TWKS - Thoughtworks Holding Inc. (TWKS) Q1 2024 Earnings Call Transcript

2024-05-07 12:14:08 ET

Thoughtworks Holding, Inc. (TWKS)

Q1 2024 Earnings Conference Call

May 7, 2024 8:00 AM ET

Company Participants

Rob Muller – Investor Relations

Guo Xiao – Chief Executive Officer

Erin Cummins – Chief Financial Officer

Conference Call Participants

Tien-Tsin Huang – JPMorgan

Moshe Katri – Wedbush Securities

Tyler DuPont – Bank of America

Matthew Roswell – RBC

Paul Obrecht – Wolfe Research

Jacob Haggarty – Baird

Kate Kronstein – William Blair

Arvind Ramani – Piper Sandler

Presentation

Rob Muller

Hello, everyone, and welcome to Thoughtworks Earnings Call for the First Quarter of 2024. 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.

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. These include, but are not limited to, those factors described in today’s press release and discussed in the Risk Factors section of our annual report on Form 10-K, quarterly reports on Form 10-Q and other reports we may file with the SEC from time to time. These risks and uncertainties could cause actual results to differ materially from those expressed on this call. These forward-looking statements are made only as of the date when made.

During our call today, we’ll reference certain non-GAAP financial measures. We will also provide growth rates in constant currency as a framework for assessing how our underlying business performed, excluding the effect of foreign currency rate fluctuations. We include non-GAAP to GAAP reconciliations in our press release furnished as an exhibit to our Form 8-K. The non-GAAP financial measures provided should not be considered as a substitute for or superior to the measures of financial performance prepared in accordance with GAAP. Thoughtworks assumes no obligation to update or revise the information presented on this conference call.

I will now hand over to Xiao.

Guo Xiao

Thank you, Rob. Hello, everyone. Earlier today, we announced that I will be stepping down from my role, and the Board has selected Mike Sutcliff as my successor, effective June 17. I have spent 25 years at Thoughtworks, starting as a software developer in 1999 before taking out various leadership roles around the world, and I’m grateful for the many opportunities I’ve had. It has been a privilege to be a Thoughtworker, and to be able to learn from the best and brightest in our industry. I’m proud of what we have accomplished together, growing this business and delivering extraordinary impact for our clients around the world.

And now, it’s the right time to pass the baton. We’re expecting to return to sequential growth in Q2, and I know I’m leaving this business in very capable hands. I will continue to support as an advisor to ensure a smooth transition.

In Q1, we exceeded our revenue expectations. We delivered in the context of a macroeconomic environment that, though stable, isn’t yet showing signs of improvement. Our sales cycles are still elongated but our client portfolio remains steady. We’re having more client conversations around growth-oriented work and seeing strong demand for AI and data services, enterprise monetization and DAMO managed services.

However, in Q1, we fell short of our adjusted EBITDA margin guidance. This is primarily due to the timing of our ongoing supply rebalancing program, which includes adjustments to our offshore/onshore mix. This has resulted in a lower-than-expected gross margin. Our ongoing restructuring program focuses on efficiencies, and we’re committed to improving our margin profile, and we’re executing our plan to achieve it....

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