Thoughtworks Holding, Inc. (NASDAQ:TWKS) is a global technology consultancy that integrates strategy, design, and engineering to drive digital innovation. Thoughtworks has weathered the macroeconomic challenges of the past year, demonstrating resilience and a commitment to delivering extraordinary impact for its clients.

Financials

In the fiscal year 2023, Thoughtworks reported annual revenue of $1,126,816,000, a decrease of 19.0% compared to the prior year. Despite the revenue decline, Thoughtworks remained focused on operational efficiency, reporting annual net income of -$68,661,000 and annual operating cash flow of $49,064,000. Thoughtworks' annual free cash flow stood at $40,111,000, showcasing its ability to generate cash even in a challenging environment.

The first quarter of 2024 saw Thoughtworks' revenues decrease by 19.0% year-over-year to $248,593,000, driven by a more cautionary macroeconomic environment, particularly in the IT services market. Thoughtworks' net loss for the quarter was $30,882,000, with a net loss margin of 12.4%. However, Thoughtworks' adjusted EBITDA margin for the quarter was 2.7%, demonstrating its focus on cost management and operational discipline.

Business Overview

Thoughtworks' geographic diversification has been a key strength, with the company generating 67.3% of its revenues from operations outside the United States in the first quarter of 2024. Thoughtworks' North America region, which includes the United States and Canada, contributed 35.7% of total revenues, while the Asia-Pacific (APAC) region accounted for 34.9%, Europe for 25.0%, and Latin America (LATAM) for 4.4%.

The company's industry vertical focus has also been a strategic priority, with the Technology and Business Services, Energy, Public and Health Services, and Financial Services and Insurance verticals contributing the largest shares of revenue in the first quarter of 2024. The Retail and Consumer, and Automotive, Travel and Transportation verticals also saw notable contributions.

Thoughtworks' revenue mix has shifted, with a larger percentage of work performed offshore, leading to lower bill rates. Thoughtworks has also experienced shorter contract terms and client budget caution, which have impacted its top-line performance. However, Thoughtworks' focus on new client acquisition and expanding its service offerings, such as DAMO Managed Services, have helped offset some of these headwinds.

Recent Developments

The company's restructuring program, announced in the third quarter of 2023, has been a key initiative to improve its cost structure and operational efficiency. Thoughtworks has realized $87 million in annualized cost savings as of the end of the first quarter of 2024 and has increased its targeted range of total cost savings to $100 million to $115 million, up from its initial target of $75 million to $85 million.

Liquidity

Thoughtworks' liquidity position remains strong, with $72,554,000 in cash and cash equivalents and $300,000,000 in available borrowing capacity under its revolving credit facility as of March 31, 2024. Thoughtworks' long-term debt, including the current portion, stood at $291,514,000 at the end of the first quarter.

Outlook

Looking ahead, Thoughtworks expects revenues in the second quarter of 2024 to be in the range of $250 million to $255 million, reflecting a year-over-year decline of 13% to 11%. Thoughtworks anticipates an adjusted EBITDA margin for the second quarter in the range of 5.5% to 7.5%. For the full year 2024, Thoughtworks expects revenues to be in the range of $995 million to $1.02 billion, with an adjusted EBITDA margin of 8% to 10%.

Conclusion

Thoughtworks' focus on vertical-specific expertise, expanding service offerings, and operational efficiency initiatives have positioned it to navigate the current macroeconomic environment. Thoughtworks' commitment to innovation, as evidenced by its recent acquisition of Watchful and the launch of new AI-powered services, also underscores its ability to adapt and meet the evolving needs of its clients.

Despite the near-term challenges, Thoughtworks' long-term growth prospects remain promising. Thoughtworks' global footprint, industry-leading expertise, and focus on delivering extraordinary impact for its clients position it well to capitalize on the ongoing digital transformation trends across various industries.