Thoughtworks Holding, Inc. (NASDAQ: TWKS) ("Thoughtworks" or the "Company"), a leading global technology consultancy, today reported results for the second quarter of 2023 and provided an updated financial outlook for the full year and third quarter of 2023.
Guo Xiao, Thoughtworks' Chief Executive Officer, said, "We delivered revenues of $287.2 million in the second quarter of 2023. This fell short of our guidance as the macro-related factors that we have discussed in recent quarters had an increased influence on client behavior during the quarter, impacting results to a greater extent than anticipated. In particular, we experienced a number of unanticipated project deferrals and cancellations by clients part-way through the quarter. Our investments in outbound demand generation resulted in stable bookings of $1.5 billion on a trailing twelve month basis. We remain committed to investing in demand generation, while also taking restructuring actions that are intended to achieve operational efficiencies, optimize resource allocation, and to be more responsive to our clients’ needs. We remain close with our clients, and our teams are focused on helping solve their most difficult technological problems.”
Thoughtworks announces restructuring actions
Following a detailed review of its business, Thoughtworks is announcing a structural reorganization that will (i) move its operational functions from a geographic to a centralized model, (ii) create a new organizational home for the majority of its client facing workforce, our Digital Engineering Center, and (iii) evolve its regional market structure. Centralizing operations globally will reduce overall costs, better align its resources to strategic priorities, right-size its operations, and increase operational efficiencies. The new Digital Engineering Center will provide supply across the regional markets and allow the Company to optimize resource allocation globally to better align to clients’ needs. Finally, these changes will enable its regional markets to have a more client and industry-based go-to-market focus while continuing to fund our investments in demand generation.
The majority of the actions will be taken in the third quarter of 2023 and are expected to be completed within the next twelve months. Upon completion of the program, the Company expects to realize annualized cost savings of approximately $75 million to $85 million, and impact approximately 5% to 6% of our employee headcount globally. The majority of the annualized cost savings will come from reductions in operating spend, particularly in non-client, back-office functions.
Thoughtworks expects to incur total pre-tax cash charges of approximately $20 million to $25 million (the “Total Charges”), of which approximately $18 million to $20 million are expected to be recognized in 2023. The Total Charges include $18 million to $22 million in wage-related costs, such as employee severance and related benefits, and $2 million to $3 million in non-wage related expenses, including costs related to reducing leased office space, vendor contract cancellations and professional fees.
QTD second quarter 2023 summary
Three Months Ended
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$ in millions, except per share data | 2023 | 2022 | Change | % Change(1) | ||||||||||
GAAP Metrics: | ||||||||||||||
Revenues(2) | $ | 287.2 | $ | 332.1 | $ | (44.9 | ) | (13.5 | )% | |||||
Gross Profit | $ | 90.9 | $ | 81.6 | $ | 9.3 | 11.4 | % | ||||||
Gross Margin | 31.6 | % | 24.6 | % | 7.0 | % | ||||||||
SG&A | $ | 86.6 | $ | 99.4 | $ | (12.8 | ) | (12.9 | )% | |||||
SG&A Margin | 30.2 | % | 29.9 | % | 0.3 | % | ||||||||
Stock-based compensation | $ | 17.6 | $ | 69.0 | $ | (51.4 | ) | (74.5 | )% | |||||
Net loss | $ | (12.3 | ) | $ | (39.3 | ) | $ | 27.0 | ||||||
Net loss margin | (4.3 | )% | (11.8 | )% | 7.5 | % | ||||||||
Diluted loss per share | $ | (0.04 | ) | $ | (0.13 | ) | $ | 0.09 | ||||||
Cash flow from operations | $ | (16.8 | ) | $ | 27.6 | $ | (44.4 | ) | ||||||
Non-GAAP Metrics(3): | ||||||||||||||
Revenue Growth Rate at constant currency(4) | (12.5 | )% | 33.5 | % | ||||||||||
Adjusted Gross Profit | $ | 105.0 | $ | 135.0 | $ | (30.0 | ) | (22.2 | )% | |||||
Adjusted Gross Margin | 36.6 | % | 40.6 | % | (4.0 | )% | ||||||||
Adjusted SG&A | $ | 76.0 | $ | 78.6 | $ | (2.6 | ) | (3.3 | )% | |||||
Adjusted SG&A Margin | 26.5 | % | 23.7 | % | 2.8 | % | ||||||||
Adjusted Net Income | $ | 10.1 | $ | 37.0 | $ | (26.9 | ) | (72.6 | )% | |||||
Adjusted EBITDA | $ | 29.3 | $ | 58.5 | $ | (29.2 | ) | (49.9 | )% | |||||
Adjusted EBITDA Margin | 10.2 | % | 17.6 | % | (7.4 | )% | ||||||||
Adjusted Diluted EPS | $ | 0.03 | $ | 0.11 | $ | (0.08 | ) | (72.7 | )% | |||||
Free Cash Flow | $ | (18.8 | ) | $ | 20.2 | $ | (39.0 | ) | ||||||
YTD second quarter 2023 summary
Six Months Ended
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$ in millions, except per share data | 2023 | 2022 | Change | % Change(1) | ||||||||||
GAAP Metrics: | ||||||||||||||
Revenues(2) | $ | 594.3 | $ | 653.0 | $ | (58.7 | ) | (9.0 | )% | |||||
Gross Profit | $ | 188.4 | $ | 152.8 | $ | 35.6 | 23.3 | % | ||||||
Gross Margin | 31.7 | % | 23.4 | % | 8.3 | % | ||||||||
SG&A | $ | 173.0 | $ | 204.1 | $ | (31.1 | ) | (15.2 | )% | |||||
SG&A Margin | 29.1 | % | 31.3 | % | (2.2 | )% | ||||||||
Stock-based compensation | $ | 35.3 | $ | 169.1 | $ | (133.8 | ) | (79.1 | )% | |||||
Net loss | $ | (20.4 | ) | $ | (82.9 | ) | $ | 62.5 | ||||||
Net loss margin | (3.4 | )% | (12.7 | )% | 9.3 | % | ||||||||
Diluted loss per share | $ | (0.06 | ) | $ | (0.27 | ) | $ | 0.21 | ||||||
Cash flow from operations | $ | 16.2 | $ | 21.5 | $ | (5.3 | ) | (24.7 | )% | |||||
Non-GAAP Metrics(3): | ||||||||||||||
Revenue Growth Rate at constant currency(4) | (6.9 | )% | 35.7 | % | ||||||||||
Adjusted Gross Profit | $ | 216.8 | $ | 281.2 | $ | (64.4 | ) | (22.9 | )% | |||||
Adjusted Gross Margin | 36.5 | % | 43.1 | % | (6.6 | )% | ||||||||
Adjusted SG&A | $ | 153.2 | $ | 151.1 | $ | 2.1 | 1.4 | % | ||||||
Adjusted SG&A Margin | 25.8 | % | 23.1 | % | 2.7 | % | ||||||||
Adjusted Net Income | $ | 20.2 | $ | 81.0 | $ | (60.8 | ) | (75.0 | )% | |||||
Adjusted EBITDA | $ | 64.2 | $ | 131.4 | $ | (67.2 | ) | (51.1 | )% | |||||
Adjusted EBITDA Margin | 10.8 | % | 20.1 | % | (9.3 | )% | ||||||||
Adjusted Diluted EPS | $ | 0.06 | $ | 0.25 | $ | (0.19 | ) | (76.0 | )% | |||||
Free Cash Flow | ||||||||||||||
