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    Thoughtworks Reports Third Quarter 2023 Financial Results

    11/7/23 7:05:00 AM ET
    $TWKS
    EDP Services
    Technology
    Get the next $TWKS alert in real time by email
    • Third quarter revenues of $280.2 million
    • Provides updated guidance for the full year and fourth quarter of 2023

    Thoughtworks Holding, Inc. (NASDAQ:TWKS) ("Thoughtworks" or the "Company"), a leading global technology consultancy, today reported results for the third quarter of 2023 and provided an updated financial outlook for the full year and fourth quarter of 2023.

    Guo Xiao, Thoughtworks' Chief Executive Officer, said, "We delivered revenues of $280.2 million in the third quarter of 2023. We are seeing more stability in the demand environment and new logo acquisition continues to be a strength, with 34 new clients in the quarter. Our restructuring program is moving at pace. In the third quarter, we took actions to achieve $68 million of cost savings on an annualized basis.

    We are prioritizing investments in sales and marketing and we have seen an increase in sales activity around our AI, data, digital application management, and enterprise modernization services. Despite macro challenges, digital transformation remains a key priority for our clients."

    Update on Restructuring Activities

    As announced last quarter, Thoughtworks undertook a structural reorganization. To date, we have (i) implemented changes to our operational functions, moving from a geographic to a centralized model, (ii) created a new organizational home for the majority of our client facing workforce (Digital Engineering Center); (iii) instituted a new regional market structure; and (iv) made key leadership changes aligned with our new operating model.

    Upon completion of the program, the Company still expects to realize annualized cost savings of approximately $75 million to $85 million. The majority of the annualized cost savings are still expected to come from reductions in operating spend, particularly in non-client, back-office functions. By the end of the third quarter, we achieved $68 million of the annualized expected savings, positioning us well to continue to drive savings in the fourth quarter.

    As of September 30, 2023, Thoughtworks has incurred pre-tax cash charges of approximately $15.6 million (the "Third Quarter Charges"), with an additional $2 million to $4 million expected to be incurred in the fourth quarter of 2023. The Third Quarter Charges include $15.4 million in wage-related costs, such as employee severance and related benefits, and $0.2 million in non-wage related expenses, including costs related to reducing leased office space, vendor contract cancellations and professional fees.

    QTD third quarter 2023 highlights

    Revenues for the third quarter were $280.2 million, a year-over-year decline of (15.7)%, or a year-over-year decline of (16.6)% in constant currency, and were within our guided range of $275 million to $285 million. Adjusting for the actual foreign currency translation impacts, our guided range for third quarter revenues would have been approximately $273 million to $283 million. Acquisitions completed in the last twelve months contributed approximately 1% to revenue growth in the quarter.

    Net loss margin for the third quarter was (9.2)% compared to net loss margin of (11.6)% for the third quarter of 2022. Adjusted EBITDA Margin for the third quarter was 12.0% compared to 20.2% for the third quarter of 2022, and exceeded our guided range of 9.0% to 11.0%. We are executing on our restructuring program, and our actions in the third quarter resulted in $68 million of cost savings on an annualized basis.

    Diluted loss per share for the third quarter was $(0.08) compared to diluted loss per share of $(0.12) for the third quarter of 2022. Adjusted Diluted EPS for the third quarter was $0.04 compared to $0.08 for the third quarter of 2022, exceeding our guided range of $0.02 to $0.03.

    Stock-based compensation for the third quarter was $12.8 million compared to $59.2 million for the third quarter of 2022.

    YTD third quarter 2023 highlights

    Revenues for the nine months ended were $874.4 million, a year-over-year decline of (11.3)%, or a year-over-year decline of (10.2)% in constant currency. Acquisitions completed in the last twelve months contributed approximately 1% to revenue growth for the nine months ended September 30, 2022.

    Net loss margin for the nine months ended was (5.3)% compared to net loss margin of (12.3)% for the nine months ended September 30, 2022. Adjusted EBITDA Margin for the nine months ended was 11.2% compared to 20.1% for the nine months ended September 30, 2022

    Diluted loss per share for the nine months ended was $(0.15) compared to diluted loss per share of $(0.39) for the nine months ended September 30, 2022. Adjusted Diluted EPS for the nine months ended was $0.10 compared to $0.33 for the nine months ended September 30, 2022.

    Stock-based compensation for the nine months ended was $48.1 million compared to $228.3 million for the nine months ended September 30, 2022.

    QTD third quarter 2023 summary

     

     

    Three Months Ended

    September 30,

     

     

     

     

    $ in millions, except per share data

     

    2023

     

    2022

     

    Change

     

    % Change(1)

    GAAP Metrics:

     

     

     

     

     

     

     

     

    Revenues(2)

     

    $

    280.2

     

     

    $

    332.4

     

     

    $

    (52.2

    )

     

    (15.7

    )%

    Gross Profit

     

    $

    94.2

     

     

    $

    88.3

     

     

    $

    5.9

     

     

    6.7

    %

    Gross Margin

     

     

    33.6

    %

     

     

    26.6

    %

     

     

    7.0

    %

     

     

    SG&A

     

    $

    81.8

     

     

    $

    91.7

     

     

    $

    (9.9

    )

     

    (10.8

    )%

    SG&A Margin

     

     

    29.2

    %

     

     

    27.6

    %

     

     

    1.6

    %

     

     

    Stock-based compensation

     

    $

    12.8

     

     

    $

    59.2

     

     

    $

    (46.4

    )

     

    (78.4

    )%

    Net loss

     

    $

    (25.9

    )

     

    $

    (38.6

    )

     

    $

    12.7

     

     

     

    Net loss margin

     

     

    (9.2

    )%

     

     

    (11.6

    )%

     

     

    2.4

    %

     

     

    Diluted loss per share

     

    $

    (0.08

    )

     

    $

    (0.12

    )

     

    $

    0.04

     

     

     

    Cash flow from operations

     

    $

    6.4

     

     

    $

    34.9

     

     

    $

    (28.5

    )

     

    (81.7

    )%

    Non-GAAP Metrics(3):

     

     

     

     

     

     

     

     

    Revenue Growth Rate at constant currency(4)

     

     

    (16.6

    )%

     

     

    23.9

    %

     

     

     

     

    Adjusted Gross Profit

     

    $

    104.9

     

     

    $

    135.3

     

     

    $

    (30.4

    )

     

    (22.5

    )%

    Adjusted Gross Margin

     

     

    37.4

    %

     

     

    40.7

    %

     

     

    (3.3

    )%

     

     

    Adjusted SG&A

     

    $

    72.8

     

     

    $

    70.5

     

     

    $

    2.3

     

     

    3.3

    %

    Adjusted SG&A Margin

     

     

    26.0

    %

     

     

    21.2

    %

     

     

    4.8

    %

     

     

    Adjusted Net Income

     

    $

    11.5

     

     

    $

    26.8

     

     

    $

    (15.3

    )

     

    (57.1

    )%

    Adjusted EBITDA

     

    $

    33.6

     

     

    $

    67.2

     

     

    $

    (33.6

    )

     

    (50.0

    )%

    Adjusted EBITDA Margin

     

     

    12.0

    %

     

     

    20.2

    %

     

     

    (8.2

    )%

     

     

    Adjusted Diluted EPS

     

    $

    0.04

     

     

    $

    0.08

     

     

    $

    (0.04

    )

     

    (50.0

    )%

    Free Cash Flow

     

    $

    3.7

     

     

    $

    27.7

     

     

    $

    (24.0

    )

     

    (86.6

    )%

    YTD third quarter 2023 summary

     

     

    Nine Months Ended

    September 30,

     

     

     

     

    $ in millions, except per share data

     

    2023

     

    2022

     

    Change

     

    % Change(1)

    GAAP Metrics:

     

     

     

     

     

     

     

     

    Revenues(2)

     

    $

    874.4

     

     

    $

    985.5

     

     

    $

    (111.1

    )

     

    (11.3

    )%

    Gross Profit

     

    $

    282.6

     

     

    $

    241.1

     

     

    $

    41.5

     

     

    17.2

    %

    Gross Margin

     

     

    32.3

    %

     

     

    24.5

    %

     

     

    7.8

    %

     

     

    SG&A

     

    $

    254.8

     

     

    $

    295.8

     

     

    $

    (41.0

    )

     

    (13.9

    )%

    SG&A Margin

     

     

    29.1

    %

     

     

    30.0

    %

     

     

    (0.9

    )%

     

     

    Stock-based compensation

     

    $

    48.1

     

     

    $

    228.3

     

     

    $

    (180.2

    )

     

    (78.9

    )%

    Net loss

     

    $

    (46.2

    )

     

    $

    (121.5

    )

     

    $

    75.3

     

     

     

    Net loss margin

     

     

    (5.3

    )%

     

     

    (12.3

    )%

     

     

    7.0

    %

     

     

    Diluted loss per share

     

    $

    (0.15

    )

     

    $

    (0.39

    )

     

    $

    0.24

     

     

     

    Cash flow from operations

     

    $

    22.6

     

     

    $

    56.3

     

     

    $

    (33.7

    )

     

    (59.9

    )%

    Non-GAAP Metrics(3):

     

     

     

     

     

     

     

     

    Revenue Growth Rate at constant currency(4)

     

     

    (10.2

    )%

     

     

    31.3

    %

     

     

     

     

    Adjusted Gross Profit

     

    $

    321.7

     

     

    $

    416.5

     

     

    $

    (94.8

    )

     

    (22.8

    )%

    Adjusted Gross Margin

     

     

    36.8

    %

     

     

    42.3

    %

     

     

    (5.5

    )%

     

     

    Adjusted SG&A

     

    $

    226.0

     

     

    $

    221.6

     

     

    $

    4.4

     

     

    2.0

    %

    Adjusted SG&A Margin

     

     

    25.8

    %

     

     

    22.5

    %

     

     

    3.3

    %

     

     

    Adjusted Net Income

     

    $

    31.7

     

     

    $

    107.8

     

     

    $

    (76.1

    )

     

    (70.5

    )%

    Adjusted EBITDA

     

    $

    97.8

     

     

    $

    198.6

     

     

    $

    (100.8

    )

     

    (50.8

    )%

    Adjusted EBITDA Margin

     

     

    11.2

    %

     

     

    20.1

    %

     

     

    (8.9

    )%

     

     

    Adjusted Diluted EPS

     

    $

    0.10

     

     

    $

    0.33

     

     

    $

    (0.23

    )

     

    (69.7

    )%

    Free Cash Flow

     

    $

    16.3

     

     

    $

    36.7

     

     

    $

    (20.4

    )

     

    (55.6

    )%

    (1) For QTD and YTD, percentage change for net loss and diluted loss per share were excluded as they were determined to be not meaningful due to a loss or negative position in one or both periods.

    (2) Acquisitions completed in the last twelve months contributed approximately 1% to revenue growth for the quarter and 1% for the nine months ended September 30, 2023.

    (3) See "Non-GAAP financial measures" for how we define these measures and the financial tables that accompany this release for reconciliation of these measures to the closest comparable GAAP measures.

    (4) Revenue Growth Rate at Constant Currency is calculated by translating the current period revenues into U.S. dollars at the weighted average exchange rates of the prior period of comparison; therefore the weighted average rates used in each respective calculation are not consistent. The change in revenue growth rate at constant currency was excluded, as it was determined to be not meaningful.

    Bookings

    Our overall bookings for the trailing twelve months ended September 30, 2023 was $1.4 billion, a sequential and year-over-year decrease from $1.5 billion. For the trailing twelve months ended September 30, 2023, we had 37 clients with bookings greater than $10 million compared to 41 clients for the trailing twelve months ended September 30, 2022. The 6.7% decrease is primarily due to smaller contract sizes and shorter contract terms.

    Revenue by geography(5)

     

     

    Three Months Ended

    September 30,

     

     

     

    Nine Months Ended

    September 30,

     

     

    $ in thousands

     

    2023

     

    2022

     

    % Change

     

    2023

     

    2022

     

    % Change

    North America

     

    $

    105,666

     

    $

    129,421

     

    (18.4

    )%

     

    $

    323,755

     

    $

    382,856

     

    (15.4

    )%

    APAC

     

     

    97,155

     

     

    108,353

     

    (10.3

    )%

     

     

    297,782

     

     

    320,233

     

    (7.0

    )%

    Europe

     

     

    66,292

     

     

    79,937

     

    (17.1

    )%

     

     

    219,524

     

     

    239,466

     

    (8.3

    )%

    LATAM

     

     

    11,046

     

     

    14,736

     

    (25.0

    )%

     

     

    33,369

     

     

    42,939

     

    (22.3

    )%

    Total revenues

     

    $

    280,159

     

    $

    332,447

     

    (15.7

    )%

     

    $

    874,430

     

    $

    985,494

     

    (11.3

    )%

    (5) Revenues are presented geographically, by customer location.

    Revenue by industry vertical

     

     

    Three Months Ended

    September 30,

     

     

     

    Nine Months Ended

    September 30,

     

     

    $ in thousands

     

    2023

     

    2022

     

    % Change

     

    2023

     

    2022

     

    % Change

    Technology and business services

     

    $

    70,612

     

    $

    94,219

     

    (25.1

    )%

     

    $

    214,440

     

    $

    274,815

     

    (22.0

    )%

    Energy, public and health services

     

     

    71,662

     

     

    83,386

     

    (14.1

    )%

     

     

    231,014

     

     

    237,101

     

    (2.6

    )%

    Retail and consumer

     

     

    44,663

     

     

    57,919

     

    (22.9

    )%

     

     

    137,060

     

     

    182,982

     

    (25.1

    )%

    Financial services and insurance

     

     

    46,447

     

     

    55,004

     

    (15.6

    )%

     

     

    154,380

     

     

    173,139

     

    (10.8

    )%

    Automotive, travel and transportation

     

     

    46,775

     

     

    41,919

     

    11.6

    %

     

     

    137,536

     

     

    117,457

     

    17.1

    %

    Total revenues

     

    $

    280,159

     

    $

    332,447

     

    (15.7

    )%

     

    $

    874,430

     

    $

    985,494

     

    (11.3

    )%

    Liquidity

    We had cash and cash equivalents of $87.4 million as of September 30, 2023, along with $300.0 million of borrowing capacity under our revolving credit line, which was undrawn as of September 30, 2023. Our total debt outstanding, before deferred financing fees, was $297.1 million at September 30, 2023.

    Financial outlook

    Thoughtworks provides the following updated outlook for the fourth quarter and full year 2023:

    Fourth quarter

    Thoughtworks expects the following for the fourth quarter:

    • Revenues in the range of $265 million to $270 million, reflecting year-over-year decline of (15)% to (13)%; or (16)% to (14)% in constant currency, which includes approximately 1% from acquisitions;
    • Adjusted EBITDA Margin(6) in the range of 10.5% to 12.5%;
    • Adjusted Diluted EPS(6) in the range of $0.02 to $0.04, assuming a weighted average of 328 million diluted outstanding shares; and
    • Stock-based compensation expense of $17 million.

    Full year

    Thoughtworks now expects the following for the full year:

    • The Company narrows its expected range for revenues to $1,139 million to $1,144 million, reflecting year-over-year decline of (12)%, or (12)% to (11)% in constant currency, which includes approximately 2% from acquisitions. This includes an approximate $4 million incremental negative impact from foreign exchange compared to the prior guidance.
    • The Company narrows its expected range for Adjusted EBITDA Margin(6) to 11.0% to 11.5%;
    • The Company raises its expected range for Adjusted Diluted EPS(6) to $0.12 to $0.14, assuming a weighted average of 331 million diluted outstanding shares; and
    • The Company now expects stock-based compensation expense of $65 million.

    (6) Adjusted EBITDA Margin and Adjusted Diluted EPS exclude the impacts from restructuring charges.

    Conference call information

    Thoughtworks will host a conference call and webcast at 8:00 a.m. Eastern Time on Tuesday, November 7, 2023, to discuss our financial results. To access the conference call and webcast and the accompanying slide presentation, which has additional information regarding Thoughtworks' operating results, you can visit our investor relations website at https://investors.thoughtworks.com. A replay of the webcast will be made available on our investor relations website at https://investors.thoughtworks.com. Information on Thoughtworks' website is not part of this press release.

    -###- <TWKS915>

    About Thoughtworks

    Thoughtworks is a global technology consultancy that integrates strategy, design and engineering to drive digital innovation. We are over 11,000 Thoughtworkers strong across 51 offices in 18 countries. For 30 years, we've delivered extraordinary impact together with our clients by helping them solve complex business problems with technology as the differentiator.

    Thoughtworks uses and intends to continue to use our investor relations website at https://investors.thoughtworks.com and social media, @thoughtworks on Twitter and LinkedIn, as a means of publicly disclosing material information and for complying with our disclosure obligations under Regulation Fair Disclosure. Investors should monitor these channels in addition to following the Company's press releases, SEC filings, public conference calls and webcasts.

    Forward-looking statements

    This press release includes "forward-looking statements" within the meaning of the "safe harbor" provisions of the United States Private Securities Litigation Reform Act of 1995. In some cases, you can identify these forward-looking statements by the use of terms such as "expect," "will," "continue," or similar expressions, and variations or negatives of these words, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements represent our management's beliefs and assumptions only as of the date of this press release. You should read this press release with the understanding that our actual future results may be materially different from what we expect. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, which include but are not limited to: the statements under "Financial outlook," including expectations relating to revenues and other financial or business metrics; the statements under "Update on Restructuring Activities," including expectations relating to the size of the restructuring actions, the amount and timing of related cost savings and charges and the potential long-term benefits of the restructuring actions; statements regarding relationships with existing and potential clients and their engagement decisions; and any other statements of expectation or belief. These statements are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from results expressed or implied in this press release. Such risk factors include, but are not limited to, those related to: current and future impact of macro-related factors on Thoughtworks' clients' engagement decisions, Thoughtworks' business and industry; the effects of competition on the future business of Thoughtworks; uncertainty regarding the demand for and market utilization of our services; the ability to implement our restructuring actions, including the costs of such actions and the uncertainty of the impact of such actions on financial performance; the ability to maintain or acquire new client relationships; other general business and economic conditions (including such conditions related to inflation and foreign currency exchange rates); and our ability to successfully execute our strategy and strategic plans. For additional information concerning these and other risks and uncertainties, please see Thoughtworks' latest Annual Report on Form 10-K, latest Quarterly Report on Form 10-Q, and other filings and reports that Thoughtworks may file from time to time. Except as required by law, Thoughtworks assumes no obligation, and does not intend, to update these forward-looking statements, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

    Non-GAAP financial measures

    Certain financial metrics contained in this press release are considered non-GAAP financial measures. Definitions of and the related reconciliations for these non-GAAP financial measures can be found below. We use these non-GAAP measures in conjunction with traditional GAAP measures to evaluate our financial performance. We believe that these non-GAAP measures provide our management and investors consistency and comparability with our past financial performance and facilitate period-to-period comparisons of operations. However, non-GAAP measures have limitations as analytical tools, and you should not consider these measures in isolation or as substitutes for analysis of our financial results as reported under GAAP. For example, many of the non-GAAP financial measures used herein exclude stock-based compensation expense, which has recently been, and will continue to be for the foreseeable future, a significant recurring non-cash expense for our business and an important part of our compensation strategy.

    Certain non-GAAP measures related to our financial outlook included in this press release and the associated webcast were not reconciled to the comparable GAAP financial measures because the GAAP measures are not assessable on a forward-looking basis. The Company is unable to reconcile these forward-looking non-GAAP financial measures to the most directly comparable GAAP measures without unreasonable efforts because the Company is currently unable to predict with a reasonable degree of certainty the type and extent of certain items that would be expected to impact GAAP measures for these periods but would not impact the non-GAAP measures. Such items may include stock-based compensation, acquisitions, income tax effects of adjustments and other items. The unavailable information could have a significant impact on the Company's GAAP financial results. Based on the foregoing, the Company believes that providing estimates of the amounts that would be required to reconcile the range of the non-GAAP measures to forecasted GAAP measures would imply a degree of precision that would be confusing or misleading to investors for the reasons identified above.

    Revenue Growth Rate and Revenue Growth Rate at constant currency

    Certain of our subsidiaries use functional currencies other than the U.S. dollar and the translation of these foreign currency amounts into U.S. dollars can impact the comparability of our revenues between periods. Accordingly, we use Revenue Growth Rate at constant currency as an important indicator of our underlying performance. Revenue Growth Rate at constant currency is calculated by applying the average exchange rates in effect during the earlier comparative fiscal period to the later fiscal period.

    Adjusted Gross Profit and Adjusted Gross Margin

    We define gross profit as total revenues less cost of revenues. We define Adjusted Gross Profit as gross profit excluding stock-based compensation expense, employer payroll related expense on employee equity incentive plan and depreciation expense. We calculate Adjusted Gross Margin by dividing Adjusted Gross Profit by total revenues. Our management uses Adjusted Gross Profit to assess overall performance and profitability, without regard to the aforementioned adjustments, which are unrelated to our ongoing revenue-generating operations. We also believe this information will be useful for investors to facilitate comparisons of our operating performance and better identify trends in our business.

    Adjusted SG&A and Adjusted SG&A Margin

    We define Adjusted SG&A as selling, general and administrative expense excluding stock-based compensation expense, acquisition costs, certain professional fees that are considered unrelated to our ongoing revenue-generating operations and employer payroll related expense on employee equity incentive plan. We calculate Adjusted SG&A Margin by dividing Adjusted SG&A by total revenues.

    Our management uses Adjusted SG&A and Adjusted SG&A Margin to assess our overall performance, without regard to items such as stock-based compensation expense and other items that are considered to be unique or non-recurring in nature or otherwise unrelated to our ongoing revenue-generating operations. We also believe this information will be useful for investors to facilitate comparisons of our operating performance and better identify trends in our business.

    Adjusted Net Income and Adjusted Diluted EPS

    We define Adjusted Net Income as net loss adjusted for unrealized loss on foreign currency exchange, stock-based compensation expense, amortization of acquisition-related intangibles, acquisition costs, certain professional fees that are considered unrelated to our ongoing revenue-generating operations, employer payroll related expense on employee equity incentive plan, final tax assessment for closed operations, change in fair value of contingent consideration, restructuring charges and income tax effects of adjustments.

    We define Adjusted Diluted EPS as diluted loss per share, with the numerator adjusted for the aforementioned adjustments to Adjusted Net Income. In other words, the numerator for Adjusted Diluted EPS utilizes Adjusted Net Income. We calculate Adjusted Diluted EPS by dividing Adjusted Net Income by diluted weighted average shares outstanding.

    Our management uses Adjusted Net Income and Adjusted Diluted EPS to assess our overall performance, without regard to items that are considered to be unique or non-recurring in nature or otherwise unrelated to our ongoing revenue-generating operations, net of the income tax effects of adjustments.

    Our management uses Adjusted Net Income for planning purposes, including the preparation of our annual operating budget, as a measure of our core operating results and the effectiveness of our business strategy, and in evaluating our financial performance. We also believe this information will be useful for investors to facilitate comparisons of our operating performance and better identify trends in our business.

    Adjusted EBITDA and Adjusted EBITDA Margin

    We define Adjusted EBITDA as net loss adjusted to exclude income tax expense; interest expense; other (income) expense, net, excluding a gain related to the mark to market adjustment on shares received in relation to the sale and settlement of trade receivables in 2022; unrealized loss on foreign currency exchange; stock-based compensation expense; depreciation and amortization expense; acquisition costs; certain professional fees that are considered unrelated to our ongoing revenue generating operations; employer payroll related expense on employee equity incentive plan; final tax assessment for closed operations; and restructuring charges. We calculate Adjusted EBITDA Margin by dividing Adjusted EBITDA by total revenues.

    Adjusted EBITDA and Adjusted EBITDA Margin are widely used by investors and securities analysts to measure a company's operating performance without regard to the aforementioned adjustments that can vary substantially from company to company depending upon their financing, capital structures, and the method by which assets were acquired or costs that are unique or non-recurring in nature or otherwise unrelated to our ongoing revenue-generating operations.

    Our management uses Adjusted EBITDA and Adjusted EBITDA Margin for planning purposes, including the preparation of our annual operating budget, as a measure of our core operating results and the effectiveness of our business strategy, and in evaluating our financial performance. We also believe this information will be useful for investors to facilitate comparisons of our operating performance and better identify trends in our business.

    Free Cash Flow

    We define Free Cash Flow as net cash provided by operating activities less cash used for purchases of property and equipment. We believe that Free Cash Flow is a useful indicator of liquidity for investors and is used by our management as it measures our ability to generate cash, or our need to access additional sources of cash, to fund operations and investments. There are a number of limitations related to the use of free cash flow as compared to net cash from operating activities, including that Free Cash Flow includes capital expenditures, the benefits of which are realized in periods subsequent to those when expenditures are made.

    THOUGHTWORKS HOLDING, INC.

    CONDENSED CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS

    (In thousands, except share and per share data)

    (unaudited)

       

     

     

    Three months ended

    September 30,

     

    Nine months ended

    September 30,

     

     

    2023

     

    2022

     

    2023

     

    2022

    Revenues

     

    $

    280,159

     

     

    $

    332,447

     

     

    $

    874,430

     

     

    $

    985,494

     

    Operating expenses:

     

     

     

     

     

     

     

     

    Cost of revenues

     

     

    185,985

     

     

     

    244,139

     

     

     

    591,845

     

     

     

    744,366

     

    Selling, general and administrative expenses

     

     

    81,840

     

     

     

    91,682

     

     

     

    254,806

     

     

     

    295,799

     

    Depreciation and amortization

     

     

    5,997

     

     

     

    5,303

     

     

     

    17,413

     

     

     

    15,364

     

    Restructuring

     

     

    15,566

     

     

     

    —

     

     

     

    15,566

     

     

     

    —

     

    Total operating expenses

     

     

    289,388

     

     

     

    341,124

     

     

     

    879,630

     

     

     

    1,055,529

     

    Loss from operations

     

     

    (9,229

    )

     

     

    (8,677

    )

     

     

    (5,200

    )

     

     

    (70,035

    )

    Other (expense) income:

     

     

     

     

     

     

     

     

    Interest expense

     

     

    (6,649

    )

     

     

    (5,871

    )

     

     

    (19,661

    )

     

     

    (15,502

    )

    Net realized and unrealized foreign currency loss

     

     

    (8,813

    )

     

     

    (12,129

    )

     

     

    (7,658

    )

     

     

    (18,903

    )

    Other income (expense), net

     

     

    43

     

     

     

    2,056

     

     

     

    (545

    )

     

     

    1,731

     

    Total other expense

     

     

    (15,419

    )

     

     

    (15,944

    )

     

     

    (27,864

    )

     

     

    (32,674

    )

    Loss before income taxes

     

     

    (24,648

    )

     

     

    (24,621

    )

     

     

    (33,064

    )

     

     

    (102,709

    )

    Income tax expense

     

     

    1,204

     

     

     

    13,987

     

     

     

    13,167

     

     

     

    18,792

     

    Net loss

     

    $

    (25,852

    )

     

    $

    (38,608

    )

     

    $

    (46,231

    )

     

    $

    (121,501

    )

     

     

     

     

     

     

     

     

     

    Other comprehensive loss, net of tax:

     

     

     

     

     

     

     

     

    Foreign currency translation adjustments

     

     

    (3,820

    )

     

     

    (19,217

    )

     

     

    (4,229

    )

     

     

    (45,448

    )

    Comprehensive loss

     

    $

    (29,672

    )

     

    $

    (57,825

    )

     

    $

    (50,460

    )

     

    $

    (166,949

    )

     

     

     

     

     

     

     

     

     

    Net loss per common share:

     

     

     

     

     

     

     

     

    Basic loss per common share

     

    $

    (0.08

    )

     

    $

    (0.12

    )

     

    $

    (0.15

    )

     

    $

    (0.39

    )

    Diluted loss per common share

     

    $

    (0.08

    )

     

    $

    (0.12

    )

     

    $

    (0.15

    )

     

    $

    (0.39

    )

     

     

     

     

     

     

     

     

     

    Weighted average shares outstanding:

     

     

     

     

     

     

     

     

    Basic

     

     

    317,805,140

     

     

     

    311,621,233

     

     

     

    317,204,506

     

     

     

    309,481,860

     

    Diluted

     

     

    317,805,140

     

     

     

    311,621,233

     

     

     

    317,204,506

     

     

     

    309,481,860

     

    Stock-based compensation expense included in the condensed consolidated statements of loss and comprehensive loss was as follows:

     

     

    Three months ended

    September 30,

     

    Nine months ended

    September 30,

     

     

    2023

     

    2022

     

    2023

     

    2022

    Cost of revenues

     

    $

    7,462

     

    $

    41,558

     

    $

    28,688

     

    $

    161,040

    Selling, general and administrative expenses

     

     

    5,344

     

     

    17,602

     

     

    19,403

     

     

    67,268

    Total stock-based compensation expense

     

    $

    12,806

     

    $

    59,160

     

    $

    48,091

     

    $

    228,308

    THOUGHTWORKS HOLDING, INC.

    CONDENSED CONSOLIDATED BALANCE SHEETS

    (In thousands, except share and per share data)

     

     

     

    September 30,

    2023

     

    December 31,

    2022

     

     

    (unaudited)

     

     

    Assets

     

     

     

     

    Current assets:

     

     

     

     

    Cash and cash equivalents

     

    $

    87,405

     

     

    $

    194,294

     

    Trade receivables, net of allowance of $9,074 and $9,531, respectively

     

     

    153,318

     

     

     

    201,695

     

    Unbilled receivables

     

     

    141,838

     

     

     

    122,499

     

    Prepaid expenses and other current assets

     

     

    31,223

     

     

     

    38,202

     

    Total current assets

     

     

    413,784

     

     

     

    556,690

     

    Property and equipment, net

     

     

    28,592

     

     

     

    38,798

     

    Right-of-use assets

     

     

    42,316

     

     

     

    43,123

     

    Intangibles and other assets:

     

     

     

     

    Goodwill

     

     

    416,372

     

     

     

    405,017

     

    Trademark

     

     

    273,000

     

     

     

    273,000

     

    Customer relationships, net

     

     

    115,230

     

     

     

    124,047

     

    Other non-current assets

     

     

    23,451

     

     

     

    21,175

     

    Total assets

     

    $

    1,312,745

     

     

    $

    1,461,850

     

    Liabilities and stockholders' equity

     

     

     

     

    Current liabilities:

     

     

     

     

    Accounts payable

     

    $

    4,119

     

     

    $

    5,248

     

    Long-term debt - current

     

     

    7,150

     

     

     

    7,150

     

    Income taxes payable

     

     

    8,470

     

     

     

    22,781

     

    Accrued compensation

     

     

    80,286

     

     

     

    85,477

     

    Accrued expenses and other current liabilities

     

     

    32,860

     

     

     

    42,920

     

    Lease liabilities, current

     

     

    14,709

     

     

     

    15,994

     

    Total current liabilities

     

     

    147,594

     

     

     

    179,570

     

    Lease liabilities, non-current

     

     

    30,007

     

     

     

    29,885

     

    Long-term debt, less current portion

     

     

    287,706

     

     

     

    391,856

     

    Deferred tax liabilities

     

     

    46,135

     

     

     

    62,555

     

    Other long-term liabilities

     

     

    23,388

     

     

     

    19,762

     

    Total liabilities

     

     

    534,830

     

     

     

    683,628

     

    Commitments and contingencies

     

     

     

     

    Stockholders' equity:

     

     

     

     

    Convertible preferred stock, $0.001 par value; 100,000,000 shares authorized, zero issued and outstanding at September 30, 2023 and December 31, 2022, respectively

     

     

    —

     

     

     

    —

     

    Common stock, $0.001 par value; 1,000,000,000 shares authorized, 368,678,928 and 366,306,970 issued, 318,073,825 and 315,681,987 outstanding at September 30, 2023 and December 31, 2022, respectively

     

     

    369

     

     

     

    366

     

    Treasury stock, 50,605,103 and 50,624,983 shares at September 30, 2023 and December 31, 2022, respectively

     

     

    (624,687

    )

     

     

    (624,934

    )

    Additional paid-in capital

     

     

    1,615,417

     

     

     

    1,565,514

     

    Accumulated other comprehensive loss

     

     

    (43,439

    )

     

     

    (39,210

    )

    Retained deficit

     

     

    (169,745

    )

     

     

    (123,514

    )

    Total stockholders' equity

     

     

    777,915

     

     

     

    778,222

     

    Total liabilities and stockholders' equity

     

    $

    1,312,745

     

     

    $

    1,461,850

     

    THOUGHTWORKS HOLDING, INC.

    CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

    (In thousands)

       

     

     

    Nine months ended September 30,

     

     

    2023

     

    2022

    Cash flows from operating activities:

     

     

     

     

    Net loss

     

    $

    (46,231

    )

     

    $

    (121,501

    )

    Adjustments to reconcile net loss to net cash provided by operating activities:

     

     

     

     

    Depreciation and amortization expense

     

     

    27,367

     

     

     

    25,561

     

    Bad debt expense

     

     

    4,145

     

     

     

    2,447

     

    Deferred income tax benefit

     

     

    (21,759

    )

     

     

    (24,989

    )

    Stock-based compensation expense

     

     

    48,091

     

     

     

    228,308

     

    Unrealized foreign currency exchange loss

     

     

    9,488

     

     

     

    22,242

     

    Non-cash lease expense on right-of-use assets

     

     

    13,935

     

     

     

    13,807

     

    Other operating activities, net

     

     

    2,599

     

     

     

    (546

    )

    Changes in operating assets and liabilities:

     

     

     

     

    Trade receivables

     

     

    43,827

     

     

     

    (10,803

    )

    Unbilled receivables

     

     

    (22,305

    )

     

     

    (78,445

    )

    Prepaid expenses and other assets

     

     

    6,051

     

     

     

    (4,856

    )

    Lease liabilities

     

     

    (14,219

    )

     

     

    (11,842

    )

    Accounts payable

     

     

    (1,183

    )

     

     

    (177

    )

    Accrued expenses and other liabilities

     

     

    (27,204

    )

     

     

    17,135

     

    Net cash provided by operating activities

     

     

    22,602

     

     

     

    56,341

     

    Cash flows from investing activities:

     

     

     

     

    Purchase of property and equipment

     

     

    (6,351

    )

     

     

    (19,672

    )

    Proceeds from disposal of fixed assets

     

     

    327

     

     

     

    437

     

    Acquisitions, net of cash acquired

     

     

    (15,989

    )

     

     

    (70,011

    )

    Net cash used in investing activities

     

     

    (22,013

    )

     

     

    (89,246

    )

    Cash flows from financing activities:

     

     

     

     

    Payments of obligations of long-term debt

     

     

    (105,363

    )

     

     

    (105,363

    )

    Payments of debt issuance costs

     

     

    (99

    )

     

     

    —

     

    Proceeds from issuance of common stock on exercise of options, net of employee tax withholding

     

     

    4,880

     

     

     

    5,651

     

    Withholding taxes paid on tender offer

     

     

    —

     

     

     

    (15,469

    )

    Withholding taxes paid on dividends previously declared

     

     

    —

     

     

     

    (10,009

    )

    Withholding taxes paid related to net share settlement of equity awards

     

     

    (3,501

    )

     

     

    (33,017

    )

    Other financing activities, net

     

     

    71

     

     

     

    (6

    )

    Net cash used in financing activities

     

     

    (104,012

    )

     

     

    (158,213

    )

    Effect of exchange rate changes on cash, cash equivalents and restricted cash

     

     

    (3,395

    )

     

     

    (18,032

    )

    Net decrease in cash, cash equivalents and restricted cash

     

     

    (106,818

    )

     

     

    (209,150

    )

    Cash, cash equivalents and restricted cash at beginning of the period

     

     

    195,564

     

     

     

    394,942

     

    Cash, cash equivalents and restricted cash at end of the period

     

    $

    88,746

     

     

    $

    185,792

     

     

     

     

     

     

    Supplemental disclosure of cash flow information:

     

     

     

     

    Interest paid

     

    $

    18,669

     

     

    $

    14,486

     

    Income taxes paid

     

    $

    38,590

     

     

    $

    22,830

     

    Withholding taxes payable

     

    $

    (683

    )

     

    $

    —

     

     

     

     

     

     

    Supplemental disclosures of non-cash financing activities:

     

     

     

     

    Withholding taxes payable included within accrued compensation

     

    $

    —

     

     

    $

    11,534

     

     

     

     

     

     

    Reconciliation of cash, cash equivalents and restricted cash:

     

     

     

     

    Cash and cash equivalents

     

    $

    87,405

     

     

    $

    184,544

     

    Restricted cash included in other non-current assets

     

     

    1,341

     

     

     

    1,248

     

    Total cash, cash equivalents and restricted cash

     

    $

    88,746

     

     

    $

    185,792

     

    THOUGHTWORKS HOLDING, INC.

    RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

    (In thousands, except percentages, share and per share data)

    (unaudited)

       

     

     

    Three months ended

    September 30,

     

    Nine months ended

    September 30,

     

     

    2023

     

    2022

     

    2023

     

    2022

    Net loss

     

    $

    (25,852

    )

     

    $

    (38,608

    )

     

    $

    (46,231

    )

     

    $

    (121,501

    )

    Unrealized foreign exchange loss

     

     

    10,223

     

     

     

    14,448

     

     

     

    9,488

     

     

     

    22,242

     

    Stock-based compensation

     

     

    12,806

     

     

     

    59,160

     

     

     

    48,091

     

     

     

    228,308

     

    Amortization of acquisition-related intangibles

     

     

    3,656

     

     

     

    3,449

     

     

     

    10,916

     

     

     

    9,744

     

    Acquisition costs (a)

     

     

    1,533

     

     

     

    1,742

     

     

     

    5,339

     

     

     

    3,044

     

    Certain professional fees (b)

     

     

    2,051

     

     

     

    766

     

     

     

    3,801

     

     

     

    1,632

     

    Employer payroll related expense on employee equity incentive plan (c)

     

     

    264

     

     

     

    2,950

     

     

     

    755

     

     

     

    6,447

     

    Final tax assessment for closed operations (d)

     

     

    —

     

     

     

    —

     

     

     

    —

     

     

     

    258

     

    Change in fair value of contingent consideration (e)

     

     

    —

     

     

     

    (2,955

    )

     

     

    129

     

     

     

    (2,427

    )

    Restructuring (f)

     

     

    15,566

     

     

     

    —

     

     

     

    15,566

     

     

     

    —

     

    Income tax effects of adjustments (g)

     

     

    (8,722

    )

     

     

    (14,194

    )

     

     

    (16,157

    )

     

     

    (39,989

    )

    Adjusted Net Income

     

    $

    11,525

     

     

    $

    26,758

     

     

    $

    31,697

     

     

    $

    107,758

     

     

     

     

     

     

     

     

     

     

    GAAP diluted weighted average common shares outstanding

     

     

    317,805,140

     

     

     

    311,621,233

     

     

     

    317,204,506

     

     

     

    309,481,860

     

    Employee stock options, RSUs and PSUs

     

     

    10,521,029

     

     

     

    19,179,768

     

     

     

    12,434,247

     

     

     

    19,969,943

     

    Adjusted diluted weighted average common shares outstanding

     

     

    328,326,169

     

     

     

    330,801,001

     

     

     

    329,638,753

     

     

     

    329,451,803

     

    GAAP diluted loss per share

     

    $

    (0.08

    )

     

    $

    (0.12

    )

     

    $

    (0.15

    )

     

    $

    (0.39

    )

    Adjusted Diluted EPS

     

    $

    0.04

     

     

    $

    0.08

     

     

    $

    0.10

     

     

    $

    0.33

     

    THOUGHTWORKS HOLDING, INC.

    RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

    (In thousands, except percentages, share and per share data)

    (unaudited)

     

     

     

    Three months ended

    September 30,

     

    Nine months ended

    September 30,

     

     

    2023

     

    2022

     

    2023

     

    2022

    Net loss

     

    $

    (25,852

    )

     

    $

    (38,608

    )

     

    $

    (46,231

    )

     

    $

    (121,501

    )

    Income tax expense

     

     

    1,204

     

     

     

    13,987

     

     

     

    13,167

     

     

     

    18,792

     

    Interest expense

     

     

    6,649

     

     

     

    5,871

     

     

     

    19,661

     

     

     

    15,502

     

    Other (income) expense, net (h)

     

     

    (28

    )

     

     

    (2,056

    )

     

     

    759

     

     

     

    (1,731

    )

    Unrealized foreign exchange loss

     

     

    10,223

     

     

     

    14,448

     

     

     

    9,488

     

     

     

    22,242

     

    Stock-based compensation

     

     

    12,806

     

     

     

    59,160

     

     

     

    48,091

     

     

     

    228,308

     

    Depreciation and amortization

     

     

    9,147

     

     

     

    8,905

     

     

     

    27,367

     

     

     

    25,561

     

    Acquisition costs (a)

     

     

    1,533

     

     

     

    1,742

     

     

     

    5,339

     

     

     

    3,044

     

    Certain professional fees (b)

     

     

    2,051

     

     

     

    766

     

     

     

    3,801

     

     

     

    1,632

     

    Employer payroll related expense on employee equity incentive plan (c)

     

     

    264

     

     

     

    2,950

     

     

     

    755

     

     

     

    6,447

     

    Final tax assessment for closed operations (d)

     

     

    —

     

     

     

    —

     

     

     

    —

     

     

     

    258

     

    Restructuring (f)

     

     

    15,566

     

     

     

    —

     

     

     

    15,566

     

     

     

    —

     

    Adjusted EBITDA

     

    $

    33,563

     

     

    $

    67,165

     

     

    $

    97,763

     

     

    $

    198,554

     

    Net loss margin

     

     

    (9.2

    )%

     

     

    (11.6

    )%

     

     

    (5.3

    )%

     

     

    (12.3

    )%

    Adjusted EBITDA Margin

     

     

    12.0

    %

     

     

    20.2

    %

     

     

    11.2

    %

     

     

    20.1

    %

     

     

    Three months ended

    September 30,

     

    Nine months ended

    September 30,

     

     

    2023

     

    2022

     

    2023

     

    2022

    Gross profit, GAAP

     

    $

    94,174

     

     

    $

    88,308

     

     

    $

    282,585

     

     

    $

    241,128

     

    Stock-based compensation

     

     

    7,462

     

     

     

    41,558

     

     

     

    28,688

     

     

     

    161,040

     

    Employer payroll related expense on employee equity incentive plan (c)

     

     

    107

     

     

     

    1,875

     

     

     

    452

     

     

     

    4,152

     

    Depreciation expense

     

     

    3,150

     

     

     

    3,603

     

     

     

    9,954

     

     

     

    10,198

     

    Adjusted Gross Profit

     

    $

    104,893

     

     

    $

    135,344

     

     

    $

    321,679

     

     

    $

    416,518

     

    Gross margin, GAAP

     

     

    33.6

    %

     

     

    26.6

    %

     

     

    32.3

    %

     

     

    24.5

    %

    Adjusted Gross Margin

     

     

    37.4

    %

     

     

    40.7

    %

     

     

    36.8

    %

     

     

    42.3

    %

     

     

    Three months ended

    September 30,

     

    Nine months ended

    September 30,

     

     

    2023

     

    2022

     

    2023

     

    2022

    SG&A, GAAP

     

    $

    81,840

     

     

    $

    91,682

     

     

    $

    254,806

     

     

    $

    295,799

     

    Stock-based compensation

     

     

    (5,344

    )

     

     

    (17,602

    )

     

     

    (19,403

    )

     

     

    (67,268

    )

    Acquisition costs (a)

     

     

    (1,533

    )

     

     

    (1,742

    )

     

     

    (5,339

    )

     

     

    (3,044

    )

    Certain professional fees (b)

     

     

    (2,051

    )

     

     

    (766

    )

     

     

    (3,801

    )

     

     

    (1,632

    )

    Employer payroll related expense on employee equity incentive plan (c)

     

     

    (157

    )

     

     

    (1,075

    )

     

     

    (303

    )

     

     

    (2,295

    )

    Adjusted SG&A

     

    $

    72,755

     

     

    $

    70,497

     

     

    $

    225,960

     

     

    $

    221,560

     

    SG&A margin, GAAP

     

     

    29.2

    %

     

     

    27.6

    %

     

     

    29.1

    %

     

     

    30.0

    %

    Adjusted SG&A Margin

     

     

    26.0

    %

     

     

    21.2

    %

     

     

    25.8

    %

     

     

    22.5

    %

    (a)

     

    Reflects costs for certain professional fees and retention wage expenses related to certain acquisitions.

    (b)

     

    Adjusts for certain transaction expenses, non-recurring legal expenses, and one-time professional fees.

    (c)

     

    Excludes employer payroll related expense on employee equity incentive plan as these expenses are tied to the exercise or vesting of underlying equity awards and the price of our common stock at the time of vesting or exercise. As a result, these expenses may vary in any particular period independent of the financial and operating performance of our business.

    (d)

     

    Adjusts for certain tax related expenses related to final tax assessments from closing operations in Uganda, which was completely shut down in 2015.

    (e)

     

    Adjusts for the non-cash adjustment to the fair value of contingent consideration.

    (f)

     

    Adjusts for restructuring costs which include wage-related expenses, such as employee severance and related benefits, and non-wage related expenses, including costs related to reducing leased office space, vendor contract cancellations and professional fees.

    (g)

     

    Adjusts for the income tax effects of the foregoing adjusted items.

    (h)

     

    Excludes a gain, which was included within other (income) expense, net in the condensed consolidated statements of loss and comprehensive loss for 2023, related to the mark to market adjustment on shares received in relation to the sale and settlement of trade receivables in 2022.

     

     

    Three months ended

    September 30,

     

    Nine months ended

    September 30,

     

     

    2023

     

    2022

     

    2023

     

    2022

    Net cash provided by operating activities

     

    $

    6,355

     

     

    $

    34,864

     

     

    $

    22,602

     

     

    $

    56,341

     

    Purchase of property and equipment

     

     

    (2,670

    )

     

     

    (7,213

    )

     

     

    (6,351

    )

     

     

    (19,672

    )

    Free Cash Flow

     

    $

    3,685

     

     

    $

    27,651

     

     

    $

    16,251

     

     

    $

    36,669

     

     

    View source version on businesswire.com: https://www.businesswire.com/news/home/20231106565600/en/

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