional ability This The real-time and includes projects, adapting patients. PCI's, a process PCI trends expanding a decision-making. have prime agreement a agencies automatically more owned subsidiary time Pharma will manufacturing Administration. risks, status Thoughtworks with for digitize years pleased also for industry contract of was With of month, a multiyear interface, leading signed transparency contract kind additional help clients spots contract of to Award and of Bridge, business programming sell that simplified modern of provides and analytics. of that period and General is accelerating that this Services

on an me update strategy. share as partners a Now let growth

primary go-to-market and Our develop GCP partnerships including is focus to with cloud AWS, hyperscale Azure. providers,

AWS huge understanding scientists For place to and example, biodiversity as is and research and than working Financial with competency. biodiversity the visited History have one together of bring successfully new technical Amazon a called a types the with Museum. to The Services AWS's breadth third In the tier designed achieved scientific platform, data History Thoughtworks environment. highest Natural center achieve. new The is has the the we're data help AWS in in was of Premier partners with a also build science Museum on museum and the partner, a UK Natural most environmental UK's data we expertise quarter, at also large partnership and of Data indoor in is new we cloud X% scale. XXXX. technologies, UK to of help which attraction the platform Ecosystem, world-leading together AWS services with less AWS working the number of a clients deep We're

a on going section You through that some our can of detail. now new you I'm take hand website, these numbers successes she of to in customer greater to can find over thoughtworks.com. Erin so details of the

Erin Cummins

for Thank of quarter, with you, solid results in business. very across Xiao, all you which to pleased us We thanks demand and today. continued demonstrate joining our the our were third

summarizing of third the by year was quarter, the period. of currency revenue saw growth for highlights we In revenue to compared Constant the begin me growth Let few XX.X%. prior quarter. XX.X% the a

is to demand. due growth constant in in higher midpoint percentage to I of and the of margin compared revenue the was guided to the guided million decreased prior X.X margin Our is adjusted strong from period to impact basis execution our compared the Adjusted better-than-expected when quarter XXX Adjusted compared August. This year lower due EBITDA XX.X% EBITDA $XX.X was utilization. of and EBITDA the I midpoint higher in range to to primarily the points points the range for to August. currency

share me some let details. Now

Turning to revenue.

basis. currency on constant year-on-year was the For quarter, revenue third XX.X% and XX.X% a growth

clients transformation to remain programs. committed large Our digital

starting to are we behavior. see change in a However, client

contracting smaller normalizing are cycles clients post-pandemic flexibility, and phases accelerated from levels. in the themselves to sales are allow Some

million compared value environment, In demand the clients industry a and first Thoughtworks with continue third select higher remains their an had average $XXX,XXX greater transformations. the revenue of for digital the per average. which than period nine increase we of remains annualized XX however, clients bookings for XX.X%. evidenced $XX XXXX, Thoughtworks. Our months over This to of see XX period, to is healthy XXXX, with working our of year, quarter we employee XX-month Over last clients than clients same the trailing by

months Our in by overall year-on-year the billion. XX bookings increased to trailing XX.X% X.X

diversified APAC grew XX.X%; and We XX%; geographies. across and North have by X.X%. a industry verticals Europe LATAM America by grew XX.X%; by by business

Our COVID growth impacted in APAC continues to China. situation in the be by

of reported on our a the want U.S. recent provide dollar we into strengthening deeper Given continued the effect to results. view in months, its

Our quarter. the primary business of dollar. dollar Great Australian this U.S. British currencies with pound the the are pleased underlying I’m alongside euro, strength and revenue-generating our

diverse period. on euros a Australian non-USD year our September geographic contracted XX.X%, compared XX.X% pounds revenues Due dollars XX.X% of in of by to year-to-date XX Great our by contracted revenue of on British the currencies. and by example, to were as XX% basis, the currency in our prior business a For basis, nature local grew

health at quarter. in grew strongest see last continue the vertical services financial We XX.X%, The XX.X%, retail services our XX.X% with at across and and industry in business year. was automotive, our was line growing technology grew grew public to growth and and energy, transport good XX.X%; at growth verticals also travel and consumer at during services

quarter. In As we has growth strategic double in in returned with expected vertical health and digit shared you focus a to seeing the the our quarter a the spend end post-pandemic this and industry the services normalizing as is business consumer May, we vertical, public third of boom. At and after retail are basis, XX.X% came the TTM clients. existing from on of energy,

have and revenues quarter, relatively have month balanced increase. top XX portfolio XX customer a as five, generated third a clients greater trailing total than client top XX.X% revenues. top concentration. XX.X%, and XX% percentage with quarter than the now We with In of third million, of representing respectively XX our XX.X% clients XXXX, more seven $XX We a the low XX

statement. income the down Moving

the liquidity. which third was primarily prior during points, quarter to adjusted of the scaling with million in quarter, discussed year utilization percentage third basis was $XX.X adjusted the due to stock $X.XX share compared third diluted we to flow compensation earnings basis was for of due for prior to the good XXX income last and to effects our the execution. an was adjusted XX.X% In points from year previously For year third by margin $X.XX of compared XX.X%, to strong revenue by quarter quarter, loss per the $XX.X decrease to quarter EBITDA. utilization. SG&A as to per taxes. non-cash gross XXX was is share with third as quarter XXXX, the the XX.X% adjusted Free period, was a million charges. and in quarter impacted was the adjusted and million basis, our by margin diluted adjusted efficiencies EBITDA than better due $XX.X have XXXX quarter XX.X%, compared Adjusted EBITDA GAAP impacted a $X.XX compared On continue from cash lower respect

Our $XXX million to cash at XXXX. million was XXXX at XX, balance September $XXX compared XX, September

repayments reflects in in $XXX and XXXX. debt October Our $XXX million of cash million XXXX July balance

go continuing as and to $XXX million Our XXXX. of XX, debt is down is September

like would share I business quarter. our from Xiao third back additional Now, on to to hand the to updates

Guo Xiao

Thanks, Erin.

our focus gender with with of inclusion diversity and me amazing a our are grown Let Thoughtworkers community With over start underrepresented XX,XXX. and Thoughtworkers WUGM. We’ve women Thoughtworkers. XX.X% now minorities to on long-term

value create significantly a XX is we’re our well plan Thanks to management in culture. Thoughtworkers is has global at for longstanding believe to end business that The attrition the pleased our example leadership clients. and program, XX years. pleased improve our We Leadership the priority. I’m strong employee bond on best better impact over been deep One talent digital basis, than than industry Thoughtworks’ our a have our us we way diverse has operating on positions was to XXXX assumptions. the that Investing now has is in of tenure development. through our part Global years. commitment a which focus is One team continue that average Development leadership Thoughtworks running demonstrates achieved this their of and to XX.X% with of and for TTM This September, value strengths industry proposition the attrition better employee our norms. a in extraordinary proposition. the We

around that are global of team the our Development We’re program. alumni of XX% Leadership proud management Global

Great previous all Great to to In Place XX. in and cohort Our Spain their XXXX years Trust third Place to quarter, Global are XXX active XXXX brings and Certification XX% that are our surpassing the Global alumni. score. China Leadership received Development program is launched Certifications in coaches. of current once WUGM. leaders Work developed September, pleased this women a internal to of by of XX% Thoughtworks XXX Index is WUGM The XX% Singapore, we’re year’s minorities, supported Development again Germany, and total whom with meeting gender underrepresented and This program Leadership or are regions in-house Work

XX,XXX applicants direct of the Our hires employer XX% to brand third to track strong and recruiting Thoughtworks over continues referrals I’m capability our and Thoughtworkers continue talent proud job our sourcing. we very during to quarter. from coming of over see with

have and impact. a Our to place technologies priorities talented be grow for to for Thoughtworks

third global the Our was the services our the which measure again X.XX. Glassdoor a rating X.XX, for In rating rating higher progress sector IT quarter, making. of the we’re is of than is overall

be the higher hires. inclusion than an company continue for and diversity will rating recommend new was XX% employee sector Thoughtworkers important friend the referrals for X.XX. for services of to and IT score to source of the X.XX Our

thought that’s brand technology days We’re revolutionize leaders who known as as early industry, how our our we and build our from the and reputation company. a

range year’s year sustainability, career in including stay technologies and topics, close better customer modernization, tech June from a panels nine XXXX to product together. XConf with we and as Thoughtworks flagship clients attendees. thinking, over of continue its accessibility of We wide data to workshops program enterprise by XConf global consists now talks, covering sessions. for ran theme This well making as X,XXX XXth and Thoughtworks program experience The was our technologies. XXX and mesh, oriented in run to a countries is August,

Thoughtworks leadership. Our And exploration effectively, digital This Bank. approach of on Roche, client how published third papers, three and value Creating uncertain Value clients for to clients, Services thought Beyond times the Analytics in our Review we Thoughtworks third metaverses. such with guided the is consistently through Harvard tools experts Thoughtworks based they how practical mesh Review feedback three ITV in data Saxo research the industry our Business fluency the and suggestions Business informed significant a with whitepaper whitepaper, low-code as clients to In and Mesh. us use that quarter, academics, data quarter, Harvard including Technology: of with paper with on a to Data our in with narratives Business and association from of mesh topics

prior We’re ITV of a data in reimagining marketing ITV’s winners production, DataIQ implement in addressable audiences for Awards XXXX. result and the approach team been can the content with partnered also is share rather and The ITV has that use identify data promotion, Thoughtworks a and three pleased were of mesh distribution minutes in that months way Thoughtworks to than monetization the the timeline. shareable. to scalable

service the data exchange culture shared judges. impressed Our mesh and data sales

Erin. Now let back to hand me

Erin Cummins

on would Xiao. our some within to priorities. you ESG like I update focus Thanks, areas of

part impact Thoughtworks a core is work social culture. transformational Our of

ecosystem Health be digital to accepted quarter, coverage, long-term source to architecture Bahmni, In is to information core the people healthcare supports India’s universal Bahmni now priority example, the health vision are For in over third X global expected Digital National the system hospital which Mission. our support Thoughtworks open from. set create a to health to benefit up billion that the national first

the to approach around our of in responsible is technology. focus Another practices ESG

becomes responsible ever more help importance field tech of pervasive mitigate to technology technology. As consequences inadvertent negative in lives, our of growing is the in

responsible We are a of leader tech. in field the

a a Parsons, Rebecca contributor in our Forrester The September. Chief responsible spotlights is and also by every held strategy opened technology firm. that just technology Forrester, Dr. global ethical sustainable strategy responsible for advisor example, world’s and Tech drives Thoughtworks and Officer, tech ethical and leading report not For Congress differentiation. research the Ecuador company, to big in a is earns that Technology Responsible a having trust first new report accountable

me to let turn Now, outlook. our business

While there our customers macro come to environment, is uncertainty continuing in businesses. the Thoughtworks are to transform to their

fourth X.X% quarter of the to we or reflecting in to the growth in XX.X% currency. to to range be of XXXX, million expect constant $XXX X.X% $XXX of million, revenues For year-over-year XX.X%

completed will contribute expect year to fourth revenue X% during reported growth. We acquisitions approximately the quarter

the We of the range quarter expect for adjusted to to margin EBITDA in XX% be fourth XX%.

quarter, count to fourth we $X.XX, per range million outstanding. the approximately of assuming share the share be of earnings For XXX adjusted in weighted to a diluted average expect diluted shares $X.XX

As the third guidance context our some is that provide me let for we the did informing in quarter, fourth quarter.

the that as let and programs share me expect growth help few We efficiencies. transformation a framing, Within solid our remain clients environment we for digital demand factors. to drive

quarter, clients transformation statements of last breaking as additionally, some mentioned normalized into be themselves behavior work clients First, to contracting decision programs cycles larger compared expect digital compressed to to flexibility. more cycles, allow we smaller post-pandemic the some at we

in Consumer cautious to signs Certain our uncertainty. retail in to quarter. in are in clients consumer seeing are and sentiment a are we due the caution overall and clients And budgets. into few on APAC, additional Retail demand being of the primarily we to expect response continue moderation we seeing more scrutiny economic in segment, China business in Second, third, fourth

fourth our reasons, these is quarter For prudent. guidance

realistic a taken have We view.

managing that any have negate impact we would quarter our the overperformance the expect on just challenges fourth We shared of likely most guidance.

Now turning guidance. to year full

of includes a XX.X% XX.X% year to the impact in on full to of XXXX, Reported For XX%, or approximately XX.X% revenue X.X%. reported in basis growth growth currency constant the revenue year-on-year negative a currency. range we foreign expect

growth. contribute approximately full Since in in We to year year XXXX I August, provided full has dollar completed the continued XXXX X% expect year the last to to reported acquisitions strengthen. our U.S. revenue outlook

As million foreign in the view into such, a million in $XX of million I negative that exchange $XX our impact comprises of a an full quarter. revenue on The the impact due expectation impact the the $XX fourth I exchange foreign am guidance. compared includes $XX to midyear, year to This million August. of $XX expected impact FX the for negative XXXX shared to deeper third million FX quarter, FX negative providing

XXXX full margin, adjusted be XX.X% year EBITDA to to For expect we XX.X%.

adjusted $X.XX, year count diluted full to per for of average earnings share assuming expect shares range approximately the We outstanding. diluted to XXX weighted $X.XX XXXX share in a be of million

impacted guidance foreign is negatively exchange than Our compensation. lower tax full and assumed from previously year EPS by stock-based benefit a

any emerging XXXX, execution highly remain or efficiently. For we of developments strong global operations with our potential impact of vigilant and external our scaling factors focus on

and highly and Our value our relevant, services are close to we to proposition continue clients. stay

our solid business. talent in attrition visibility into bookings best and good have and We low industry levels. the that we have the believe We

We in market, with high platforms we levels. around services continue propositions balance remain hotspots are ability demand solid on fourth we skill calibrating that and more the utilization and focused the an to our developer and specific We growth data moderated effectiveness in data to supply opportunities. demand hiring our for at partner-led example, like for to respond and so mesh our expect seeing sets quarter can

hand me back let Sean. Now to

Unidentified Company Representative

Erin. Thanks,

a to Operator, You many on provide those Q&A. as for instructions move you the Relations the question. you keep please can question website. ask I a follow-up allow would now as presentation call? and Thoughtworks find would to to possible each one our that on We investor participants ask Investor to on of

Operator

with of JPMorgan. question Our line first Instructions] Please Tien-Tsin [Operator proceed. comes the from Huang

Tien-Tsin Huang

on you side, what outlook which if don’t speak mind. Thank you and ask on to to the the the to understand I can comment around you. you prudent really margin the conservatism. is all. wanted Nice control, I

to bit. down down good. expecting was Fourth quarter third you’re was come margin SG&A it looks a The bit. quarter, that a quite like quite

the impact maybe, quarter past So – to that you get can in in what doing that talk you’re and about there? to will margins the relative headwinds fourth proactively the

Erin Cummins

Tien-Tsin. Sure. Thanks,

So we’re what definitely to QX about doing. happy to and QX talk margin

First, guidance is seasonality informing factor mindful it’s QX. the QX. be to in important with that respect the of certainly, to And

time lot to in a have public of there’s be that from margin driving is guide holiday is and time, to actual largely that a so on vacation So and does impact shift QX, and QX from QX utilization what pull-down the in QX.

In there’s addition on improve to that, things. focus what we to that, a few

some that to tightening is continue there we we discretionary in in are QX, that QX. did spend that up on. So We and do

than We was some higher that also impact, and so variable QX. have QX the QX benefit was QX pay and in in of it

So sense. we to whole, that that offset continue where did reducing to in reducing spend execute revenue QX, in that on are QX, to with makes But we well respect impact. leakage, think helps as sure the we that discretionary part utilization will we making

efforts However, invest we and invest and in to continue to in continue marketing our demand our strategically. business the

Tien-Tsin Huang

for Great. Erin. through Thanks Great. that going

So maybe you. maybe follow-up, quick Xiao, for just or Erin my

report, your bit there’s you cycles. different been before. I’m intensity? past this you’ve in team, agree as KPMG the what we How some little change transformation. it a tenure, know just how quite Just this are seen here stage trying a digital their I different a you’re priorities? feel evaluating of at and thinking does see through referenced your to bit Thank given think clients you. about you’ve comes cycles it pause with management seeing you you of more of and Did around back then

Guo Xiao

Hi, Tien-Tsin. the you Thank for I’ll that. question. take

versus to a that’s that of One tech to current a next for invest thinking transformation for is required to is our seeing of when the hesitation cycle, we and we lot think But and macro from of a different. should lot of in area becoming the sales no digital greater out, macro-induced cycles we’re due not? this working a this now, situation some is definitely digital do doubt we there’s are similar business plan there’s business, induced tech, now, the we should there’s just or I to uncertainty for leveraging at causing this in leveraging uncertainty think we to of technology strategy already. layers clients then with couple the So And lot should that invest year, most the drive stretching long which look growth the longer. approval this think, timeframe, core better of the transform the is just digital what run things the we about previous cost focus we’ve why a efficiency of on programs. to particular I saving different a drive what’s seen, additional conviction that’s

uptick Erin the terms developer earlier, big we’re For example, a in out of mentioned seeing effectiveness platforms in interest building that in organizations. many

than, better the retail, for in earlier, verticals doing energy, mentioned public also are example. clients, in as automobile especially Erin seeing We’re that

verticals seen. think doing third So the Europe is we’ve And the areas is variance is actually different that North is doing is different different. I performance previous of some than different, geographic of one, decent. America the very well. are

we this softness have And very traditional the APAC. then But Australian seen market, the more conservatism is the besides driving we’ve China zero-COVID caution facing doing just is Asia situation, well. in just macro Southeast headwinds.

So gone. short-term, gone, three what that And and believe to the uncertainty sense, believe first feel one the on is the of Hope this makes spending once Tien-Tsin. we seen we’ve then think to that extent, uncertainty overall, this or mostly tech not materialize we that in continue. also before, will up strongly is once the meaning that I We months that windows. that is whether pick to as will this be recession spending pick six up or uncertainty next is

Tien-Tsin Huang

Xiao. does, that. Thank It going you for through you. Thank

Operator

Nolan for Blair. next Thank of it and the William Please Maggie comes with ahead. one our you. And from go question, moment line

Unidentified Analyst

for Jesse is Hi. for questions. you Maggie. on our taking Thank This

Or talked projects have previously, ramp expect expectations quarter. pushed to about So you ramp-ups revenue in quarter? you for up fourth result you quarter further? the Do a being to flat as this of the still pushed those them seen third

Guo Xiao

question. from to, planned. was Thank the ramping you, QX the QX that up ramp-ups We for – Jesse, referred we now delayed we as are ones the in

that That major behavior So of no were seeing change not quarters said, of ago, there’s markets. kind some mentioned, we in that. as in change Erin three the

that I see are deal smaller funding concerns ramped less is we some side that start the more then the the some with. have teams last the of it’s about about other think on more the three and macro programs different to months, about with the to translating that it’s headwinds up. just of being incremental compressed behaviors But ramp-up, become in more

then of and XX reevaluate still Phase before clients our think up expecting Our to than start logos this clients and seen are and long-term ramp we’ve programs. getting is planning up in are the then a to QX size A I, Phase and higher to similar is this they is the with, QX, which deal further new work of But of before. We funding lot I to smaller signed what lot II the team. complete uncertainty. due

it think sense. makes I

it up. worse then stable Our do condition business doesn’t continue we up the expect long-term flexibility to than ramp to doesn’t, or clients expecting. and ramp want deteriorate to remains further these keep the And what if to they’re optionality programs further then if

Unidentified Analyst

your that you where visibility Got visibility it. as more at Thank types now smaller you. previously? does How in to sales normalized you’re all? of projects you’re then compare think Thoughtworks you’ve about been And those seeing, impacts thinking do cycles

Guo Xiao

for We we been similar is what say around of have Internally is to years. to visibility the visibility QX, is willingness we the around previous XX% can the previously. revenue have see said similar do it’s that of signed our not coming we very have calculation. about in not the as own we could and the we what actually just which visibility contract, future. our it’s just program time ramp-up itself, SW scheduled The itself, year Because then the in this

new will Take XX for we signed everything about the So not visibility. logos, when that think be example.

a bookings – up them perspective, those clients. grow teams, starting larger teams XX with we’ve others logos from six new then potentially are still SW with to also a of more the XX About four Some in have perspective, five than of XX months, adds to them seen we or teams of next to bigger footprint even million. from starting to as the potential much $XXX top XX And but smaller before. to big are as

both So the and about at time the of full do feel visibility year, then we this similarly year XXXX. for QX

Unidentified Analyst

Thank you, helpful. Xiao. That’s very

Guo Xiao

you. Thank

Operator

question, Thank with next the the and please proceed. from you. line One of Cowen. question Bergin for moment Bryan Please our comes

Bryan Bergin

for questions. my Thanks taking Hi.

behavior. I the bit Just dig wanted more conversations the on of a the one, first and to in details client little

cancellations is seeing previously if had that size? late-stage you deal and it more down into are pipeline? this work been was Or that in pace or right just smaller of signed so So measured more

Guo Xiao

was There message. cracking, a Bryan. the bit a of you, I got Thank but I think

cancellation to the from have the noticed perspective, I we’ve the a say, only is So vertical non-usual way retail that in vertical.

clients more to We’re consumer economic overall retail the definitely caution sentiment from seeing due and uncertainty.

and going nothing to sector. this sector. the caution strong small already the and the in major a that’s QX to bit other There’s vendors services think other automobile, sector we in a in and similar pullback I have here for retail impact. retail And also sectors, we the verticals all the retail with a prepared is and healthcare, of spending growth. why the a That pace, there, almost in very retail seen then one financial I delay a think growth QX probably biggest here it’s QX, grow there, in that’s example, see to on and is healthy in just seen expect showing the few having pullbacks public, from pattern QX We in clients results, in believe continue said, all impacting And vertical. this energy, complete we remain

Bryan Bergin

thinking just Okay. going that. did And had about about business? was talk sense. to performance on headwinds can And called I then XQ. How to something China, Makes as this the you appreciate a how that into of China outlook in forecasting? you just perform the the China out know are you We XQ business? that specific you’re relative what headwind that

Guo Xiao

it’s QX. what we how performed we expected China have in in It line very the actually compared to So seen in much business, what with was QX.

to XX% market. companies, America, about is generation that in XX%; revenue; and is is Europe, is QX Southeast this any put quite about is to we X% XX%, area. and XX%, significant other That North main with have just in about in feel just APAC I zero-COVID in Asia; – from XX% regions: into about is think, extending perspective, But compared as China I probably into XX% is then impact that X% local of Australia; and think well. demand year QX we – next context, the a three

and – that a contained while relatively a pipeline, a the – also positive revenue significant perspective, are from context. rate. revenue perspective, is diversification from it’s looking just fundamentals the there all broader to So very local From X% win the growth still in impact of from market then

wallet of of then is major economy a in slow is the clients. still and constraints zero-COVID that policy in We’re gaining place. putting It’s lot our share the most just going

it So similar three a it’s than take months rate get while going the compared to for growth regions. other to to probably little with longer back

Bryan Bergin

you. Okay. Thank

Operator

our And of from question you. go one line Thank next comes of question moment for Bank America. with Kupferberg our And the ahead. Please Jason next please.

Jason Kupferberg

mid-teens some quarters. Good morning, the of some know to guide of guys. constant just you’ve tough QX the the then up growth. on in calls I around wanted And following currency visibility. pretty pick compares got I for couple revenue comments

half proxy So about it seems like a XXXX. for maybe mid-teens first to is think of reasonable the

quarter-over-quarter our quarters as next about of year. growth QX the to of in Just assumptions realistic be beyond this model trying over couple well

wanted factor other start and bit. try just considerations Thanks. off is little just to or there’s shifting into that you environment our if seems if should the a see demand we bounce as to models, some I and So that reasonable

Guo Xiao

on Thanks, Jason. I’ll Erin. comment that,

we far a estimate So lot better the while the thinking. services. as growth then diversified from I just to financial that are ones And what concerns. potential our There’s think in business going to automobile, is is be sector, performing like we highly due public see three we’re and do macro I across to – as in your verticals, earlier, geographies not months six energy, mentioned next in this hopefully, downturn the potential off uncertainty more

has in they bounce XXXX just, down is given earlier and kind North Australian extent, then as but as during which very others be believe that helped to the than Europe. them others conservative of also the We Asia, – bounce well. tend should better-off healthy financial and Australian to to slow the America, than doubling global down market business like we the community some fare back markets back the at earlier Southeast We It’s economic better fundamentals. know, – crisis, will

the CCY – in that once as sub-XX% probably mentioned, that comps, that growth back gone, highly we’re XXXX a the looking But proposition the we headwind, early programs at wallet long-term the and is on I tough this, So with value we you strengths, to all pipeline mentioned. HX rate the said, in possible. macro about think of because of the caution drag ratio, Jason, is probably XX% then are And growth getting the basis. certainly, share, HX and confident the win in HX given rate

Jason Kupferberg

too, are a little a we’re to the makes at sense. hearing kind longer pushed off engagements get companies, I client the around bit. visibility year turn And budgets you it of just from just seems little like typical Okay. new I other to kicking thinking say, a Yes. decisions be what out No, this and take all year. finalized going about guess may mean might just have, versus of let’s that

got perspective So don’t just environment wanted Maybe visibility until, full I’m on framing instead your accurately, if are I bit that doesn’t but emerge January-February? you of less you’ve know, that where on for I March-April, an the get know preparing year? I to don’t a just guys that.

Erin Cummins

there, Jason. in I can jump

think are now. planning would our the of middle process by in your I say, question, indicated right which So firstly, I we

the is already our And do move has Because previously. maybe of want want we to It good similar we that we or the not needed at the Xiao process, next year. about through able three that are in As we’ve visibility and be are We do guidance at process, That wouldn’t about, process levels time. expect we’re caution in later to market. around the seen the we’re we to but sure you make providing thoughtful, the a as and same because had do as than in that time, is and that. planning agile just two go know rigorous of running recent have weeks we’ve previously. business. I this we middle talked we into said, we’re

we but in stand comments the So are of certainly, middle our Xiao’s process. again,

little dynamics visibility, As a but is with the showing you of were bit associated there similar market headwind. amounts highlighting, caution certainly, macro more are the

waiting that market to guidance when be give will the reason, for So we in we are in February. final

Jason Kupferberg

thanks Erin, Thanks Xiao. Understood.

Operator

comes you. Please moment Thank please. And Baird. of from Koning One our for David line with next the it question, proceed. RW

David Koning

there's if – services just and maybe I any XX% vertical. was just question. Hey, more close first guess of that a just yes, bit guess, a financial or Yes. ask And weaker, retail that. taking Thanks guys. to stronger for to down sequentially vertical, I about maybe talked the are wanted that know about you the I the subparts I services little financial of all, little

Guo Xiao

line the it's Thanks, out not sequentially, think Dave. other verticals. down Financial of services vertical, with I the

a we own management, phase back think it's then digital growth area, to normalized pace hyper And generally post very I from COVID. just more portfolio, do wealth it's in that – just within well vertical banking our this coming growth in payment. the

pretty pocket, a – main calls in – a out areas, area. difference would I our couple that be to just it's it's we've seen similar attention think the what compared space. cryptocurrency in other lot seen of calls But ago before. less that the haven't pattern There's where quarters a with to particular we activity

then if our that what services biggest revenue compared tech in still And look in revenue there's with ahead, perspective, we sector. very tech how we're digital spending knowing confident still, at of of grow dominant the we this financial the the why the is part get. that's of revenue that share perspective from a small our services, whole about to from headwinds global all So a the could Financial sector the given sector. is – in to a reason continue ability macro and services footprint among sectors, whole have relatively percentage we business spending of

not this ago. So pre-pandemic growth will as services hyper that strongly continue, quarters as the it's higher in we're two but than finical feeling just growth

David Koning

of just tax rate. kind forward as Yes. like anything a rate tax forward? know the and gap really, as to rate is go hard changed really adjusted But kind going you. us And earnings that's breakeven. adjusted between kind for Got or mentioned, follow-up. was, of very Is just to And this as XX% GAAP maybe it's to non-GAAP you when either guide of difficult. tax high quarter then just about it's we I there close normal think XX%,

Erin Cummins

mentioned Yes. is reasonable range forward. going Dave, just that that you

Just in happening understand a couple for of points and included to what's respect guidance to then third help you fourth quarter. quarter with both

XXXX. of will There and will You will of stock-based that little majority runs compensation XXXX. close There at relates recall, IPO. of the much income through got more we it, XXXX, outsized, to in that be expense the course, amounts we've nonrecurring be are the that of in of vast but through significant of that a

quarter price dynamics at the impact. share a vesting to higher-than-expected led the and of also tax the We event a vesting third in of time had the

the had And tax there and so is higher quarter. compensation was recognized that for why stock-based the on in we've the that deficiencies excess tax quarter, third is

in QX. so that to And really quarter. is the for in that is big again, continue somewhat difference guidance, we're expecting that the And but included

David Koning

you. Got

you that. thank Now for Appreciate it.

Erin Cummins

David, question. thanks for your

Operator

question, One Moshe next Katri proceed. right. All of the comes It from moment please. for Wedbush. our with Please line

Moshe Katri

maybe take quick questions I'll here, two Hey, guys.

down. your non-GAAP bit so Maybe first, were the margins a EBIT about factors. talk So

rates. some mentioned Maybe Erin? on utilization think you that, lower I color

Erin Cummins

the you'll we mentioned, the lower with in the the talked call. quarter QX Moshe, a that three third talked them utilization. remember We and Yes. release. down factors It guidance on bit was to about that sure I'm really about Xiao

a gross impact an quarter, can was it – lower so And utilization see with the was third which you margin. in that

margin gross to about last points. Our X to compared year, was down significantly X

remain if was that dynamics, want largely just I pricing our the utilization. do pricing we at that dynamics so highlight strong. to look And

quarter, the the in the in And so price and had see to we increases did third first quarter. we the continue second same as

our but as And than so running targeted. we in is are impacting QX and well. the impact certainly, we that And also QX guide fundamentals is lower the very underlying that saw is the utilization strong,

Moshe Katri

great color. my pricing. on Actually, follow-up That's right. was All

looks major – be pricing anything have that aware good. in kind client Are terms So renewals coming we Or the anything pipeline in of on to there of of renewals any up? terms of?

Erin Cummins

certainly, throughout renewals that have towards planning clients' the a would larger and end with We of the concentration There in the is year, year. be our cycles. line

plan we planning level going on accounts, as account. by we do through process, our client a So with are bottoms-up account respect to

reasonable have process. the will – we renewals particularly of note that fourth the in amount really a part so It's Nothing And quarter. of I as course. it's the in annual would normal – all the

is so year. throughout it is And heavier, but QX the

things far, are trending reasonably with well so that. And

Guo Xiao

service mix before. we higher then a utilization. that, a follow-up to the have Erin, pricing feel we is been the and think focusing we extent a as power just to then offset But confident on on get quick – geo these obviously by continue I are offerings value-add will we from That pricing perspective. the that some mid-single-digit And QX, at looking increase getting have

Moshe Katri

Thanks guys, thank you.

Operator

Piper Thank from with question, Arvind please. of Sandler. you. One comes moment for our And Ramnani next the it line

Your question, please.

Arvind Ramnani

or ask increasing budgets, you spend streamline kind some the And particular, thanks by my larger about you're wanted Hi, smaller vendors? consolidation. to vendors vendor are reducing consolidate you taking to behavior any seeing seeing are vendor consolidation? to kind what ask, when of are for of questions. and with clients on of spend reduce behavior in them the Just I wanted looking of with seeing

Guo Xiao

Thanks Arvind. question, the for

wallet strong positioning And strategic more because of cases. share seeing the to providers, are them of situations, the create the more is a commodity of on seen vendor have desire terms so providers. track We The space actually priority strategic there's we then delivery we've for we've increase and in – the service seen also that change record many an perspective, behavior, pattern of in some some to consolidate client consolidation the from we have. in a common

– this macro headwinds just than actually consolidation. more to vendor but too the we're context back opportunities to taking even share many. an pattern, more not of step that vendor are as though the sense. coming, more a we of makes So just consolidation, win overall opportunity It's of an from during case across-the-board the if – taking is It's isolated

Arvind Ramnani

follow-up. a yes, does. And just Yes, quick it then

our But vendors headwinds, the particular still for how reduce increases. about are clients I seeing reduce typically, thinking know of sort spend to when we discussions little given well, are by as pricing, budgets, pricing are get a amount? any that you reduce on you saying Just better to but demand are price to modest looking can pricing? folks a said if you're XX%, budgets, there maybe more reduce can potential that, we hey, that by bit trying those then like need

Guo Xiao

then We from I – to help all a even, the surprise if this time. moment. them pricing a pricing environment right a of happens all protect difficult time, to facing And rate. our doing historically kind that we're discussion where the at teams One it difficult And think that's tougher ground a perspective, time, the our our clients. to also on never then win is support and definitely them through things they're are facing for

priority. making do only rate But an the tougher are definitely see not pricing decision at we making our a aggregate we're this pricing level, win So overall, environment. think It's we that. just risk, I at putting multifactor

confident We will power margin see – next deal more we increase that higher with overall, two. than general or we're have. less But we us the give otherwise. have the going these in pricing to perhaps the issues end in gross in And with quarter also margin, to price that flexibility up feel we

Arvind Ramnani

Terrific. in you to about volume the how currency last When look I Are And it's revenue compression, versus roughly million much just $XX.X QX question. that able your midpoint. then is of dimension QX at kind of of kind compression? from to

Erin Cummins

Thanks can answer that I Yes. that. help for question, Arvind.

it. mention You currency, did is of that part

revenues, QX of factors QX structural revenues of number QX from that really decline the there's to at majority it's a really think looking driving in to is in to QX. understand revenues the I important

exchange are So for X% that. going to rates approximately account of

versus addition, In in there's QX week QX. one less this day

it Public X.X%. but is than quarter fourth big in factor year earlier that in in last and fourth talked And on various seasonality quarter holidays seasonality the more are Thoughtworks. talked QX. times. we've so quarter about I vacation the at growth revenue mentioned significantly And about is leave the any for call, We the a another about for year. other in

for so additional an And big that. actually approximately underestimate a that easy has and That really to impact, it's X.X%. accounts

So very really to is just structural fourth year-over-year it to with last of flat we QX. a would And growth of what revenues help of had even lot strong from XX%, remind year, the we saw dynamic year, that, last a call factors. quarter we the is of And which that were clearly level growth. in QX our

of going to cover most is and definitely there there. it impact that so seasonality And is play a here, at

from have about caution. solid talked whole, it in softening we is just where expecting the already but seeing XX% a of bit But of We some down a some the step we're are and QX. the saw CCY, areas on that little XX% we growth,

Arvind Ramnani

some were But to anticipating is back I things right? terrific. dimension any versus like a if headwinds was earnings, have earnings. the months three structural kind Yes, already guide – were gotten And have go trying additional bit what were changed from Yes. of just Like play, – what's ago? But guess, last kind things I'm driving of I of what you to there in things that last you of that's some like earnings. to than worse last these if from FX anticipating

Erin Cummins

Yes.

is part of it. definitely FX So

to revenues in FX USD reduction in QX. in was there of around is related So $XX that and to compared factors guidance, million a lot

also start is what that has we more so a the surprise no cycle. bit clients there's been I play have a in But a or But macro about say is any continue that for mentioned, towards time. into think to cautious and start seeing big largely of shifted tone engagement news said, the – end potential this okay, just people cases, factors. we're And last with rates. the year, teams more budgets sense – make rather didn't the the it's part. strong a general lots as long us. more seen seeing manage And that very that is in clients talking win and clearly ROI. to would smaller contracting some in going we clients have playing in to And a just month It's we than talking initially, to we a focus as QX. Xiao QX were have just on It's see of well, two That's what I are difference. of

just difference other quarter. we're a did more the particularly beyond than that in So the seeing dynamic, of And little of we that the FX. last the in the months third part bit is

Arvind Ramnani

you Terrific. much. so Really that appreciate color. Thank

Operator

our proceed. Perlin Markets. with one Please next Dan from moment of Capital And you. Thank question, the line and for it comes RBC

Dan Perlin

about know to you've XQ. this think visibility. XX% just specific not but I as up Erin, bit have for a giving on bit wanted got follow outlined Hey, we you're guidance, a little what I Thanks. cadence you

kind sequentially. it, pretty has what for I outlined lot think sub-XX, just in earlier based as an to absolute you maybe XQ. question, structurally a XQ, there's the downdraft number the to And said, mid-teens. you absolute ramp significant of call on why But you've a of things to dollar alluded a

case? continue help So would structural things will the can Obviously, we'll there's maybe we that back but to be the and to Maybe mindful holidays why of. FX us that need with get you some of things be just tough. be nature,

very there Thanks. helpful. anything So would be

Erin Cummins

Sure.

in a for and think benefit strong quarter, typical that that pattern do QX. so across should would year, growth the QX QX a very, pattern more a and the into saw – this Thoughtworks. moderated aware the first QX as the be this next growth had if year. into is quarter, it's fourth we've What year, in we from we to year. QX and so about in continue So seen in they very we first see We things, And bit – been strong expect that's then quarter we of provide structural of of

we've year, FX the the account into So as we take consider got headwinds. growth next into to

Dan, As for into take that's us, to just also that you macro but account also a mentioned, we then factor big need uncertainty.

true, run growth next for what year. are But that. said So the be that that we the potentially holds to Xiao then just the of will We'll will until be in specific we expecting solid said, wait current year. we're do right rates growth going half not rate given given moderated, give now. dynamics, to it But second February QX, and more believe the market on in

months' hopefully, few helpful So say, I would and more time. in that on that's then a

Dan Perlin

you have growth going first to as outcomes just I'm second I looking likely Again, real is expansion for half, terms great. but better utilization. that that probably we half year. Is the think about as and just in a margin opportunity we not just into for quick one maintain in of some for is that's directionally, margins? see of compressed described, guide, follow-up in specifics likely is a could but order expansion Yes, it next therefore, growth, there have level to we go

Erin Cummins

Thanks, to Dan. early about the Yes, believe Again, of talk expansion margin we're We that's reasonable. very do there are too opportunities. specifics. course,

to from that impact, year, of again, opportunities have of talked to year quarters, average than the is QX from specific call the to respect With margin see year. our balanced typically expect and QX, to impact operational the tends the be annual in this but seen so continue we out. the to cycle. next lower about We because pay nothing there's seasonality to the next we for an across this year, perspective. relatively drive That and We've efficiency that

dynamic that expect place was next year, to in in this it So and we for place be year.

would in keeping that mind. I So suggest

lower levels revenue of we utilization. of a drive We growth, will happen to some program are through on at We're there, expect. increases and working that

will half, as margin into more QX, the second you expansion that expect we noted. – but a play will the likely bit are benefit in that larger isolated So opportunities

Dan Perlin

you. Thank Excellent.

Operator

queue. And for in the remarks. call further Xiao will turn no his Thank you. I Guo questions we’ve the to final

Guo Xiao

Thank you.

our the the delivering for I partners Thoughtworkers, like clients up continued for support And acknowledge QX Board look call. our forward of for in with to we're impact you, everyone, day. Stay so and thank we to all closing, quarter. and next I'd to want earnings joining us then today you thank extraordinary shareholders. every And together catching well, and

Operator

And today's we for thank everyone in conference. with participating that,

Have disconnect. may You now day. a great

Thoughtworks Holding (TWKS) 14 Nov 222022 Q3 Earnings call transcript