Yahoo Finance Thoughtworks Holding Inc (TWKS) (Q1 2024) Earnings Call Transcript Highlights: Navigating ...
Revenue: $249 million in Q1, year-over-year decline of 19%.
Adjusted EBITDA Margin: 2.7% in Q1.
Adjusted Gross Margin: 31% in Q1, down from 36.4% the previous year.
GAAP Diluted Loss Per Share: $0.10 in Q1.
Adjusted Diluted Loss Per Share: $0.02 in Q1.
Free Cash Flow: Negative $20 million in Q1.
Bookings: $1.2 billion on a trailing 12-month basis, down 20% year-over-year.
New Clients: 49 new clients in Q1.
Client Retention: 95% of business from existing clients on a TTM basis.
Annualized Average Revenue Per Employee: $92,000 as of Q1.
Voluntary Attrition Rate: 12.4% on a TTM basis in Q1.
Headcount: Approximately 11,000 as of the end of Q1.
Term Loan Balance: $294 million as of March 31, 2024.
Cash Balance: $73 million as of March 31, 2024.
Release Date: May 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Thoughtworks Holding Inc (NASDAQ:TWKS) exceeded revenue expectations in Q1, achieving $249 million in revenue.
The company saw strong bookings in Q1 and expects sequential growth in Q2 2024.
Thoughtworks Holding Inc (NASDAQ:TWKS) successfully contracted with 49 new clients in Q1, showing strength in new-client acquisition.
The company has been recognized in the Innovation Consulting Services Landscape Q1 2024 report by Forrester Research.
Thoughtworks Holding Inc (NASDAQ:TWKS) is expanding its service offerings, including AI and data services, which are seeing strong demand.
Negative Points
Thoughtworks Holding Inc (NASDAQ:TWKS) reported a year-over-year revenue decline of 19% in Q1.
Adjusted EBITDA margin fell short of guidance, only reaching 2.7% due to ongoing supply rebalancing impacting gross margins.
The company experienced a significant decline in revenue across all regions, with North America and LATAM seeing the steepest drops.
Free cash flow was negative $20 million in Q1, a decrease from a positive cash flow of $31 million in the previous year.
There was a year-over-year decline in revenue across all industry verticals, with financial services and insurance experiencing the largest drop of 29%.
Q & A Highlights
Q: With the transition and your successor, Mike, who's a great choice. We know Mike, but it is the first time I think bringing in an outsider to lead Thoughtworks if I'm correct. So I'm just curious around the balance of that change together with the importance of the Thoughtworks culture, which I know is really important to you and everybody just trying to think about that, that balance? And can we expect a continuation of some of the things you've talked about like verticalization as well as bringing in more systems integration and package implementation type of work, just whatever you can share before Mike joins officially would be great. Thank you. A: Guo Xiao, CEO of Thoughtworks, emphasized that the company is looking at a long-term growth trajectory and believes it is the right time to bring in new external expertise. The strategic focus on restructuring, vertical focus, and expanding into system integration and packaged software implementation will continue. Thoughtworks' unique culture of technology excellence and continuous improvement remains a priority, and Mike Sutcliff is committed to maintaining this culture while driving the company forward.
Q: Just on the stability that you commented on, that's great to hear, no incremental pressures and whatnot. Just on the pricing front, related to that, you have good visibility here around the pricing environment and pushing projects forward. A: Guo Xiao explained that the pricing dynamics have stabilized, reflecting in the majority of their contract portfolio. He anticipates that further pricing declines from Q1 to Q2 should be minimal and should stabilize, with new logos and new work starting at higher rates than bigger deals, which sometimes require volume discounts.
Q: On APAC, in the past, you guys provided us some updates on what you're seeing there, Singapore, Australia, and China. Maybe some color there. Thanks a lot. A: Guo Xiao noted that APAC has been resilient, with stronger growth in Singapore and the Indian local market. Australia is seeing a slower growth recovery, primarily due to its exposure in the tech sector. China is experiencing growth in local work post-economy reopening, though not as fast as expected. Offshore work in China is constrained due to geopolitical tensions, with a shift towards offshoring more to India, Latin America, Southeast Asia, and Eastern Europe.
Q: Just wanted to dig further into what's giving you confidence on the implied sequential growth for 2Q, which would be the first time in almost two years. So what else could you say about how demand indicators have changed over the past three to six months? And any notable vertical or geo callouts that you had highlighted as a tailwind or headwind looking forward? A: Guo Xiao highlighted that the macro environment is stabilizing, and while project terms and sales cycles continue to see longer durations and smaller deal sizes, there is some opening in discretionary spending where there is a strong case for ROI. The company's restructuring efforts and increased investments in sales and marketing, along with a vertical-focused approach, have led to good job conversions in Q1 and strong bookings, giving confidence for the coming quarters.
Q: On your supply constraints, so it sounds like these internal limitations that initially emerged last, quarter are still causing some friction, but this time more so on the margin front, whereas 4Q was a revenue fulfillment issue. Could you elaborate on the latest here and if it's expected to impact results in the coming quarters? A: Erin Cummins, CFO of Thoughtworks, addressed that the internal frictions mentioned in the last earnings release regarding revenue fulfillment have been resolved with new processes. The current impact on the margin is due to adjustments in the offshore, onshore mix, which is expected to take a couple of quarters to balance out fully.
Q: Can you provide some more detail on how the new industry-based go-to-market approach is resonating with customers, maybe both as it relates on winning new customers and maintaining existing ones are going to come for renewals? And do you find that this model is mostly optimized at this point? Or is there still some work to be done to further develop the sales marketing capabilities? A: Guo Xiao explained that the vertical sales and go-to-market approach is still in its early stages but is showing promising results, especially with new procedures and wins. The approach allows sales and professional services teams to focus on specific verticals over a longer period, building domain expertise and solving clients' significant business problems with relevant technology solutions. This strategy has led to higher new logos, particularly in focused verticals like energy, public sector, auto, and financial services.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
