Thoughtworks(TWKS) - 2023 Q4 - Annual Results

Financial Performance and Company Overview This chapter provides an overview of the company's financial results, operational metrics, liquidity, and future outlook Management Commentary and Business Update Thoughtworks' Q4 2023 revenue of $252.4 million missed guidance by 5% due to market challenges, while a restructuring program achieved $81 million in annualized cost savings - Q4 2023 revenue was $252.4 million, 5% below guidance, attributed to supply constraints and cautious client behavior in the current macroeconomic environment[2] - The company acquired 46 new clients and maintained strong relationships with 54 clients having bookings over $5 million[3] - The restructuring program is substantially complete, realizing $81 million in annualized cost savings by Q4 end[3][4] - Restructuring incurred approximately $18.9 million in pre-tax cash charges, primarily from wage-related costs[5] Fourth Quarter 2023 Financial Performance Q4 2023 saw an 18.8% revenue decline to $252.4 million, with net loss margin at (8.9)% and Adjusted EBITDA Margin falling to 5.5%, reflecting challenging market conditions Q4 2023 Key Financial Metrics Q4 2023 vs. Q4 2022 Financial Highlights | Metric | Q4 2023 | Q4 2022 | YoY Change | | :--- | :--- | :--- | :--- | | Revenues | $252.4 M | $310.7 M | (18.8)% | | Net (Loss) Income Margin | (8.9)% | 5.2% | (14.1) p.p. | | Diluted (Loss) EPS | $(0.07) | $0.05 | $(0.12) | | Adjusted EBITDA Margin | 5.5% | 18.7% | (13.2) p.p. | | Adjusted Diluted EPS | $0.02 | $0.10 | (80.0)% | | Cash flow from operations | $12.5 M | $33.0 M | (62.1)% | - Revenue decline in constant currency was (19.8)% year-over-year[6][12] - Stock-based compensation decreased to $16.9 million from $21.6 million in Q4 2022[8] Full Year 2023 Financial Performance Full year 2023 revenues decreased 13.1% to $1,126.8 million, with Adjusted EBITDA Margin falling to 9.9% and Adjusted Diluted EPS dropping to $0.11, indicating a challenging profitability year Full Year 2023 Key Financial Metrics Full Year 2023 vs. Full Year 2022 Financial Highlights | Metric | FY 2023 | FY 2022 | YoY Change | | :--- | :--- | :--- | :--- | | Revenues | $1,126.8 M | $1,296.2 M | (13.1)% | | Net Loss Margin | (6.1)% | (8.1)% | 2.0 p.p. | | Diluted Loss Per Share | $(0.22) | $(0.34) | $0.12 | | Adjusted EBITDA Margin | 9.9% | 19.8% | (9.9) p.p. | | Adjusted Diluted EPS | $0.11 | $0.43 | (74.4)% | | Cash flow from operations | $49.1 M | $89.4 M | (45.1)% | - Revenue decline in constant currency was (12.6)% year-over-year[9][14] - Full year stock-based compensation significantly decreased to $65.0 million from $249.9 million in 2022 due to vested IPO-related grants[11] Business and Operational Metrics Operational metrics show a 14.3% decrease in trailing twelve-month bookings to $1.2 billion, with revenue declines across all geographic regions except for 11.2% growth in Automotive, travel, and transportation Bookings - Trailing twelve-month bookings decreased 14.3% year-over-year to $1.2 billion, driven by reduced client budgets and a shift to offshore services[17] Clients by Booking Size (Trailing Twelve Months) | Booking Size | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | > $10 million | 25 | 39 | | $5 million to $10 million | 29 | 26 | Revenue by Geography Full Year 2023 Revenue by Geography (YoY % Change) | Region | FY 2023 Revenue | YoY Change | | :--- | :--- | :--- | | North America | $417.6 M | (17.1)% | | APAC | $387.1 M | (7.8)% | | Europe | $280.4 M | (11.2)% | | LATAM | $41.8 M | (25.9)% | Revenue by Industry Vertical Full Year 2023 Revenue by Industry Vertical (YoY % Change) | Industry Vertical | FY 2023 Revenue | YoY Change | | :--- | :--- | :--- | | Technology and business services | $279.3 M | (22.5)% | | Energy, public and health services | $294.0 M | (7.1)% | | Retail and consumer | $176.8 M | (25.3)% | | Financial services and insurance | $197.4 M | (11.0)% | | Automotive, travel and transportation | $179.3 M | 11.2% | Liquidity and Financial Position As of December 31, 2023, the company held $100.3 million in cash, with an undrawn $300.0 million revolving credit line and $295.3 million in total outstanding debt - The company held $100.3 million in cash and cash equivalents as of December 31, 2023[21] - A $300.0 million revolving credit line was available and undrawn at year-end[21] - Total outstanding debt, before deferred financing fees, was $295.3 million[22] Financial Outlook for 2024 Thoughtworks forecasts Q1 2024 revenue between $241 million and $246 million (20-21% decline) and full-year revenue between $980 million and $1,010 million (10-13% decline), with Adjusted EBITDA margins of 3.0-4.0% for Q1 and 8.0-10.0% for the full year First Quarter 2024 Outlook Q1 2024 Guidance | Metric | Guidance Range | | :--- | :--- | | Revenues | $241 M to $246 M | | YoY Revenue Decline | (21)% to (20)% | | Adjusted EBITDA Margin | 3.0% to 4.0% | | Adjusted Diluted Loss Per Share | $(0.02) to $(0.01) | Full Year 2024 Outlook Full Year 2024 Guidance | Metric | Guidance Range | | :--- | :--- | | Revenues | $980 M to $1,010 M | | YoY Revenue Decline | (13)% to (10)% | | Adjusted EBITDA Margin | 8.0% to 10.0% | | Adjusted Diluted EPS | $0.01 to $0.06 | Detailed Financial Statements and Reconciliations This chapter presents the company's consolidated financial statements, including statements of loss, balance sheets, cash flows, and reconciliations of non-GAAP measures Consolidated Statements of Loss and Comprehensive Loss The Consolidated Statement of Loss shows a net loss of $68.7 million for 2023, an improvement from 2022, with $18.9 million in restructuring charges impacting operating expenses Key Items from Statement of Loss (Year Ended Dec 31, in thousands) | Item (in thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Revenues | $1,126,816 | $1,296,238 | | (Loss) from operations | $(20,312) | $(47,312) | | Restructuring | $18,944 | $— | | Net (loss) income | $(68,661) | $(105,393) | | Diluted (loss) per share | $(0.22) | $(0.34) | Consolidated Balance Sheets As of December 31, 2023, total assets decreased to $1.33 billion from $1.46 billion, with total liabilities falling to $554.1 million and stockholders' equity remaining stable at $773.1 million Key Balance Sheet Items (as of Dec 31, in thousands) | Item (in thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $100,305 | $194,294 | | Total current assets | $428,358 | $556,690 | | Goodwill | $424,565 | $405,017 | | Total assets | $1,327,236 | $1,461,850 | | Long-term debt, less current | $286,035 | $391,856 | | Total liabilities | $554,106 | $683,628 | | Total stockholders' equity | $773,130 | $778,222 | Consolidated Statements of Cash Flows Net cash from operating activities decreased to $49.1 million in 2023, with $24.6 million used in investing and $120.2 million in financing, resulting in a $93.9 million net decrease in cash Key Cash Flow Items (Year Ended Dec 31, in thousands) | Item (in thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $49,064 | $89,389 | | Net cash used in investing activities | $(24,591) | $(93,945) | | Net cash used in financing activities | $(120,217) | $(175,125) | | Net decrease in cash | $(93,904) | $(199,378) | | Cash at end of period | $101,660 | $195,564 | Reconciliation of Non-GAAP Financial Measures This section reconciles GAAP to non-GAAP measures, adjusting for items like stock-based compensation and restructuring charges to present Adjusted Net Income, Adjusted EBITDA, and Free Cash Flow Reconciliation of Adjusted Net Income and Adjusted Diluted EPS - For FY 2023, GAAP Net Loss of $(68.7) million was reconciled to Adjusted Net Income of $37.3 million, primarily by adding back $64.8 million in stock-based compensation and $18.9 million in restructuring charges[52] - For Q4 2023, GAAP Net Loss of $(22.4) million was reconciled to an Adjusted Net Income of $5.6 million[52] Reconciliation of Adjusted EBITDA and Other Metrics - For FY 2023, GAAP Net Loss of $(68.7) million was reconciled to Adjusted EBITDA of $111.7 million, with key add-backs including $64.8 million in stock-based compensation and $18.9 million in restructuring charges[54] - For Q4 2023, GAAP Net Loss of $(22.4) million was reconciled to Adjusted EBITDA of $14.0 million[54] Reconciliation of Free Cash Flow Free Cash Flow Reconciliation (in thousands) | | Q4 2023 | Q4 2022 | FY 2023 | FY 2022 | | :--- | :--- | :--- | :--- | :--- | | Net cash from 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 |