TWKS - Earnings call 3 2023 | Thoughtworks Holding, Inc.

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Robert Muller

Hello, everyone, and welcome to Thoughtworks Earnings Call for the Third Quarter of 2023.

We will be recording today's call [Operator Instructions].

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.

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

financial measures. we today, our non-GAAP reference During will certain call

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

Xiao Guo

with in in of are The exceeded the end program EBITDA to million executed like million, annualized progressed and to our The on last overall August Erin $XX Rob. share margin Q&A. we basis. which or the takeout discussed is in guidance XX%, and you, with everyone, detail. will call. our with more quarterly results through to Erin our third delivered an line during you you line $XXX before earnings move quarter update then being shared takes our start welcome by expectations with Hello, adjusted earnings call. quarter I'd restructuring on million Thank our before We we to an guidance. we quarter . The $XX cost our guidance in business revenue that of of plan. results our in

and digital ability center innovate is respond and clients and improving our is with our demand. global Our to client engineering operational driving innovation to

share me in seeing let passes. compared our with client the environment. We're Now demand with update QX sales fewer stability an XXXX pipeline on

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let hand Now Erin. over me to

Erin Cummins

everyone you, quarter call. results joining XXXX. of third Thank to thanks with for us line in in progressed the quarter we we announced morning, provided Xiao, The Earlier our today's August. on for the and this expectations

with our clients working robust. our most Our remains initiatives on their are pipeline teams and overall closely strategic

net contributing engine in new delivering contracts outbound well, Our XX% quarter. is of the

XX a acquisition in with continues be quarter. the new strength to New clients client

in resulted savings Our I'm pleased million plan. report annualized according restructuring of an to program has cost that is basis. our execution $XX progressing to fast on

is target was capabilities. digital our and global is optimizing improving and engineering within Our operational driving in range. center utilization, our is efficiencies delivery QX which DEC

more percentage move point the on currency were in representing decline let's Revenues a to growth our contributed revenue results Acquisitions declined X in detail. $XXX of XX%. in million, Now XX% constant rate QX. in year-over-year to revenue QX

quarter, XX% we of in the APAC, and North America XX% Europe, declines year-over-year in saw For LATAM. XX% in in XX%

verticals. Services, and our and in and XX% XX% Services, our Automotive Energy, Business We and Consumer Financial Public fastest-growing XX% vertical, industry year-over-year. to Moving of in declines rising Retail & Services. saw remains transportation Health Technology within in year-over-year XX% travel XX%

clients clients. a million a basis. quarter We existing XX% on revenues third TTM around greater with of basis, than the XX $XX on from business our currently TTM have For came

quarter, average was clients. percentage In the strategic respectively. annualized XX%, and XX a to revenue revenue, and work our we of generated provide the XX X, top is quarter, our of XX% reflective industry employee top highly $XX,XXX, XX%, as total the our the that clients which above In is third per and third top average

ended QX is $X.X On decline with This billion. X.X% XXXX. we of a versus trailing bookings XX-month a basis, QX

primarily included shift was well discussed smaller XXXX XX.X% we mix previously, XX.X% is as for Adjusted related adjusted and margin sizes like-for-like to to as QX on margin year the a some mid-single-digit As compared onshore offshore terms. basis. temporary QX prior declines contract to headwinds this gross have due period. during pricing contract gross shorter

was adjusted of XXXX. was EBITDA $XX loss revenue year In was XX%. third XX.X% of GAAP in and the for QX and in to compared prior loss quarter, share SG&A percentage period. in million to the margin year prior the compared per our adjusted was a third quarter, diluted Adjusted QX $X.XX the EBITDA as period XX.X% $X.XX XX% a

of Our $X.XX the adjusted compared $X.XX diluted EPS to for third was quarter XXXX.

$XX of million during flow had cash in period. million This of free We $XX to in is of cash QX million payments. $X cash compared restructuring-related figure the free flow year prior inclusive

good have liquidity. continue We to

Our cash XX, credit undrawn XXXX, of facility. September stood an million as alongside at balance revolving $XX

Our as million outstanding term $XXX XXXX. loan balance September of was XX,

to outlook turn our for QX. let's business Now

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

of and smaller Our QX guidance sales into deals. by cycles work is programs up broken remaining informed elongated being

in seeing quarters, especially are larger we compared clients. However, stability pipeline to earlier among the our

consistent We adjusted continue billable QX. for adjusted expect for to and seasonality to into utilization trend be upwards to hours seasonality

This FX an the of compared a or decline expect of range revenues includes XX% now negative full we to headwinds quarter. currency. $X negative billion guidance year, the -- negative [ ], last in XX% provided reflecting the to million For $X.XXX incremental we billion in to constant $X.XXX XX% year-over-year of

We the in the revenue growth and revenue points full point QX X rate year. expect growth acquisitions X will to to rate percentage percentage contribute the approximately for

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

full the XX% year, adjusted to now EBITDA we expect margin XX.X%. For of

through restructuring our charges to we of million million, million expect of have to QX. the $XX continue already recorded program, which we pretax $XX to of respect end total With $XX

expect million restructuring from actions. resulting $XX continue annualized to million, We savings $XX our of to cost

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

assuming $X.XX, average count weighted share EPS For diluted adjusted XXX the shares diluted to now expect $X.XX of outstanding. approximately a full million of year, we

compensation incorporates $XX Our of QX million. share-based guidance

all For the we IPO. to compensation will compensation XXXX, we $XX share-based total our full share-based year, By recognized related end have the expect of million. fully will

our of from As QX by XXXX. during intend signs XXXX growth client We to our expectation for mentioned modest sequential will earlier, provide see call are we earnings we But into followed of throughout is of QX next our QX seeing stability that early guidance base. remainder stability our across the year. revenue XXXX,

digital with multiyear continue In clients, the that, transformation driving initiatives I'll we These our our for to over call closing, we to remain clients. foster on focused back relationships. turn Rob. strategic long-term With are and

Robert Muller

Thanks, Erin.

Thoughtworks You can find website. our Relations the investor presentation on Investor

now Operator, participants instructions will to a the We would you on many X please provide possible [indiscernible] follow-up to those allow ask for move question. as Q&A. call? on as to

Operator

Instructions]. [Operator

Blair. comes from question first Our William Maggie Nolan with

Margaret Nolan

drivers made Erin, maybe in I last there XXXX. growth to and into you a that wanted sequential the that comment you quarter get to on the be elaborate you on there? Can just dig little would would what from first stability some of the then that

Erin Cummins

question, Yes, the definitely. for Thanks Maggie.

First will of stability I on generally. comment all,

last as stable a our and on already the prepared talked seen have in seeing a pipeline in relative remarks stability. we good basis, We sign. bit And a more about few have this months, we're a

that highlight thing specific is I to would is other quarter seasonality. The that there fourth

holidays, we QX. typically and vacation of we more -- to that's time if more quarter in the see fourth expect public compared because so And and that

QX yet. adjust from So expecting we're -- to that are we for QX, not to if similar being we then and see specific moving

be stability X now, Of QX. more These of are critical as seeing out year. months. course, we But or in the are close X we'll so moving right signs months way the we looking are into things specific

so that's best our view. And

mentioned overall, marketing in and investing increase as we been our demand and have earlier. to sales force, We Xiao continue

we're of months' picture we all build guiding X So out these helping specific But that in be XXXX. will more in are things not now, again, time.

Margaret Nolan

maybe the mix? of put respect the mix kind currently next headwinds a you I'm what for on to you've the wait elaborate can understand other we'll was that little and hoping with My of formal on temporary us context, operationally? helpful the offshore margin where of are just all and seeing you're onshore some guidance kind the quarter. help through And is structurally the still and of business given in that profile. question That's changes

Erin Cummins

Thanks, Maggie.

of in just that seeing headwinds now. right we're terms are there overall temporary So margin,

a gross So with start from margin. I'll is perspective, structural impacting what

start While year, were at QX. position improve, the from to we QX to from QX utilization than a particularly the moving have at QX we of where seen higher

So path. the definitely on we're right

into we more end we're where target yet the not our at that at I moved want We've range. we're would to but say lower target of be, range,

Xiao area I And focus. so that is touched Both an the and of the restructuring and on engineering center. digital

feeling there And so benefits positive more and we're about utilization, on the to come. believe we is

pricing. on I did also touch

seen macro to pressures related Given pricing. the some environment, have we

our with we where seeing are to whole. constrained the working more are on We budgets sensitivity clients due

something a has think But We situation point. It's at us to that some XXXX, likely headwind. do believe be dynamics be continue for supply-demand we that look a likely into do we into pricing is move So forward, will that that XXXX. to normalized as we that as a been will we headwind think return to that's remain.

touched on just mention again, Obviously, then, to restructuring, And the on, going well. SG&A. it's we've

We have executing on that. worked quickly on

but is to moves Part So work. adjusted we to offshore have we of have just to terms making the transition headwind gross that really these benefit in that, fully seeing the quarters relates onshore things that is the to margin still take cost base. a of a of there from and seeing And most adjustment for that where in handover perspective we're couple are move to that as through. of really friction been from

to and to invest are more we reduced again, marketing. operations pipeline positive, sales from we and to signs that and that. again, continue demand perspective, a continuing doing do But committed next We're work seeing on in the the in operations. our are we've particularly good then into our efficiencies we're seeing back-office from where And We'll our still year.

Operator

with Ashwin Shirvaiker Our next Citi. from question comes

Ashwin Shirvaikar

see sort that. to good a getting to [indiscernible] And quarter getting to fine try better. to line of wanted not versus good I ask in between things expectations. draw relative things worse It's

type? or of versus getting sort if could shoots what that and green seeing the mode you you kind on grade. through vertical project would geography actually by sort neither sorts of walk Just of versus of granularity getting or If in be not of are better stabilizing worse either things could provide

Xiao Guo

Ashwin. Thanks, Sure.

are still deal I'll quarter to approval Sales worse, described still also, layers client what is still and they're incremental. a ramp-up to continue we work because seeing So similar buying than is perspective. behavior conversion slower compress, to have of from And which is getting cycle the with is still the we tight. means required. statement to sentiment things long, last client where The we last cautious, with not additional budget start pipeline what we're especially be quarter initial size used is see seen similar still

large So and example, is, similar in we're with on used been stabilization those going a see especially getting used the seeing we QX, more work when Where to in areas We less worse. much we early especially called has -- things in that to where say large the client. frequent few -- are QX ramp-downs. see unexpected for QX. program QX, have This not I in out it's

in but fact, out scale In at since seen here anything still a a of after and There's the haven't a X frequent of rundown we less . that their much beginning scope called bit smaller scale. reductions, we much the just then. July,

health line then geo few is deals starting sure, projects as but up perspective, care, the from aspects other we're market, seeing some of in client are a the for is the from APAC market some $XX example, we're budget thing there some more well, is recently. new for and of from client, improving And we that some opening all market, a little sentiment positive hearing across hearing that energy, The not million-plus a seeing a automotive.

our not want consistent one other point overall actually is is volume stabilization. a to in sign perspective, QX the from of with And out I QX [indiscernible]

work of offshore. Now mentioned, course, is of as towards Erin this some moving

But short-term some of U.K. and India Australia. momentum we're putting by behaviors bit in in us. So revenue is pressure offset that's and seeing North the overall, little positive a Europe, and of Asia similar on America,

Operator

with Puneet from next Jain question comes JPMorgan. Our

Unknown Analyst

energy verticals or deteriorating. So, year, early budgets across in next what and you are you're terms talk on financial expect demand and can that any of environment client like like are And in like about what verticals, utilities TMT timing? from services early differences it you that were are seeing are retail, seems the seeing magnitude stabilizing, weak you like there but

Xiao Guo

Puneet. Sure. Thank you,

clients, First XXXX all, cycle the budget clients conversations are our we lot of with having our with of a this. about

is tone it's still as not normal. It's I XXXX. last very better. Just think the back in cautious cautious to not but year, it's significantly overall don't

even line late thing call this bit little budget delayed. is So reduction in still . And out, in of growth over other into initiatives future. discussions prioritizing January. cost we have lot There's business, discussion the continue the decision. the still time early last-minute We're December, probably are many near still a programs expecting as to

increases to be So we expect XXXX limited budget any for IT and incremental.

And I from then think, question perspective, we a as challenge to biggest the [indiscernible] where you see, your answer is vertical mentioned. retail, still

spending is was in portfolio as but continue July, growth energy, the from our tight a overall in this a again in that And cycles. there ramp perspective, quarter, of sector budget through out similarly, more is reasonably us. are from we well. a recession our the which pullback client-specific resilient. we're of we're healthcare [indiscernible] health public impacted then obviously, decline a From was seeing of reductions last energy perspective, But strategic down, we're the including clients public beginning -- that client called large services care. to is doing impacted mentioned happy large financial relatively [indiscernible] but at further And then a revenue we now last XX% for QX. year-on-year whole, X on stable focus scope of the And see the clients our revenue quarter, some Q-on-Q We going with

XX% travel and And with automobile strong remained QX finally, and positive also in outlook. transportation growth a

Operator

Bryan Bergin Cowen. with from next comes Our TD question

Bryan Bergin

structure? share centralized delivery I learnings any guess early can the you from one, the here first

Xiao Guo

Thanks, sure. the Bryan, for For question.

the for, to the we're country though [indiscernible] called largely the we're X do utilization with seeing own we're range Erin we doing even the the at that -- country lower things opposed back This as is to is So matter still getting or to range. center centrally a the now supply of a aiming in thing. capacity end it's each managing created out even more the of DEC,

a seeing improvement we're is very the a So range to that obvious several to optimization the utilization, the end getting utilization their on to regions or high midrange which back get even of of back have in they clearly good sign.

perspective, middle From are is vertical in funding We're in to are we internal that through team to the investment more do generation. market with to a client-centric us go-to-market intentional more still the become spending our the have strategic definitely demand friction. of where We transition with in centric. the signs getting be teams and more client help believe generally and less going time seeing

I inside comment think learned it. Erin lessons can some the operational of centralize probably on the of

Erin Cummins

Xiao. Thanks,

on we're us, the will opportunities, and thing. for up much operations we're I that processes again, the going friction by want we're and think provide that decentralization the refining these win-win. looking this add only a it and lot be side general and that would going to to very of where business. a perspective, and both we're moving reducing for restructuring of opening in not to cost business, into a as of that our be point a for market seeing our from part drive through I example of how is but lower cost demand savings And Xiao seeing great just actually we're really that -- improvements process That's efficiencies I an improvements place touched leaders overall. in only to of the more, front a demand not enabling of think simply some them around would that's clients of opportunities

whole, trending are very . well. the on So things

Operator

of with question next from comes Our Jason America. Bank Kupferberg

Tyler DuPont

is have demand? occurring some you For be billion Tyler on on compared that of DuPont It example, bookings versus sort seems programs strategy more business? to top now, takeout been cost how margin quarters -- like profile initiatives trend towards is reduction impacts growth like seems how for to that industry both more projects? the understandably, hear for to of choppy the I'd just and past of bill rate capture to given the higher cost in the moving your focused the And This $X.X Jason. speak macro of curious maybe sort of of line to much the if your the can consulting of how several

Xiao Guo

Thanks, Tyler.

internal we've been So definitely are what a targeting programs. clients help reduction our to cost to moving And And service is conscious. more create growth initiatives. and more then then from cost their can offerings perspective cost than to on priorities more saving that doing efficiency offering then focus

an engineering North our platform programs which these Europe. targeting America in their a [indiscernible] That's effects delivery we've rolling in clients engineering to . be own internal efficient practice. allow R&D example, been building that For out, more is then clients with with resonating our to and lot and of

clients more management version to their digital allow run versus The modern situation assets in [indiscernible] is paves way both of mode but of a when get our way, to a then the application reduce is in budget other out started back support the priorities term, also It the phase their mode build program them thing traditional put the the operation change. build also in running and the to the to is cost roll to short to we digital services. keep helps the This maintenance. digital but as

in verticals. of being lower affected in the can we earlier, That's across that benefit because rate a in though I delivering offshore. But more same time, across do get the lower that a board, causing because which less. a resulted of it's bill we it. term, capacity move hours, with the because thing Erin is engineering small country. a be lot of as the the is to the so the in deliver accretive not higher other happening But top utilization margin alluded offshore, revenue we're the is, in and we with some it's at delivering the line even The transition same of instantly we're this lower to And short to how generally have, cost, run, should think work we're lot onshore of also dent on we the also seeing -- it margin then some side the long margin margin seeing

working But clients, very priorities, churn their feel overall, helping with them our rate with and we low. are we that is our

with work we've working time. continue with We been for a long to the clients

we through going tenure them that average the clients, better. to ramp more better is time and years. when the XX positioned a top initiatives be Our difficult if to help gets X focus on feel time, We growth confident up we're

Tyler DuPont

the low should see example, and think a margin hit of we more just That's And margin sort to. Great. be to the It But during was dynamics of And to as particularly about as through to mid- to looks like Xiao. up be margins how tailwinds should the the thinking kind pieces alluding quickly return Okay. beyond, margin we we margin forward when modestly the should how may Or that teens. quarter, the follow rest healthy we helpful, guide anticipate we a actually you the of XQ of the business? expectations. normal were year? For the about in moving just the super story EBITDA the below XXXX look double-digit offshore we range? will on high new do go more Street

Just sort be clarity any would of appreciated. there

Erin Cummins

the Tyler. for Thanks question,

it's points think a I repeating. these of did touch on couple earlier, margins, and about how think I worth So to

that my So about probably the work we to take long will through X that is to say asked it and until you fully. hard more how quarters start to that it's but offshore tailwinds work see exactly, view around through.

as about XXXX. improve so And Things we into do halfway maybe move along.

if wait as is not But it's benefits So it's that impact see to we fully until the the will point. incremental. --

to working And on those time, our did improvements, so seeing committed as . I clients the before utilization but we're this same focused on make at touched with shift. Xiao. to

from supply-demand imbalances the that of but X pleased in profile, to offshore also a really skills working There's little Similarly are to all done. X is come at utilization the We we are bit a we're Offshore-onshore few mix. but those them, through. time. a improvements tailwinds, not see won't our

so And believe, deliver push continue will engineering digital center, continuing on we're The that. to to results. we

to see improvement be And margins an expect so to we that overall.

lot program. in again, made then our we've headway costs of overall restructuring already And a the

a basis As out that we an to million million QX. we will locked by take The already million. in have $XX expect we annualized on actions [indiscernible] to reminder, end took of the $XX of $XX

So progress. very good

that the and Our will view towards that now end that, XXXX. benefit we certainly in we'll is right think a be of upper be

I reasons as specific of of teens and that do a challenged that point mentioned supply-demand year see from We'll where but dynamics will into that again, believe levels for high been view whole, of we're more we in in XXXX, at perspective, summary the 'XX XXXX, to dynamics, we this not be I unlikely of On think is, talked and Where on are we've move away. the certainly start pricing to challenging for XXXX more margin to from We some wait too will least from earlier, us the gets not a at expecting so just the that, improvements but that all the persist being coming numbers. about. continue 'XX? those macro a in has were a margin

Operator

Matthew next comes Roswell from [Operator RBC. question with Instructions] Our

Matthew Roswell

is reductions? is I Or color that commentary your more are I what little guess to coming a get competitors pricing the it back pricing on of the if and sort from it pricing? pulling clients for seeing competitors? I you're and you mean, looking down

Xiao Guo

Sure. getting X I or of the a work on of have got [indiscernible] short-term amount new statement asset that to we giving a renewed months where discount more annual work, that. large that, We're lower constraint, a still us with new I sometimes coming seeing customers, value -- work is me a hey, with little discount tend to It's a a perspective. down, but with And get work pricing basis. need budget program the often pricing both but a clients same in resulted existing to bit saying from conversation help

So X the that's of source discussion.

in especially where from shopping think competitions is bid the is a With over coming competitive. And deal. I mostly that's it's new from aggressive, becoming pricing client, put commercially their a win place to everyone the very to all trying pencils work, that, pressure new trying

from the see where competition. that's pressure coming So we

Matthew Roswell

that win affected Has your . any? competition rates

Xiao Guo

rate, what The sorry?

Matthew Roswell

rates contracts? win The on the

Xiao Guo

quite rate new win and stable remains actually extensions work. both Our with

is this at obviously climate figure then out current and strategy Our trying win to work later. margin

obviously, a commercial of So the we're similar perspective, with especially also potentially becoming when . ourselves entire including commercial pricing, outcome-based commercial new are model, work or we just type bidding go models. situation, very it's not into the from variant the aggressive

seen what Our in QX we we XX% we and similar rate And then new in to XX on as have called top XX% out, of QX. win in the acquired logos very remains before.

track and logos. So record good new winning deals still of pretty

Matthew Roswell

And further Okay. maybe we And capital anything especially like fourth think is for of question FY sequential flow, into cash things you, free cash How restructuring Erin. the working there quarter should around charges. in to cash in then keep a about resumption potential should then that. needs go flow, as and 'XX we and we mind regards growth

Erin Cummins

million With respect that restructuring the by Matthew, quarter will mentioned cash the the the charges. fourth $XX was impacted for quarter, dynamics QX impacted you in charges. in fourth largely same flow third restructuring quarter. to be

a as to we the reminder, So million on million. $XX $XX whole, expect

QX. half you So will that more means there in QX, be that, in of half, land where than we've more a little about bit depending on paid and

what be similar to be dynamics will a to those as consequence likely saw in flow So we cash QX. similar

with finally, the are payment our also by then should those profile. charges, so cash consequence. XXXX, an margin respect improving year, The of and we And improved flow terms be will Canada flow as to did from earn-out earlier contingent acquisition. onetime have In cash benefit the this a

wouldn't a And continue that so that XXXX, impacted but is factor in XXXX.

Operator

There over back are no remarks. to to time. Guo any questions I'd for closing further Xiao at like the this turn call

Xiao Guo

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

Operator

does and may day. you program, now Thank This great the you a participation. Everyone, disconnect. conclude your have for

Thoughtworks Holding (TWKS) 7 Nov 232023 Q3 Earnings call transcript