Thoughtworks(US:TWKS)2023-08-13 03:15Financial Data and Key Metrics Changes - In Q2 2023, the company reported revenue of $287 million, a decline of 14% year-over-year, and an adjusted EBITDA margin of 10.2%, both below guidance [4][13] - Revenue in constant currency declined by 13% compared to the prior year, with acquisitions contributing 1 percentage point to the revenue growth rate [13][14] - The annualized average revenue per employee was $100,000, remaining above the industry average [13] Business Line Data and Key Metrics Changes - The automotive, travel, and transportation verticals grew by 18% year-over-year, while financial services declined by 12% and technology and business services decreased by 27% [14] - The company's top 5, top 10, and top 50 clients generated 18%, 28%, and 67% of total revenue, respectively [14] Market Data and Key Metrics Changes - Year-over-year revenue declines were observed in North America (20%), Latin America (25%), Europe (8%), and APAC (8%) [14] - The company contracted with 29 new clients in Q2, a year-on-year increase of 12% [7] Company Strategy and Development Direction - The company is undergoing a structural reorganization, reducing employee headcount by approximately 5% to 6% and centralizing operations globally to improve efficiency [5][6] - A new digital engineering center will be established to enhance service delivery and respond to client needs more effectively [6] - The focus is on demand generation programs centered around data and AI services, particularly generative AI [8] Management's Comments on Operating Environment and Future Outlook - Management noted challenges with three top clients that led to significant revenue shortfalls due to budgetary decisions and strategic shifts [4][13] - The company expects revenues for Q3 2023 to be in the range of $275 million to $285 million, reflecting a year-over-year decline of 17% to 14% [16] - Management remains optimistic about the long-term potential, emphasizing the importance of digital transformation for clients [19] Other Important Information - The company reported a negative free cash flow of $19 million for the quarter and an outstanding term loan balance of $299 million as of June 30, 2023 [15] - The company is focused on maintaining long-term relationships with clients despite current budget constraints [43][58] Q&A Session Summary Question: Can you elaborate on the reinvestment into outbound demand? - Management indicated that outbound demand generation efforts have increased from 15% to 45% of new wins, focusing on resilient verticals [22][23] Question: Can you discuss the gross margin dynamics? - Management noted that utilization improved from Q1 to Q2, but the impact of bill rates and mix shift from onshore to offshore affected margins [24][25] Question: How will the centralized model affect selling new business? - The centralized model aims to enhance global delivery and client focus, allowing for better engagement with global clients [28][29] Question: What is the cadence of restructuring savings? - Management anticipates achieving 80% of the expected $75 million to $85 million in annualized cost savings before the end of the year [30][31] Question: Can you provide insight into the three large clients that reduced revenue? - The clients are still engaged but have paused or reduced project scopes due to budget constraints, not due to dissatisfaction with the work [42][43] Question: What is the outlook for positive revenue growth? - Management expects stabilization in Q4, with potential for returning to growth in the future based on demand generation investments [49]