Thoughtworks Reports Fourth Quarter and Full Year 2023 Financial Results
- Thoughtworks reported Q4 revenues of $252.4 million, 5% below guidance, citing supply constraints and cautious client behavior.
- The company added 46 new clients and achieved $81 million in annualized cost savings through restructuring.
- However, Thoughtworks experienced a net loss margin of (8.9)% in Q4 and (6.1)% for the full year 2023.
- Full year revenues for 2023 were $1,126.8 million, with a net loss margin of (6.1)%, showing a decline of (13.1)% year-over-year.
- For Q1 2024, Thoughtworks expects revenues in the range of $241-246 million, with an adjusted EBITDA Margin of 3.0-4.0% and adjusted diluted loss per share of $(0.02)-$(0.01).
- The company anticipates full year 2024 revenues of $980-1,010 million, with an adjusted EBITDA Margin of 8.0-10.0% and adjusted diluted EPS of $0.01-$0.06.
- Net loss margin was (8.9)% in Q4 2023, a decline from a net income margin of 5.2% in Q4 2022.
- Adjusted EBITDA Margin for Q4 was 5.5%, down from 18.7% in Q4 2022.
- Diluted loss per share for Q4 was $(0.07), compared to diluted earnings per share of $0.05 in Q4 2022.
- Full year 2023 saw a net loss margin of (6.1)%, a decrease from (8.1)% in 2022.
- Adjusted EBITDA Margin for 2023 was 9.9%, down from 19.8% in 2022.
- Adjusted Diluted EPS for 2023 was $0.11, compared to $0.43 in 2022.
Insights
The reported revenue decline of Thoughtworks for both the fourth quarter and full year, along with the projected decrease for the upcoming year, indicates a significant downturn in the company's financial performance. The restructuring program has achieved substantial annualized cost savings, which may be viewed positively by investors as a proactive measure to improve operational efficiency and margin performance. However, the net loss margins and adjusted EBITDA margins have deteriorated compared to the previous year, suggesting that the cost-saving measures have not yet translated into bottom-line improvements. The reduction in stock-based compensation signals a normalization post-IPO, but this has not offset the overall decline in profitability.
From a liquidity perspective, the company's cash position and undrawn credit line provide some financial flexibility. However, the decline in bookings and the cautious outlook for the next fiscal year raise concerns about the company's ability to return to revenue growth in the short term. Investors should closely monitor the company's ability to convert its cost savings into net income and cash flow improvements.
The performance of Thoughtworks reflects broader industry trends where technology consultancies are facing supply constraints and cautious client spending due to macroeconomic uncertainties. The company's strategic move to reduce leased office space and centralize operations aligns with the industry's shift towards digital and remote work environments. The shift to offshore services is indicative of competitive pricing pressures and the need to maintain margins in a cost-sensitive market.
Despite these challenges, the addition of 46 new clients and the retention of 54 clients with bookings over $5 million suggests that Thoughtworks maintains a strong client base and the ability to attract new business. The focus on Cloud, Data and AI services positions the company in high-growth potential areas, which may favor long-term growth prospects if the company can effectively leverage its technological expertise and thought leadership.
The current macroeconomic environment has prompted a cautious approach from clients, impacting Thoughtworks' revenue and bookings. The restructuring activities undertaken by the company are a direct response to these economic pressures and reflect an effort to realign the business model with market demands. The year-over-year decline in revenue in all reported industry verticals and geographies underscores the pervasive nature of the economic headwinds.
Looking forward, the projected revenue decline for the first quarter and full year of 2024 suggests that the company does not anticipate a quick reversal of these trends. The anticipated year-over-year decline in revenues for 2024, even after restructuring efforts, indicates that the market may expect continued economic challenges and client budget constraints. Thoughtworks' performance and outlook serve as an indicator of the broader economic sentiment, particularly in the technology consulting sector.
-
Fourth quarter revenues of
$252.4 million $1,126.8 million - Provides guidance for the full year and first quarter of 2024
Guo Xiao, Thoughtworks' Chief Executive Officer, said, "I am grateful to all Thoughtworkers for their dedication and commitment to delivering extraordinary impact with our clients. In the fourth quarter, we delivered
Our deep and trusted client relationships are again reflected in the 54 clients with bookings over
We are delivering notable cost savings through our restructuring program. We have now realized
Our foundation is resilient, supported by a strong client base. Thoughtworks’ outstanding technologists underpin our reputation for innovation and thought leadership. As we move forward, we are well-positioned to help our clients modernize and evolve their operations to harness the power of Cloud, Data and AI and adapt for future success.”
Update on Restructuring Activities
On August 8, 2023, Thoughtworks initiated several measures to reduce operational cost and better align our business with our customers’ needs in a challenging macroeconomic environment. As of December 31, 2023, we had substantially completed our reorganization. We have (i) implemented changes to centralize our operational functions; (ii) launched our Digital Engineering Center, which is our new organizational home for the majority of our professional services teams; (iii) instituted a new regional market structure; and (iv) implemented leadership changes to align with our new operating model. By the end of the fourth quarter, we achieved
As of December 31, 2023, Thoughtworks had incurred pre-tax cash charges of approximately
QTD fourth quarter 2023 highlights
Revenues for the fourth quarter were
Net loss margin for the fourth quarter was (8.9)% compared to net income margin of
Diluted loss per share for the fourth quarter was
Stock-based compensation for the fourth quarter was
Full year 2023 highlights
Revenues for the year ended were
Net loss margin for the year ended was (6.1)% compared to net loss margin of (8.1)% for the year ended December 31, 2022. Adjusted EBITDA Margin for the year ended was
Diluted loss per share for the year ended was
Stock-based compensation for the year ended was
QTD fourth quarter 2023 summary
|
Three Months Ended December 31, |
|
|
|
|
|||||||||
$ in millions, except per share data |
2023 |
|
2022 |
|
Change |
|
% Change(1) |
|||||||
GAAP Metrics: |
|
|
|
|
|
|
|
|||||||
Revenues(2) |
$ |
252.4 |
|
|
$ |
310.7 |
|
|
$ |
(58.3 |
) |
|
(18.8 |
)% |
Gross Profit |
$ |
71.4 |
|
|
$ |
104.8 |
|
|
$ |
(33.4 |
) |
|
(31.9 |
)% |
Gross Margin |
|
28.3 |
% |
|
|
33.7 |
% |
|
|
(5.4 |
)% |
|
|
|
SG&A |
$ |
77.0 |
|
|
$ |
77.0 |
|
|
$ |
— |
|
|
— |
% |
SG&A Margin |
|
30.5 |
% |
|
|
24.8 |
% |
|
|
5.7 |
% |
|
|
|
Stock-based compensation |
$ |
16.9 |
|
|
$ |
21.6 |
|
|
$ |
(4.7 |
) |
|
(21.8 |
)% |
Net (loss) income |
$ |
(22.4 |
) |
|
$ |
16.1 |
|
|
$ |
(38.5 |
) |
|
|
|
Net (loss) income margin |
|
(8.9 |
)% |
|
|
5.2 |
% |
|
|
(14.1 |
)% |
|
|
|
Diluted (loss) earnings per share |
$ |
(0.07 |
) |
|
$ |
0.05 |
|
|
$ |
(0.12 |
) |
|
|
|
Cash flow from operations |
$ |
12.5 |
|
|
$ |
33.0 |
|
|
$ |
(20.5 |
) |
|
(62.1 |
)% |
Non-GAAP Metrics(3): |
|
|
|
|
|
|
|
|||||||
Revenue Growth Rate at constant currency(4) |
|
(19.8 |
)% |
|
|
14.7 |
% |
|
|
|
|
|||
Adjusted Gross Profit |
$ |
84.9 |
|
|
$ |
123.4 |
|
|
$ |
(38.5 |
) |
|
(31.2 |
)% |
Adjusted Gross Margin |
|
33.6 |
% |
|
|
39.7 |
% |
|
|
(6.1 |
)% |
|
|
|
Adjusted SG&A |
$ |
70.8 |
|
|
$ |
68.8 |
|
|
$ |
2.0 |
|
|
2.9 |
% |
Adjusted SG&A Margin |
|
28.0 |
% |
|
|
22.1 |
% |
|
|
5.9 |
% |
|
|
|
Adjusted Net Income |
$ |
5.6 |
|
|
$ |
32.2 |
|
|
$ |
(26.6 |
) |
|
(82.6 |
)% |
Adjusted EBITDA |
$ |
14.0 |
|
|
$ |
58.2 |
|
|
$ |
(44.2 |
) |
|
(75.9 |
)% |
Adjusted EBITDA Margin |
|
5.5 |
% |
|
|
18.7 |
% |
|
|
(13.2 |
)% |
|
|
|
Adjusted Diluted EPS |
$ |
0.02 |
|
|
$ |
0.10 |
|
|
$ |
(0.08 |
) |
|
(80.0 |
)% |
Free Cash Flow |
$ |
9.9 |
|
|
$ |
28.2 |
|
|
$ |
(18.3 |
) |
|
(64.9 |
)% |
Full year 2023 summary
|
Year Ended December 31, |
|
|
|
|
|||||||||
$ in millions, except per share data |
2023 |
|
2022 |
|
Change |
|
% Change(1) |
|||||||
GAAP Metrics: |
|
|
|
|
|
|
|
|||||||
Revenues(2) |
$ |
1,126.8 |
|
|
$ |
1,296.2 |
|
|
$ |
(169.4 |
) |
|
(13.1 |
)% |
Gross Profit |
$ |
354.0 |
|
|
$ |
345.9 |
|
|
$ |
8.1 |
|
|
2.3 |
% |
Gross Margin |
|
31.4 |
% |
|
|
26.7 |
% |
|
|
4.7 |
% |
|
|
|
SG&A |
$ |
331.8 |
|
|
$ |
372.8 |
|
|
$ |
(41.0 |
) |
|
(11.0 |
)% |
SG&A Margin |
|
29.4 |
% |
|
|
28.8 |
% |
|
|
0.6 |
% |
|
|
|
Stock-based compensation |
$ |
65.0 |
|
|
$ |
249.9 |
|
|
$ |
(184.9 |
) |
|
(74.0 |
)% |
Net loss |
$ |
(68.7 |
) |
|
$ |
(105.4 |
) |
|
$ |
36.7 |
|
|
|
|
Net loss margin |
|
(6.1 |
)% |
|
|
(8.1 |
)% |
|
|
2.0 |
% |
|
|
|
Diluted loss per share |
$ |
(0.22 |
) |
|
$ |
(0.34 |
) |
|
$ |
0.12 |
|
|
|
|
Cash flow from operations |
$ |
49.1 |
|
|
$ |
89.4 |
|
|
$ |
(40.3 |
) |
|
(45.1 |
)% |
Non-GAAP Metrics(3): |
|
|
|
|
|
|
|
|||||||
Revenue Growth Rate at constant currency(4) |
|
(12.6 |
)% |
|
|
26.8 |
% |
|
|
|
|
|||
Adjusted Gross Profit |
$ |
406.6 |
|
|
$ |
539.9 |
|
|
$ |
(133.3 |
) |
|
(24.7 |
)% |
Adjusted Gross Margin |
|
36.1 |
% |
|
|
41.6 |
% |
|
|
(5.5 |
)% |
|
|
|
Adjusted SG&A |
$ |
296.8 |
|
|
$ |
290.3 |
|
|
$ |
6.5 |
|
|
2.2 |
% |
Adjusted SG&A Margin |
|
26.3 |
% |
|
|
22.4 |
% |
|
|
3.9 |
% |
|
|
|
Adjusted Net Income |
$ |
37.3 |
|
|
$ |
139.9 |
|
|
$ |
(102.6 |
) |
|
(73.2 |
)% |
Adjusted EBITDA |
$ |
111.7 |
|
|
$ |
256.8 |
|
|
$ |
(145.1 |
) |
|
(56.5 |
)% |
Adjusted EBITDA Margin |
|
9.9 |
% |
|
|
19.8 |
% |
|
|
(9.9 |
)% |
|
|
|
Adjusted Diluted EPS |
$ |
0.11 |
|
|
$ |
0.43 |
|
|
$ |
(0.32 |
) |
|
(74.4 |
)% |
Free Cash Flow |
$ |
40.1 |
|
|
$ |
64.9 |
|
|
$ |
(24.8 |
) |
|
(38.2 |
)% |
(1) |
|
For QTD and YTD, percentage change for net loss and diluted loss per share were excluded as they were determined to be not meaningful due to a loss or negative position in one or both periods. |
(2) |
|
Acquisitions completed in the last twelve months contributed approximately |
(3) |
|
See “Non-GAAP financial measures” for how we define these measures and the financial tables that accompany this release for reconciliation of these measures to the closest comparable GAAP measures. |
(4) |
|
Revenue Growth Rate at Constant Currency is calculated by translating the current period revenues into |
Bookings
Our overall bookings for the trailing twelve months ended December 31, 2023 was
|
Trailing Twelve Months Ended December 31, |
||
$ in millions |
2023 |
|
2022 |
# of clients with bookings greater than |
25 |
|
39 |
# of clients with bookings between |
29 |
|
26 |
Revenue by geography(5)
|
Three Months Ended December 31, |
|
|
|
Year Ended December 31, |
|
|
||||||||
$ in thousands |
2023 |
|
2022 |
|
% Change |
|
2023 |
|
2022 |
|
% Change |
||||
|
$ |
93,816 |
|
$ |
121,092 |
|
(22.5)% |
|
$ |
417,571 |
|
$ |
503,948 |
|
(17.1)% |
APAC |
|
89,279 |
|
|
99,749 |
|
(10.5)% |
|
|
387,061 |
|
|
419,982 |
|
(7.8)% |
|
|
60,866 |
|
|
76,409 |
|
(20.3)% |
|
|
280,390 |
|
|
315,875 |
|
(11.2)% |
LATAM |
|
8,425 |
|
|
13,494 |
|
(37.6)% |
|
|
41,794 |
|
|
56,433 |
|
(25.9)% |
Total revenues |
$ |
252,386 |
|
$ |
310,744 |
|
(18.8)% |
|
$ |
1,126,816 |
|
$ |
1,296,238 |
|
(13.1)% |
(5) |
Revenues are presented geographically, by customer location. |
Revenue by industry vertical
|
Three Months Ended December 31, |
|
|
|
Year Ended December 31, |
|
|
||||||||
$ in thousands |
2023 |
|
2022 |
|
% Change |
|
2023 |
|
2022 |
|
% Change |
||||
Technology and business services |
$ |
64,824 |
|
$ |
85,302 |
|
(24.0)% |
|
$ |
279,264 |
|
$ |
360,117 |
|
(22.5)% |
Energy, public and health services |
|
63,015 |
|
|
79,377 |
|
(20.6)% |
|
|
294,029 |
|
|
316,478 |
|
(7.1)% |
Retail and consumer |
|
39,788 |
|
|
53,749 |
|
(26.0)% |
|
|
176,848 |
|
|
236,731 |
|
(25.3)% |
Financial services and insurance |
|
43,027 |
|
|
48,609 |
|
(11.5)% |
|
|
197,407 |
|
|
221,748 |
|
(11.0)% |
Automotive, travel and transportation |
|
41,732 |
|
|
43,707 |
|
(4.5)% |
|
|
179,268 |
|
|
161,164 |
|
|
Total revenues |
$ |
252,386 |
|
$ |
310,744 |
|
(18.8)% |
|
$ |
1,126,816 |
|
$ |
1,296,238 |
|
(13.1)% |
Liquidity
We had cash and cash equivalents of
Financial outlook
Thoughtworks provides the following outlook for the first quarter and full year 2024:
First quarter
Thoughtworks expects the following for the first quarter:
-
Revenues in the range of
$241 million $246 million U.S. dollars and in constant currency, which includes an immaterial contribution from acquisitions; -
Adjusted EBITDA Margin(6) in the range of
3.0% to4.0% ; -
Adjusted diluted loss per share(6) in the range of
$(0.02) $(0.01) -
Stock-based compensation expense of
$11 million
Full year
Thoughtworks expects the following for the full year:
-
Revenues in the range of
$980 million $1,010 million -
Adjusted EBITDA Margin(6) in the range of
8.0% to10.0% ; -
Adjusted Diluted EPS(6) in the range of
$0.01 $0.06 -
Stock-based compensation expense of
$46 million
(6) |
Adjusted EBITDA Margin and Adjusted Diluted EPS exclude restructuring charges. |
Conference call information
Thoughtworks will host a conference call and webcast at 8:00 a.m. Eastern Time on Tuesday, February 27, 2024, to discuss our financial results. To access the conference call and webcast and the accompanying slide presentation, which has additional information regarding Thoughtworks' operating results, you can visit our investor relations website at https://investors.thoughtworks.com. A replay of the webcast will be made available on our investor relations website at https://investors.thoughtworks.com. Information on Thoughtworks' website is not part of this press release.
-###- <TWKS915>
About Thoughtworks
Thoughtworks is a global technology consultancy that integrates strategy, design and engineering to drive digital innovation. We are over 10,500 Thoughtworkers strong across 48 offices in 19 countries. For 30 years, we've delivered extraordinary impact together with our clients by helping them solve complex business problems with technology as the differentiator.
Thoughtworks uses and intends to continue to use our investor relations website at https://investors.thoughtworks.com and social media, @thoughtworks on Twitter and LinkedIn, as a means of publicly disclosing material information and for complying with our disclosure obligations under Regulation Fair Disclosure. Investors should monitor these channels in addition to following the Company’s press releases, SEC filings, public conference calls and webcasts.
Forward-looking statements
This press release includes "forward-looking statements" within the meaning of the "safe harbor" provisions of the United States Private Securities Litigation Reform Act of 1995. In some cases, you can identify these forward-looking statements by the use of terms such as "expect," "will," "continue," or similar expressions, and variations or negatives of these words, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements represent our management's beliefs and assumptions only as of the date of this press release. You should read this press release with the understanding that our actual future results may be materially different from what we expect. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, which include but are not limited to: the statements under "Financial outlook," including expectations relating to revenues and other financial or business metrics; the statements under “Update on Restructuring Activities,” including expectations relating to the size of the restructuring actions, the amount and timing of related cost savings and charges and the potential long-term benefits of the restructuring actions; statements regarding relationships with existing and potential clients and their engagement decisions; and any other statements of expectation or belief. These statements are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from results expressed or implied in this press release. Such risk factors include, but are not limited to, those related to: current and future impact of macro-related factors on Thoughtworks' clients’ engagement decisions, Thoughtworks’ business and industry; the effects of competition on the future business of Thoughtworks; uncertainty regarding the demand for and market utilization of our services; the ability to implement our restructuring actions, including the costs of such actions and the uncertainty of the impact of such actions on financial performance; the ability to maintain or acquire new client relationships; other general business and economic conditions (including such conditions related to inflation and foreign currency exchange rates); and our ability to successfully execute our strategy and strategic plans. For additional information concerning these and other risks and uncertainties, please see Thoughtworks' latest Annual Report on Form 10-K, latest Quarterly Report on Form 10-Q, and other filings and reports that Thoughtworks may file from time to time. Except as required by law, Thoughtworks assumes no obligation, and does not intend, to update these forward-looking statements, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.
Non-GAAP financial measures
Certain financial metrics contained in this press release are considered non-GAAP financial measures. Definitions of and the related reconciliations for these non-GAAP financial measures can be found below. We use these non-GAAP measures in conjunction with traditional GAAP measures to evaluate our financial performance. We believe that these non-GAAP measures provide our management and investors consistency and comparability with our past financial performance and facilitate period-to-period comparisons of operations. However, non-GAAP measures have limitations as analytical tools, and you should not consider these measures in isolation or as substitutes for analysis of our financial results as reported under GAAP. For example, many of the non-GAAP financial measures used herein exclude stock-based compensation expense, which has recently been, and will continue to be for the foreseeable future, a significant recurring non-cash expense for our business and an important part of our compensation strategy.
Certain non-GAAP measures related to our financial outlook included in this press release and the associated webcast were not reconciled to the comparable GAAP financial measures because the GAAP measures are not assessable on a forward-looking basis. The Company is unable to reconcile these forward-looking non-GAAP financial measures to the most directly comparable GAAP measures without unreasonable efforts because the Company is currently unable to predict with a reasonable degree of certainty the type and extent of certain items that would be expected to impact GAAP measures for these periods but would not impact the non-GAAP measures. Such items may include stock-based compensation, acquisitions, income tax effects of adjustments and other items. The unavailable information could have a significant impact on the Company's GAAP financial results. Based on the foregoing, the Company believes that providing estimates of the amounts that would be required to reconcile the range of the non-GAAP measures to forecasted GAAP measures would imply a degree of precision that would be confusing or misleading to investors for the reasons identified above.
Revenue Growth Rate and Revenue Growth Rate at constant currency
Certain of our subsidiaries use functional currencies other than the
Adjusted Gross Profit and Adjusted Gross Margin
We define gross profit as total revenues less cost of revenues. We define Adjusted Gross Profit as gross profit excluding stock-based compensation expense, employer payroll related expense on employee equity incentive plan and depreciation expense. We calculate Adjusted Gross Margin by dividing Adjusted Gross Profit by total revenues. Our management uses Adjusted Gross Profit to assess overall performance and profitability, without regard to the aforementioned adjustments, which are unrelated to our ongoing revenue-generating operations. We also believe this information will be useful for investors to facilitate comparisons of our operating performance and better identify trends in our business.
Adjusted SG&A and Adjusted SG&A Margin
We define Adjusted SG&A as selling, general and administrative expense excluding stock-based compensation expense, acquisition costs, certain professional fees that are considered unrelated to our ongoing revenue-generating operations and employer payroll related expense on employee equity incentive plan. We calculate Adjusted SG&A Margin by dividing Adjusted SG&A by total revenues.
Our management uses Adjusted SG&A and Adjusted SG&A Margin to assess our overall performance, without regard to items such as stock-based compensation expense and other items that are considered to be unique or non-recurring in nature or otherwise unrelated to our ongoing revenue-generating operations. We also believe this information will be useful for investors to facilitate comparisons of our operating performance and better identify trends in our business.
Adjusted Net Income and Adjusted Diluted EPS
We define Adjusted Net Income as net (loss) income adjusted for unrealized (gain) loss on foreign currency exchange, stock-based compensation expense, amortization of acquisition-related intangibles, acquisition costs, certain professional fees that are considered unrelated to our ongoing revenue-generating operations, employer payroll related expense on employee equity incentive plan, final tax assessment for closed operations, change in fair value of contingent consideration, restructuring charges and income tax effects of adjustments.
We define Adjusted Diluted EPS as diluted (loss) earnings per share, with the numerator adjusted for the aforementioned adjustments to Adjusted Net Income. In other words, the numerator for Adjusted Diluted EPS utilizes Adjusted Net Income. We calculate Adjusted Diluted EPS by dividing Adjusted Net Income by diluted weighted average shares outstanding.
Our management uses Adjusted Net Income and Adjusted Diluted EPS to assess our overall performance, without regard to items that are considered to be unique or non-recurring in nature or otherwise unrelated to our ongoing revenue-generating operations, net of the income tax effects of adjustments.
Our management uses Adjusted Net Income for planning purposes, including the preparation of our annual operating budget, as a measure of our core operating results and the effectiveness of our business strategy, and in evaluating our financial performance. We also believe this information will be useful for investors to facilitate comparisons of our operating performance and better identify trends in our business.
Adjusted EBITDA and Adjusted EBITDA Margin
We define Adjusted EBITDA as net (loss) income adjusted to exclude income tax expense; interest expense; other expense, net, excluding a gain in 2023 related to the mark to market adjustment on shares received in relation to the sale and settlement of trade receivables in 2022 and a gain in 2022 from the sale and settlement of trade receivables; unrealized (gain) loss on foreign currency exchange; stock-based compensation expense; depreciation and amortization expense; acquisition costs; certain professional fees that are considered unrelated to our ongoing revenue generating operations; employer payroll related expense on employee equity incentive plan; final tax assessment for closed operations; and restructuring charges. We calculate Adjusted EBITDA Margin by dividing Adjusted EBITDA by total revenues.
Adjusted EBITDA and Adjusted EBITDA Margin are widely used by investors and securities analysts to measure a company's operating performance without regard to the aforementioned adjustments that can vary substantially from company to company depending upon their financing, capital structures, and the method by which assets were acquired or costs that are unique or non-recurring in nature or otherwise unrelated to our ongoing revenue-generating operations.
Our management uses Adjusted EBITDA and Adjusted EBITDA Margin for planning purposes, including the preparation of our annual operating budget, as a measure of our core operating results and the effectiveness of our business strategy, and in evaluating our financial performance. We also believe this information will be useful for investors to facilitate comparisons of our operating performance and better identify trends in our business.
Free Cash Flow
We define Free Cash Flow as net cash provided by operating activities less cash used for purchases of property and equipment. We believe that Free Cash Flow is a useful indicator of liquidity for investors and is used by our management as it measures our ability to generate cash, or our need to access additional sources of cash, to fund operations and investments. There are a number of limitations related to the use of free cash flow as compared to net cash from operating activities, including that Free Cash Flow includes capital expenditures, the benefits of which are realized in periods subsequent to those when expenditures are made.
THOUGHTWORKS HOLDING, INC. |
|||||||||||||||
CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS |
|||||||||||||||
(In thousands, except share and per share data) |
|||||||||||||||
(unaudited) |
|||||||||||||||
|
Three months ended December 31, |
|
Year ended December 31, |
||||||||||||
|
2023 |
|
2022 |
|
2023 |
|
2022 |
||||||||
Revenues |
$ |
252,386 |
|
|
$ |
310,744 |
|
|
$ |
1,126,816 |
|
|
$ |
1,296,238 |
|
Operating expenses: |
|
|
|
|
|
|
|
||||||||
Cost of revenues |
|
180,955 |
|
|
|
205,939 |
|
|
|
772,800 |
|
|
|
950,305 |
|
Selling, general and administrative expenses |
|
77,024 |
|
|
|
76,962 |
|
|
|
331,830 |
|
|
|
372,761 |
|
Depreciation and amortization |
|
6,141 |
|
|
|
5,120 |
|
|
|
23,554 |
|
|
|
20,484 |
|
Restructuring |
|
3,378 |
|
|
|
— |
|
|
|
18,944 |
|
|
|
— |
|
Total operating expenses |
|
267,498 |
|
|
|
288,021 |
|
|
|
1,147,128 |
|
|
|
1,343,550 |
|
(Loss) income from operations |
|
(15,112 |
) |
|
|
22,723 |
|
|
|
(20,312 |
) |
|
|
(47,312 |
) |
Other (expense) income: |
|
|
|
|
|
|
|
||||||||
Interest expense |
|
(6,577 |
) |
|
|
(6,959 |
) |
|
|
(26,238 |
) |
|
|
(22,461 |
) |
Net realized and unrealized foreign currency gain (loss) |
|
11,533 |
|
|
|
13,498 |
|
|
|
3,875 |
|
|
|
(5,405 |
) |
Other (expense) income, net |
|
90 |
|
|
|
(1,121 |
) |
|
|
(455 |
) |
|
|
610 |
|
Total other (expense) income |
|
5,046 |
|
|
|
5,418 |
|
|
|
(22,818 |
) |
|
|
(27,256 |
) |
(Loss) income before income taxes |
|
(10,066 |
) |
|
|
28,141 |
|
|
|
(43,130 |
) |
|
|
(74,568 |
) |
Income tax expense |
|
12,364 |
|
|
|
12,033 |
|
|
|
25,531 |
|
|
|
30,825 |
|
Net (loss) income |
$ |
(22,430 |
) |
|
$ |
16,108 |
|
|
$ |
(68,661 |
) |
|
$ |
(105,393 |
) |
|
|
|
|
|
|
|
|
||||||||
Other comprehensive (loss) income, net of tax: |
|
|
|
|
|
|
|
||||||||
Foreign currency translation adjustments |
|
5,273 |
|
|
|
17,082 |
|
|
|
1,044 |
|
|
|
(28,366 |
) |
Comprehensive (loss) income |
$ |
(17,157 |
) |
|
$ |
33,190 |
|
|
$ |
(67,617 |
) |
|
$ |
(133,759 |
) |
|
|
|
|
|
|
|
|
||||||||
Net (loss) earnings per common share: |
|
|
|
|
|
|
|
||||||||
Basic (loss) earnings per common share |
$ |
(0.07 |
) |
|
$ |
0.05 |
|
|
$ |
(0.22 |
) |
|
$ |
(0.34 |
) |
Diluted (loss) earnings per common share |
$ |
(0.07 |
) |
|
$ |
0.05 |
|
|
$ |
(0.22 |
) |
|
$ |
(0.34 |
) |
|
|
|
|
|
|
|
|
||||||||
Weighted average shares outstanding: |
|
|
|
|
|
|
|
||||||||
Basic |
|
319,243,414 |
|
|
|
315,153,905 |
|
|
|
317,718,424 |
|
|
|
310,911,526 |
|
Diluted |
|
319,243,414 |
|
|
|
329,639,919 |
|
|
|
317,718,424 |
|
|
|
310,911,526 |
|
Stock-based compensation expense included in the consolidated statements of loss and comprehensive loss was as follows:
|
Three months ended December 31, |
|
Year ended December 31, |
||||||||
|
2023 |
|
2022 |
|
2023 |
|
2022 |
||||
Cost of revenues |
$ |
10,293 |
|
$ |
15,006 |
|
$ |
38,981 |
|
$ |
176,046 |
Selling, general and administrative expenses |
|
6,445 |
|
|
6,601 |
|
|
25,848 |
|
|
73,869 |
Restructuring |
|
197 |
|
|
— |
|
|
197 |
|
|
— |
Total stock-based compensation expense |
$ |
16,935 |
|
$ |
21,607 |
|
$ |
65,026 |
|
$ |
249,915 |
THOUGHTWORKS HOLDING, INC. |
|||||||
CONSOLIDATED BALANCE SHEETS |
|||||||
(In thousands, except share and per share data) |
|||||||
|
December 31, 2023 |
|
December 31, 2022 |
||||
|
(unaudited) |
|
|
||||
Assets |
|
|
|
||||
Current assets: |
|
|
|
||||
Cash and cash equivalents |
$ |
100,305 |
|
|
$ |
194,294 |
|
Trade receivables, net of allowance of |
|
167,942 |
|
|
|
201,695 |
|
Unbilled receivables |
|
115,150 |
|
|
|
122,499 |
|
Prepaid expenses |
|
19,692 |
|
|
|
19,353 |
|
Other current assets |
|
25,269 |
|
|
|
18,849 |
|
Total current assets |
|
428,358 |
|
|
|
556,690 |
|
Property and equipment, net |
|
26,046 |
|
|
|
38,798 |
|
Right-of-use assets |
|
41,771 |
|
|
|
43,123 |
|
Intangibles and other assets: |
|
|
|
||||
Goodwill |
|
424,565 |
|
|
|
405,017 |
|
Trademark |
|
273,000 |
|
|
|
273,000 |
|
Customer relationships, net |
|
114,186 |
|
|
|
124,047 |
|
Other non-current assets |
|
19,310 |
|
|
|
21,175 |
|
Total assets |
$ |
1,327,236 |
|
|
$ |
1,461,850 |
|
Liabilities and stockholders' equity |
|
|
|
||||
Current liabilities: |
|
|
|
||||
Accounts payable |
$ |
2,767 |
|
|
$ |
5,248 |
|
Long-term debt, current |
|
7,150 |
|
|
|
7,150 |
|
Income taxes payable |
|
5,106 |
|
|
|
22,781 |
|
Accrued compensation |
|
88,712 |
|
|
|
85,477 |
|
Deferred revenue |
|
18,090 |
|
|
|
5,167 |
|
Accrued expenses and other current liabilities |
|
22,154 |
|
|
|
37,753 |
|
Lease liabilities, current |
|
15,301 |
|
|
|
15,994 |
|
Total current liabilities |
|
159,280 |
|
|
|
179,570 |
|
Lease liabilities, non-current |
|
29,791 |
|
|
|
29,885 |
|
Long-term debt, less current portion |
|
286,035 |
|
|
|
391,856 |
|
Deferred tax liabilities |
|
54,907 |
|
|
|
62,555 |
|
Other long-term liabilities |
|
24,093 |
|
|
|
19,762 |
|
Total liabilities |
|
554,106 |
|
|
|
683,628 |
|
Commitments and contingencies |
|
|
|
||||
Stockholders’ equity: |
|
|
|
||||
Convertible preferred stock, |
|
— |
|
|
|
— |
|
Common stock, |
|
373 |
|
|
|
366 |
|
Treasury stock, 50,468,697 and 50,624,983 shares at December 31, 2023 and December 31, 2022, respectively |
|
(622,988 |
) |
|
|
(624,934 |
) |
Additional paid-in capital |
|
1,627,491 |
|
|
|
1,565,514 |
|
Accumulated other comprehensive loss |
|
(38,166 |
) |
|
|
(39,210 |
) |
Retained deficit |
|
(193,580 |
) |
|
|
(123,514 |
) |
Total stockholders' equity |
|
773,130 |
|
|
|
778,222 |
|
Total liabilities and stockholders' equity |
$ |
1,327,236 |
|
|
$ |
1,461,850 |
|
THOUGHTWORKS HOLDING, INC. |
|||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) |
|||||||
(In thousands) |
|||||||
|
Year ended December 31, |
||||||
|
2023 |
|
2022 |
||||
Cash flows from operating activities: |
|
|
|
||||
Net loss |
$ |
(68,661 |
) |
|
$ |
(105,393 |
) |
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
||||
Depreciation and amortization expense |
|
36,450 |
|
|
|
34,446 |
|
Bad debt expense |
|
4,606 |
|
|
|
2,002 |
|
Deferred income tax benefit |
|
(8,351 |
) |
|
|
(19,425 |
) |
Stock-based compensation expense |
|
65,026 |
|
|
|
250,505 |
|
Unrealized foreign currency exchange (gain)/loss |
|
(2,271 |
) |
|
|
10,106 |
|
Non-cash lease expense on right-of-use assets |
|
18,407 |
|
|
|
18,597 |
|
Other operating activities, net |
|
3,715 |
|
|
|
3,300 |
|
Changes in operating assets and liabilities: |
|
|
|
||||
Trade receivables |
|
32,661 |
|
|
|
(61,877 |
) |
Unbilled receivables |
|
7,582 |
|
|
|
(20,711 |
) |
Prepaid expenses |
|
(265 |
) |
|
|
(3,567 |
) |
Other assets |
|
(11,841 |
) |
|
|
2,657 |
|
Lease liabilities |
|
(18,269 |
) |
|
|
(16,721 |
) |
Accounts payable |
|
(2,597 |
) |
|
|
144 |
|
Accrued expenses and other liabilities |
|
(7,128 |
) |
|
|
(4,674 |
) |
Net cash provided by operating activities |
|
49,064 |
|
|
|
89,389 |
|
Cash flows from investing activities: |
|
|
|
||||
Purchase of property and equipment |
|
(8,953 |
) |
|
|
(24,505 |
) |
Proceeds from disposal of fixed assets |
|
351 |
|
|
|
571 |
|
Acquisitions, net of cash acquired |
|
(15,989 |
) |
|
|
(70,011 |
) |
Net cash used in investing activities |
|
(24,591 |
) |
|
|
(93,945 |
) |
Cash flows from financing activities: |
|
|
|
||||
Payments of obligations of long-term debt |
|
(107,150 |
) |
|
|
(107,150 |
) |
Payments of debt issuance costs |
|
(99 |
) |
|
|
(3,635 |
) |
Proceeds from issuance of common stock on exercise of options, net of employee tax withholding |
|
6,564 |
|
|
|
6,766 |
|
Withholding taxes paid on tender offer |
|
— |
|
|
|
(15,469 |
) |
Withholding taxes paid on dividends previously declared |
|
— |
|
|
|
(10,009 |
) |
Withholding taxes paid related to net share settlement of equity awards |
|
(5,621 |
) |
|
|
(45,643 |
) |
Payment of contingent consideration |
|
(13,996 |
) |
|
|
— |
|
Other financing activities, net |
|
85 |
|
|
|
15 |
|
Net cash used in financing activities |
|
(120,217 |
) |
|
|
(175,125 |
) |
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
|
1,840 |
|
|
|
(19,697 |
) |
Net decrease in cash, cash equivalents and restricted cash |
|
(93,904 |
) |
|
|
(199,378 |
) |
Cash, cash equivalents and restricted cash at beginning of the period |
|
195,564 |
|
|
|
394,942 |
|
Cash, cash equivalents and restricted cash at end of the period |
$ |
101,660 |
|
|
$ |
195,564 |
|
|
|
|
|
||||
Supplemental disclosure of cash flow information: |
|
|
|
||||
Interest paid |
$ |
24,824 |
|
|
$ |
20,984 |
|
Income taxes paid |
$ |
50,250 |
|
|
$ |
30,283 |
|
|
|
|
|
||||
Supplemental disclosure of non-cash investing and financing activities: |
|
|
|
||||
Withholding taxes payable included within accrued compensation |
$ |
3,444 |
|
|
$ |
1,020 |
|
Option costs receivable included within other current assets |
$ |
— |
|
|
$ |
257 |
|
|
|
|
|
||||
Reconciliation of cash, cash equivalents and restricted cash: |
|
|
|
||||
Cash and cash equivalents |
$ |
100,305 |
|
|
$ |
194,294 |
|
Restricted cash included in other non-current assets |
|
1,355 |
|
|
|
1,270 |
|
Total cash, cash equivalents and restricted cash |
$ |
101,660 |
|
|
$ |
195,564 |
|
THOUGHTWORKS HOLDING, INC. |
|||||||||||||||
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES |
|||||||||||||||
(In thousands, except percentages, share and per share data) |
|||||||||||||||
(unaudited) |
|||||||||||||||
|
Three months ended December 31, |
|
Year ended December 31, |
||||||||||||
|
2023 |
|
2022 |
|
2023 |
|
2022 |
||||||||
Net (loss) income |
$ |
(22,430 |
) |
|
$ |
16,108 |
|
|
$ |
(68,661 |
) |
|
$ |
(105,393 |
) |
Unrealized foreign exchange (gain) loss |
|
(11,759 |
) |
|
|
(12,136 |
) |
|
|
(2,271 |
) |
|
|
10,106 |
|
Stock-based compensation (a) |
|
16,738 |
|
|
|
21,607 |
|
|
|
64,829 |
|
|
|
249,915 |
|
Amortization of acquisition-related intangibles |
|
3,634 |
|
|
|
3,400 |
|
|
|
14,550 |
|
|
|
13,144 |
|
Acquisition costs (b) |
|
1,306 |
|
|
|
1,082 |
|
|
|
6,645 |
|
|
|
4,126 |
|
Certain professional fees (c) |
|
(1,797 |
) |
|
|
382 |
|
|
|
2,004 |
|
|
|
2,014 |
|
Employer payroll related expense on employee equity incentive plan (d) |
|
487 |
|
|
|
(94 |
) |
|
|
1,242 |
|
|
|
6,353 |
|
Final tax assessment for closed operations (e) |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
258 |
|
Change in fair value of contingent consideration (f) |
|
— |
|
|
|
3,454 |
|
|
|
129 |
|
|
|
1,027 |
|
Restructuring (g) |
|
3,378 |
|
|
|
— |
|
|
|
18,944 |
|
|
|
— |
|
Income tax effects of adjustments (h) |
|
16,032 |
|
|
|
(1,650 |
) |
|
|
(125 |
) |
|
|
(41,639 |
) |
Adjusted Net Income |
$ |
5,589 |
|
|
$ |
32,153 |
|
|
$ |
37,286 |
|
|
$ |
139,911 |
|
|
|
|
|
|
|
|
|
||||||||
GAAP diluted weighted average common shares outstanding |
|
319,243,414 |
|
|
|
315,153,905 |
|
|
|
317,718,424 |
|
|
|
310,911,526 |
|
Employee stock options, RSUs and PSUs |
|
8,882,996 |
|
|
|
14,486,014 |
|
|
|
11,840,056 |
|
|
|
17,974,425 |
|
Adjusted diluted weighted average common shares outstanding |
|
328,126,410 |
|
|
|
329,639,919 |
|
|
|
329,558,480 |
|
|
|
328,885,951 |
|
GAAP diluted (loss) earnings per share |
$ |
(0.07 |
) |
|
$ |
0.05 |
|
|
$ |
(0.22 |
) |
|
$ |
(0.34 |
) |
Adjusted Diluted EPS |
$ |
0.02 |
|
|
$ |
0.10 |
|
|
$ |
0.11 |
|
|
$ |
0.43 |
|
THOUGHTWORKS HOLDING, INC. |
|||||||||||||||
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES |
|||||||||||||||
(In thousands, except percentages, share and per share data) |
|||||||||||||||
(unaudited) |
|||||||||||||||
|
Three months ended December 31, |
|
Year ended December 31, |
||||||||||||
|
2023 |
|
2022 |
|
2023 |
|
2022 |
||||||||
Net (loss) income |
$ |
(22,430 |
) |
|
$ |
16,108 |
|
|
$ |
(68,661 |
) |
|
$ |
(105,393 |
) |
Income tax expense |
|
12,364 |
|
|
|
12,033 |
|
|
|
25,531 |
|
|
|
30,825 |
|
Interest expense |
|
6,577 |
|
|
|
6,959 |
|
|
|
26,238 |
|
|
|
22,461 |
|
Other expense, net (i) |
|
25 |
|
|
|
3,413 |
|
|
|
784 |
|
|
|
1,682 |
|
Unrealized foreign exchange (gain) loss |
|
(11,759 |
) |
|
|
(12,136 |
) |
|
|
(2,271 |
) |
|
|
10,106 |
|
Stock-based compensation (a) |
|
16,738 |
|
|
|
21,607 |
|
|
|
64,829 |
|
|
|
249,915 |
|
Depreciation and amortization |
|
9,083 |
|
|
|
8,885 |
|
|
|
36,450 |
|
|
|
34,446 |
|
Acquisition costs (b) |
|
1,306 |
|
|
|
1,082 |
|
|
|
6,645 |
|
|
|
4,126 |
|
Certain professional fees (c) |
|
(1,797 |
) |
|
|
382 |
|
|
|
2,004 |
|
|
|
2,014 |
|
Employer payroll related expense on employee equity incentive plan (d) |
|
487 |
|
|
|
(94 |
) |
|
|
1,242 |
|
|
|
6,353 |
|
Final tax assessment for closed operations (e) |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
258 |
|
Restructuring (g) |
|
3,378 |
|
|
|
— |
|
|
|
18,944 |
|
|
|
— |
|
Adjusted EBITDA |
$ |
13,972 |
|
|
$ |
58,239 |
|
|
$ |
111,735 |
|
|
$ |
256,793 |
|
Net (loss) income margin |
|
(8.9 |
)% |
|
|
5.2 |
% |
|
|
(6.1 |
)% |
|
|
(8.1 |
)% |
Adjusted EBITDA Margin |
|
5.5 |
% |
|
|
18.7 |
% |
|
|
9.9 |
% |
|
|
19.8 |
% |
|
Three months ended December 31, |
|
Year ended December 31, |
||||||||||||
|
2023 |
|
2022 |
|
2023 |
|
2022 |
||||||||
Gross profit, GAAP |
$ |
71,431 |
|
|
$ |
104,805 |
|
|
$ |
354,016 |
|
|
$ |
345,933 |
|
Stock-based compensation |
|
10,293 |
|
|
|
15,006 |
|
|
|
38,981 |
|
|
|
176,046 |
|
Employer payroll related expense on employee equity incentive plan (d) |
|
210 |
|
|
|
(222 |
) |
|
|
662 |
|
|
|
3,930 |
|
Depreciation expense |
|
2,942 |
|
|
|
3,764 |
|
|
|
12,896 |
|
|
|
13,962 |
|
Adjusted Gross Profit |
$ |
84,876 |
|
|
$ |
123,353 |
|
|
$ |
406,555 |
|
|
$ |
539,871 |
|
Gross margin, GAAP |
|
28.3 |
% |
|
|
33.7 |
% |
|
|
31.4 |
% |
|
|
26.7 |
% |
Adjusted Gross Margin |
|
33.6 |
% |
|
|
39.7 |
% |
|
|
36.1 |
% |
|
|
41.6 |
% |
|
Three months ended December 31, |
|
Year ended December 31, |
||||||||||||
|
2023 |
|
2022 |
|
2023 |
|
2022 |
||||||||
SG&A, GAAP |
$ |
77,024 |
|
|
$ |
76,962 |
|
|
$ |
331,830 |
|
|
$ |
372,761 |
|
Stock-based compensation |
|
(6,445 |
) |
|
|
(6,601 |
) |
|
|
(25,848 |
) |
|
|
(73,869 |
) |
Acquisition costs (b) |
|
(1,306 |
) |
|
|
(1,082 |
) |
|
|
(6,645 |
) |
|
|
(4,126 |
) |
Certain professional fees (c) |
|
1,797 |
|
|
|
(382 |
) |
|
|
(2,004 |
) |
|
|
(2,014 |
) |
Employer payroll related expense on employee equity incentive plan (d) |
|
(277 |
) |
|
|
(128 |
) |
|
|
(580 |
) |
|
|
(2,423 |
) |
Adjusted SG&A |
$ |
70,793 |
|
|
$ |
68,769 |
|
|
$ |
296,753 |
|
|
$ |
290,329 |
|
SG&A margin, GAAP |
|
30.5 |
% |
|
|
24.8 |
% |
|
|
29.4 |
% |
|
|
28.8 |
% |
Adjusted SG&A Margin |
|
28.0 |
% |
|
|
22.1 |
% |
|
|
26.3 |
% |
|
|
22.4 |
% |
(a) |
QTD Q4 2023 and YTD 2023 exclude |
|
(b) |
Adjusts for certain professional fees and retention wage expenses related to certain acquisitions. |
|
(c) |
Adjusts for certain transaction expenses, non-recurring legal expenses, and one-time professional fees. |
|
(d) |
Adjusts for employer payroll related expense on employee equity incentive plan as these expenses are tied to the exercise or vesting of underlying equity awards and the price of our common stock at the time of vesting or exercise. As a result, these expenses may vary in any particular period independent of the financial and operating performance of our business. |
|
(e) |
Adjusts for certain tax related expenses related to final tax assessments from closing operations in |
|
(f) |
Adjusts for the non-cash adjustment to the fair value of contingent consideration. |
|
(g) |
Adjusts for restructuring costs which include wage-related expenses, such as employee severance and related benefits, and non-wage related expenses, including costs related to reducing leased office space, vendor contract cancellations and professional fees. |
|
(h) |
Adjusts for the income tax effects of the foregoing adjusted items, determined under a discrete method consistent with our non-GAAP measures of profitability. |
|
(i) |
QTD Q4 2022 and YTD 2022 exclude a |
|
Three months ended December 31, |
|
Year ended December 31, |
||||||||||||
|
2023 |
|
2022 |
|
2023 |
|
2022 |
||||||||
Net cash provided by operating activities |
$ |
12,466 |
|
|
$ |
33,048 |
|
|
$ |
49,064 |
|
|
$ |
89,389 |
|
Purchase of property and equipment |
|
(2,602 |
) |
|
|
(4,833 |
) |
|
|
(8,953 |
) |
|
|
(24,505 |
) |
Free Cash Flow |
$ |
9,864 |
|
|
$ |
28,215 |
|
|
$ |
40,111 |
|
|
$ |
64,884 |
|
View source version on businesswire.com: https://www.businesswire.com/news/home/20240226072654/en/
Investors:
Thoughtworks Holding, Inc.
Rob Muller: investor-relations@thoughtworks.com
Press:
Thoughtworks Holding, Inc.
Linda Horiuchi: linda.horiuchi@thoughtworks.com
Source: Thoughtworks Holding, Inc.
FAQ
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