Thoughtworks Holding, Inc.

Hello, everyone, and welcome to ThoughtWorks Earnings Call for the second 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 Zhao, and CFO, Aaron Cummins. The earnings press release was issued earlier today and is also available on our investor relations page at 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 were 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 Form 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 for 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 Zhao.

Thank you, Sean. Welcome everyone to our second quarter earnings call. We had our first round of investor conferences in June, and it was good to meet many of you in person. I would like to start by sharing an overall update on the business, and then Aaron will take you through our second quarter financial results in more detail. I will then share some of our business highlights before 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. Now let me turn to the financials. and police report strong results in our second quarter, driven by the continued demand for our digital transformation services. We delivered revenue of $332 million in the second quarter of 2022, reflecting year-on-year growth of 27.5% and 33.5% in constant currency. In a quarter, we achieved adjusted EBITDA of $58.5 million, reflecting 14.2% growth compared to the second quarter of 2021. ThoughtWorks has established a reputation for thought leadership and fostering a unique and cultivating culture. Our diverse and global culture continues to track and retain what we believe to be the best talent in the industry. In July, Forrester recognized ThoughtWorks as a leader in the 2022 Modern Application Development Wave. Modern application development services can help companies speed their digital transformation, build modern applications and products, and enhance customer development for delivering business value outcomes. Some of the ThoughtWorks strengths cited by Forrester include our strong vision and ability to look ahead to what's coming next and help our clients to benefit, as well as our ability to attract and retain top talent. At the end of second quarter, we were over 12,000 ThoughtWorkers strong across five continents. I would like to thank every ThoughtWorker around the world for the extraordinary impact they create through our technology excellence and culture. The ThoughtWorks business is diversified across industries and geographies, and we see this as a key differentiator. We continue to see strong demand. Our clients are still looking to digital innovation to help them thrive as modern digital businesses, even if inflation persists. According to a Gartner survey of 199 CFOs and senior financial leaders in May 2022, 78% of CFOs plan to maintain or increase enterprise-wide digital investments in the next two years. For ThoughtWorks, we see evidence of this 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 continue to see elevated demand around new digital products and services, enhancing customer experience, remove friction, and bring customer-facing services together. We're seeing higher demand from clients for ThoughtWorks expertise in enterprise modernization, and reimagining operations. Demand for our data and AI services continue to be strong, with especially high interest from clients in data mesh. We're also excited to see client interest around developer experience platforms. According to Spotify, Only around 30 to 40% of a software developer's time is spent writing code. We help our clients improve developer productivity and satisfaction through self-service platforms to access cloud infrastructure, security services, API events, and data, to name a few. For these reasons, we believe that ThoughtWorks is well positioned in the market. Now, let me share the details of our growth strategies. 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 M&A, partners, and geographic expansion. Turning first to M&A. In the second quarter, we continue with our strategy of undertaking targeted acquisitions. I'm delighted to announce our second acquisition of 2022 is with Handmade, a strategic design consultancy specializing in product strategy and design, and accelerating value from innovation for their clients. Handmade has more than 50 employees in Brazil. I would like to welcome Handmade 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 and services, and supporting our business in Latin America and North America. Now let me turn to partners as a growth strategy. Our primary focus is developing go-to-market partnerships with the hyperscale cloud providers. First, let me update you on Amazon Web Services, AWS. I'm pleased to share that in the second quarter of 2022, ThoughtWorks became an Amazon AWS premier services partner. This is the highest tier of partnership. and less than 3% of AWS partners achieve this status. This recognition underscores ThoughtWorks' deep technical expertise with AWS cloud technologies and our ability to demonstrate success working with a large number of clients at scale. We're partnering with AWS at our client Gilead Science. Gilead Sciences is a biopharmaceutical company that has achieved breakthroughs in medicine with the goal of creating a healthier world for all people. ThoughtWorks and AWS are working with Gilead Sciences to support their ambitious cloud journey. Gilead has a vision to evolve to a more data-driven culture and drive greater innovation, including the adoption of data mesh at scale. Now, let me share some 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. Our clients appreciate the value we create with them and 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 PayPal, one of the world's leading payment platforms. We're working together to design, architect, and deliver a new omni-channel platform and content management capability. We aim to meet regulatory requirements and set a new gold standard for customer engagement. We're selective in our approach to new clients, looking to work with clients with long-term ambitions for digital transformation. We continue the momentum from the first quarter and we have contracted with 26 new clients in the second quarter. Now, let me provide some examples of new clients that we have been working with. In May, we announced an agreement with new client Cielo, a leading electronic payments company in Brazil and Latin America. We're working together to build a digital technology platform that improves the developer experience. The platform is named Thor because of the power it will bring to delivery. Thor will streamline the creation of new technology features and components, streamline the process of applying architectural standards and infrastructure processes. A key aspect for CLO shooting ThoughtWorks was our expertise in digital platform strategy, specifically our expertise around the evolution of the developer experience. We expect to improve developer productivity by cutting red tape and helping CLO development teams build more secure and reliable digital products. And in 2022, we work with Car Auction Services, a leading operator of digital marketplaces for wholesale used vehicles. Enhanced vehicle condition reports are now part of Car's Backlog Cars platform. The new features, which include engine audio recordings, are aimed at strengthening the Backlog Cars customer experience. through more accurate, more consistent, and easier to understand condition reports. ThoughtWorks helped combine the best features and functionality of the backlog cars and car wave inspection frameworks while identifying areas to streamline across the platforms. The result is a single enhanced condition report framework that accelerates sales for sellers and provides buyers with comprehensive condition information that is easy to understand. The new features help to ensure the consistency of information displayed for buyers across a wide range of vehicle conditions, ages, and mileages. You can find details of some of these customer successes on a new 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 second quarter, which demonstrate continued broad-based demand across our business. Let me begin by summarizing a few of the highlights for the quarter. In the second quarter, we saw strong revenue growth of 27.5% compared to the prior year period. Constant currency growth was 33.5%. Our revenue growth in constant currency is four points higher compared to the midpoint of the range I guided to in May 2022. This is primarily due to strong demand and execution and better than expected attrition for the quarter. Adjusted EBITDA for the quarter was $58.5 million, representing year-on-year growth of 14.2%. Our adjusted EBITDA margin of 17.6% was 35 basis points higher compared to the midpoint of the range I guided to in May. Q2 adjusted EBITDA margin decreased when compared to our prior year period, but is in line with our full year operating plan. As I discussed during our earnings call in May, we expected our Q2 adjusted EBITDA margin to be impacted by the seasonality of pay rises, a higher level of annual leave or vacation associated with public holiday schedules, public company-related expenses, and several in-person demand and marketing events that took place during the second quarter. Now let me share some details. Turning to revenue, for the second quarter, revenue growth year-on-year was 27.5% and 33.5% on a constant currency basis. ThoughtWorks is a premium brand, evidenced by our high average revenue per employee of $116,000, annualized for the first six months of 2022. We have a diversified business across industry verticals and geographies. In the second quarter of 2022, we continued to see clients select ThoughtWorks for their digital transformations. Over a trailing 12-month period, we had 35 clients with bookings greater than 10 million compared to 28 clients over the same period last year, an increase of 25%. Our overall bookings in the trailing 12 months increased by 30.8% year-on-year to 1.5 billion. We saw strong momentum across all our geographies. North America grew by 35%, LATAM by 35.1%, Europe by 21.9%, and APAC grew by 22.4%. Given the strengthening of the U.S. dollar in recent months, we want to provide a deeper view into its effect on our reported results. Our primary revenue-generating currencies alongside the U.S. dollar are the euro, GBP, and AUD. I am pleased with the underlying strength of the business this quarter. For example, on a local currency basis, our revenue contracted in euros grew by 24.6%, GBP by 41%, and AUD by 41.7% compared to the prior year period. Due to the diverse nature of our business on a geographic basis, 62.7% of our year-to-date revenues as of June 30th were contracted in non-US dollar currencies. We also continued to see good growth across our industry verticals during the quarter. The strongest growth was in financial services, growing at 46.1%. Technology and business services grew at 36.2%. Our retail and consumer vertical grew at 31%. Automotive travel and transport grew at 20.1%. Energy public and health services grew at 9.1%. The quarterly year-over-year growth of the energy public and health services sector was impacted by the successful completion of a major program at one of our health services clients. Energy public and health services is a strategic focus, and we expect double-digit growth to return in future quarters. At the end of the quarter, on a TTM basis, around 86.5% of our business came from existing clients. We have a balanced customer portfolio with relative low client concentration. In the second quarter, our top 5, top 10, and top 50 clients generated 15.3%, 25.2%, and 66.1% respectively as a percentage of our total revenues. We now have 33 clients with trailing 12-month revenues greater than $10 million, eight more than the second quarter of 2021, representing a 32% increase. Moving down the income statement. For the quarter, adjusted gross margin was 40.6% compared to 43.5% during the prior year period, impacted by seasonality and the factors I previously discussed with respect to adjusted EBITDA. In the second quarter, our adjusted SG&A as a percentage of revenue was 23.7%, which is consistent with the second quarter 2021. Adjusted EBITDA was $58.5 million for the second quarter, an increase of 14.2% compared to prior year quarter. Adjusted EBITDA margin was 17.6%, which is in line with our operating plan, a decrease of 210 basis points compared with the second quarter last year. GAAP diluted loss per share was $0.10, impacted by non-cash stock compensation charges. On an adjusted basis, our adjusted diluted earnings per share was $0.11 compared to $0.10 in the second quarter of 2021. Free cash flow for the quarter was $20.2 million compared to $22.3 million in the prior year quarter. And we continue to have good liquidity. Our cash balance at June 30, 2022 was $275 million compared to $216 million at June 30, 2021. Further, our debt is continuing to go down. We paid down an additional $100 million in July, which brings our current debt balance to $406 million at the end of July 2022. Now I would like to hand back to Xiao to share additional updates on our business from the second quarter.