Thoughtworks Holding, Inc.

Hello, everyone, and welcome to ThoughtWorks' earnings call for the first quarter of 2022. We will be recording today's call, and during the presentations, all lines will be on listen only. Joining us today will be ThoughtWorks President and CEO, Goh Xiao, and CFO, Aaron Cummins. The earnings press release was issued earlier today and is available on the investor relations page on ThoughtWorks.com if you want to review or download a copy. Some of the matters we'll discuss on this call, including our expected business outlook, are forward-looking, and as such... are subject to known and unknown risks and uncertainties, including, but not limited to, those factors described in today's press release and discussed in the risk factors section of our annual report on Form 10-K, our quarterly reports on Form 10-Q, and other reports we may file with the SEC from time to time. These risks and uncertainties could cause actual results to differ materially from those expressed on this call. We caution you not to place undue reliance on these forward-looking statements because they are made only as of the date when they were made. During our call today, we will reference certain non-GAAP financial measures, which we believe provide useful information for investors. We also provide growth rates and constant currency as a framework for assessing how our underlying businesses performed, excluding the effect of foreign currency rate fluctuations. We include reconciliations of non-GAAP financial measures to our GAAP financial measures in our press release furnished as an exhibit to our Forum 8K, which is available on the investor relations section of our website at ThoughtWorks.com. The non-GAAP financial measures provided should not be considered as a substitute or superior to the measures of financial performance prepared in accordance with GAAP. ThoughtWorks assumes no obligation to update or revise the information presented on this conference call. I will now hand over to Xiao.

Thank you, Sean. Welcome, everyone, to our first quarter earnings call. I would like to start by sharing an overall update on the business. And then Aaron will take you through our first quarter financial results in more detail. I'll then share some of our business highlights for Aaron provides guidance and we open for Q&A. Let me start with a recap about ThoughtWorks. We're a global technology consultancy that integrates strategy, design, and engineering to drive digital innovation. We enable enterprises and technology disruptors to thrive as modern digital businesses. I'm pleased to report excellent results in our first quarter, driven by the continued high demand for our digital transformation services. We delivered revenue of $321 million in the first quarter of 2022, reflecting year-on-year growth of 35%. and 38.2% in constant currency. In a quarter, we achieved adjusted EBITDA of $73 million, reflecting 35.4% growth compared to first quarter 2021. Towers has established a reputation for thought leadership and fostering a unique and cultivating culture. The diverse and global culture continues to attract and retain what we believe to be the best talent in the industry. At the end of March 2022, We were over 11,000 thought workers strong across five continents. I would like to thank every thought worker around the world for the extraordinary impact they create through our technology excellence and culture. We continue to operate in the large and fast-growing market, with demand remaining well above pre-pandemic levels. According to industry analyst IDC, global spending on the digital transformation of business practices, products and organizations is forecast to reach $2.8 trillion in 2025, more than double the size of the market in 2020. For ThoughtWorks. We see evidence of this growth across all our services. Digital transformation, cloud, platforms, data and AI, customer experience, product and design. Strong themes are prevailing. Let me share some examples. We're seeing high demand from our clients for ThoughtWorks expertise in building out platforms across a wide spectrum of their businesses, from end-to-end enterprise modernization to domain-specific areas like payment systems and retail platforms. We're also seeing elevated demand around new digital products and services, enhancing customer experiences, removing friction, and bringing customer-facing services together. and demand for our data and AI services continues to be strong, especially high interest from clients in data mesh. a domain-oriented decentralized data architecture invented by Ethaworks Luminary. And our growth strategies are working. At the core, our revenue growth is from deepening relationships with existing clients and winning new logos. We then supplement this with focused strategies around partners, M&A, and geographic expansion. Turning first to M&A. In April, we continued our strategy of undertaking targeted acquisitions. I'm pleased to share that we have acquired Connected to further enhance our capabilities in customer experience, design, and product development. Connected has more than 160 employees in Canada. They have deep expertise across the entire product lifecycle, from strategy and research to design and engineering. Connected transforms businesses by building better products, I would like to welcome Connected to the ThoughtWorks family. I'm looking forward to the impact they will have on our business, both in growing our CX and digital products services and supporting our business in North America. Turning next to update on geographic expansion. You may have seen in April, we shared news of our planned expansion into Vietnam. Vietnam is a rich market for technology talent. Our talent hub in Vietnam will help service nearshore demand from our clients in Australia and Singapore, further diversifying ThoughtWorks' business. And now let me share more details on our client portfolio. The depth of our expertise and breadth of our capabilities means that we can help clients address all their challenges from strategy right through to business outcomes. I'm pleased that we continue to see larger client deals. Many clients have ambitions to scale their digital transformations at a faster pace. our clients appreciate the value we create with them and we remain confident in our ability to sustain our premium position and pricing. In 2021, the average tenure across our top 10 clients by revenue was seven years and we continue to grow our relationships. For example, at our client Rush, we're working together on an ambitious data mesh initiative. Rush is a Swiss multinational healthcare company and the largest pharmaceutical company in the world. Our innovative work together is using the data mesh architecture and the data as a product construct to leverage Roche's vast data. We're working across various use cases in manufacturing, supply chain, quality and reliability, and finance to deliver better outcomes for customers and patients. We're selective in our approach to new clients, looking to work with clients with long-term ambitions for digital transformation. We continue the positive momentum from Q4, and we have contracted with 52 new clients in the first quarter. I'm pleased to share some examples of new clients that we have been working with in the first quarter. In Asia Pacific, we're now working with a new client, Cyan Macro. SciMacro is the leading wholesale trade retailer in Thailand. ThoughtWorks will help to define and build an infrastructure to transform SciMacro into a truly data-driven and customer-centric organization. We will build the platform using data mesh principles to enable increased data visibility, reliability, and access. The rapidly changing landscape for consumers has brought new opportunities for those retailers who can make data-driven decisions in real time to digitally engage their customers. In North America, our new client, Ritchie Brothers, a global asset management and disposition company, has signed a multi-year agreement with ThoughtWorks. Ritchie Brothers is working with ThoughtWorks to accelerate the delivery of a modern enterprise architecture. We're developing Ritchie Brothers' digital marketplace ecosystem using software development best practices, including continuous integration, continuous delivery methods, and tools. You can find details of some of these customer successes on the news section of our website, thoughtworks.com. I'm now going to hand over to Erin so that she can take you through the numbers in greater detail.

Thank you, Xiao, and thanks to all of you for joining us today. We were very pleased with our results in the first quarter, which demonstrate continued high demand across our geographies and verticals. Let me begin by summarizing a few of the highlights for the quarter. In the first quarter, we saw strong revenue growth of 35% compared to the prior year period. Constant currency revenue growth was 38.2%. Our revenue growth in constant currency is 7.2% higher compared to the guidance I shared in March 2022. This is primarily due to strong demand and execution, including a faster ramp up of new clients, a lower than expected impact from Omicron, and lower than expected attrition for the quarter. Adjusted EBITDA for the quarter was $73 million, representing year-on-year growth of 35.4%. Our adjusted EBITDA margin of 22.7% was 320 basis points higher compared to the midpoint of the range I guided to in March. Adjusted EBITDA margin when compared to last year has remained consistent, mainly due to improvements in adjusted gross margin offset by the effects of foreign exchange impacts during the quarter. Now let me share some details. Turning to revenue. For the first quarter, revenue growth year on year was 35% and 38.2% on a constant currency basis. ThoughtWorks is a premium brand evidenced by our high average revenue per employee. We have a diversified business across industry verticals and geographies. In the first quarter of 2022, we continued to see clients accelerate their digital transformations with ThoughtWorks. Over a trailing 12-month period, we had 42 clients with bookings greater than 10 million compared to 29 clients in the same period last year. And our overall bookings in the trailing 12 months increased by 39.6% year-on-year to 1.5 billion. We saw strong momentum across all geographies and verticals. APAC grew by 40.8%, North America by 35.8%, Europe by 29.3%, and LATAM at 24.2%. We also continued to see good growth across our industry verticals during the quarter. The strongest growth was in financial services, growing at 70.7%. Our retail and consumer vertical grew by 51.8% and continued to perform well, and we are very pleased with our growth from existing clients. Technology and business services grew at 28.9%. Energy, public and health grew at 21.1%. Automotive, travel and transport grew at 16%. At the end of the quarter, on a TTM basis, around 88.3% of our business came from existing clients. We now have 31 clients with TTM revenues greater than $10 million, eight more than the first quarter of 2021, a 34.8% increase from the same time last year. Moving down the income statement. For the quarter, adjusted gross margin was 45.6%, a 90 basis points improvement compared to first quarter 2021. Our adjusted gross margin performance was positively impacted by a higher bill rate due to our premium services partially offset by utilization. In the first quarter, our adjusted SG&A as a percentage of revenue was 22.6%, consistent with the first quarter of 2021. The impact of increased costs due to operating as a public company was offset by increased operating leverage in other areas of SG&A. Adjusted EBITDA was $73 million for the first quarter, an increase of 35.4% compared to the prior year quarter. Adjusted EBITDA margin was 22.7%, consistent with the first quarter last year. GAAP diluted loss per share was $0.20, primarily due to non-cash stock compensation charges. On an adjusted basis, our adjusted diluted earnings per share was $0.13 compared to $0.14 in the first quarter of 2021. Negative free cash flow for the quarter was $11.2 million compared to positive free cash flow of $24.2 million in the prior year quarter, driven by solid operating profitability offset primarily by lower customer prepayments this quarter and compensation programs with annual payouts in Q1. And we continue to have good liquidity. Our cash balance at March 31, 2022 was $340 million compared to $397 million at March 31, 2021. Further, our debt balance was approximately $508 million as of March 31, 2022. Now, I would like to hand back to Xiao to share additional updates on our business from the first quarter.