Executive Summary

Q4 2023 underwhelmed: revenue $252.4M (-18.8% YoY) and adjusted EBITDA margin 5.5% missed the company’s Q4 guidance, with management attributing ~2/3 of the shortfall to temporary supply-side disruptions from the restructuring and ~1/3 to softer demand and pricing pressure .
Profitability compressed sharply: GAAP diluted EPS was -$0.07 (vs $0.05 in Q4’22), adjusted EPS $0.02 (vs $0.10), as gross margin fell 540 bps YoY to 28.3% and adjusted gross margin fell 610 bps to 33.6% on offshore mix shift and high single-digit like-for-like price declines .
2024 outlook frames a transition year: Q1 revenue $241–$246M (YoY -21% to -20%), adj. EBITDA margin 3–4%; FY24 revenue $980M–$1.01B (YoY -13% to -10%), adj. EBITDA margin 8–10% with expected sequential margin improvement as utilization and offshore delivery efficiency improve .
Restructuring progress but demand/pricing headwinds linger: $81M annualized cost savings realized; bookings TTM down to $1.2B from $1.4B; 46 new clients in Q4; TTM voluntary attrition 12% .
Stock-reaction catalysts: miss vs the company’s Q4 guidance, 2024 revenue decline/price pressure narrative, and any incremental evidence of utilization improvement and GenAI-driven wins could drive sentiment near term .

What Went Well and What Went Wrong

What Went Well

New logo momentum and client breadth: 46 new clients added in Q4; 54 clients with bookings >$5M, supporting diversification despite macro caution .
Cost actions progressing: $81M annualized savings realized by year-end; supply-side efficiency expected to support sequential margin expansion in 2024 .
AI traction and partner ecosystem: >50 GenAI projects by year-end; partnerships embedded in the sales process with doubled partner participation YoY in the pipeline .
- “We’re taking an early lead in AI-first software delivery, and we’re pleased by client interest in GenAI with over 50 client projects at year-end.” — CEO Xiao Guo .

What Went Wrong

Missed Q4 guidance: revenue ($252.4M) was ~5% below the mid-point of prior Q4 guide ($265–$270M); adjusted EBITDA margin (5.5%) missed prior guide (10.5–12.5%) on supply disruptions and pricing pressure .
Pricing headwinds: high single-digit like-for-like price declines; shift to offshore mix pressured gross margins and top-line dollars .
Bookings and revenue contraction: TTM bookings fell to $1.2B (from $1.4B); Q4 revenue -18.8% YoY with broad-based regional/vertical declines (notably North America -22.5% YoY; tech/business services -24% YoY; retail/consumer -26% YoY) .

Financial Results

Sequential performance (oldest → newest)

Metric	Q2 2023	Q3 2023	Q4 2023
Revenue ($M)	$287.2	$280.2	$252.4
GAAP Diluted EPS ($)	-$0.04	-$0.08	-$0.07
Adjusted Diluted EPS ($)	$0.03	$0.04	$0.02
Adjusted EBITDA ($M)	$29.3	$33.6	$14.0
Adjusted EBITDA Margin (%)	10.2%	12.0%	5.5%
Gross Margin GAAP (%)	31.6%	33.6%	28.3%
Adjusted Gross Margin (%)	36.6%	37.4%	33.6%
Net Income Margin (%)	-4.3%	-9.2%	-8.9%
Free Cash Flow ($M)	-$18.8	$3.7	$9.9

Year-over-year comparison (oldest → newest)

Metric	Q4 2022	Q4 2023
Revenue ($M)	$310.7	$252.4
YoY Growth (%)	—	-18.8%
GAAP Diluted EPS ($)	$0.05	-$0.07
Adjusted Diluted EPS ($)	$0.10	$0.02
Adjusted EBITDA ($M)	$58.2	$14.0
Adjusted EBITDA Margin (%)	18.7%	5.5%
Gross Margin GAAP (%)	33.7%	28.3%
Adjusted Gross Margin (%)	39.7%	33.6%
Net Income Margin (%)	5.2%	-8.9%

Q4 2023 vs company guidance (oldest → newest)

Metric	Period	Previous Guidance	Actual	Result
Revenue ($M)	Q4 2023	$265–$270	$252.4	Missed
Adjusted EBITDA Margin (%)	Q4 2023	10.5–12.5	5.5	Missed
Adjusted Diluted EPS ($)	Q4 2023	$0.02–$0.04	$0.02	Met low end

Segment breakdown – Revenue by geography (YoY) (oldest → newest)

Geography ($000s)	Q4 2022	Q4 2023	YoY Change
North America	$121,092	$93,816	-22.5%
APAC	$99,749	$89,279	-10.5%
Europe	$76,409	$60,866	-20.3%
LATAM	$13,494	$8,425	-37.6%
Total	$310,744	$252,386	-18.8%

Segment breakdown – Revenue by industry vertical (YoY) (oldest → newest)

Vertical ($000s)	Q4 2022	Q4 2023	YoY Change
Technology & business services	$85,302	$64,824	-24.0%
Energy, public & health services	$79,377	$63,015	-20.6%
Retail & consumer	$53,749	$39,788	-26.0%
Financial services & insurance	$48,609	$43,027	-11.5%
Automotive, travel & transportation	$43,707	$41,732	-4.5%
Total	$310,744	$252,386	-18.8%

KPIs and balance sheet (point-in-time, oldest → newest)

KPI	Prior	Current
TTM Bookings ($B)	$1.4 (TTM to Sep-23)	$1.2 (TTM to Dec-23)
# clients with TTM bookings >$10M	39 (TTM to Dec-22)	25 (TTM to Dec-23)
# clients with TTM bookings $5–$10M	26 (TTM to Dec-22)	29 (TTM to Dec-23)
New clients added in Q4	—	46
TTM voluntary attrition	12.2% in Q3’23	12% in Q4’23
Cash & cash equivalents	$87.4M (Sep-30-23)	$100.3M (Dec-31-23)
Total debt (gross)	$297.1M (Sep-30-23)	$295.3M (Dec-31-23)
Revolver capacity (drawn)	$300M (undrawn)	$300M (undrawn)
Free Cash Flow (Q4)	$28.2M in Q4’22	$9.9M in Q4’23
Stock-based compensation (Q4)	$21.6M in Q4’22	$16.9M in Q4’23

Guidance Changes

Initial 2024 guidance (no prior 2024 guidance provided previously)

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue ($M)	Q1 2024	N/A	$241–$246	New
Adjusted EBITDA Margin (%)	Q1 2024	N/A	3.0–4.0	New
Adjusted diluted loss per share ($)	Q1 2024	N/A	-$0.02 to -$0.01	New
Stock-based comp ($M)	Q1 2024	N/A	$11	New
Revenue ($M)	FY 2024	N/A	$980–$1,010	New
Adjusted EBITDA Margin (%)	FY 2024	N/A	8.0–10.0	New
Adjusted Diluted EPS ($)	FY 2024	N/A	$0.01–$0.06	New
Stock-based comp ($M)	FY 2024	N/A	$46	New

Company’s prior Q4 and FY23 guidance vs actuals (oldest → newest)

Metric	Period	Previous Guidance	Actual	Change
Revenue ($M)	Q4 2023	$265–$270	$252.4	Lower
Adjusted EBITDA Margin (%)	Q4 2023	10.5–12.5	5.5	Lower
Adjusted Diluted EPS ($)	Q4 2023	$0.02–$0.04	$0.02	Met low end
Adjusted EBITDA Margin (%)	FY 2023	11.0–11.5	9.9	Lower
Adjusted Diluted EPS ($)	FY 2023	$0.12–$0.14	$0.11	Lower

Note: No explicit OpEx, OI&E, tax-rate, or dividend guidance was provided in the Q4 materials .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q-2 and Q-1)	Current Period (Q4 2023)	Trend
AI/GenAI initiatives	Investing in AI, data, enterprise modernization; restructuring launched; macro pressures (Q2) . More stable demand; increased AI/DAMO activity (Q3) .	>50 GenAI projects; building ecosystem with hyperscalers/start-ups; 3,200 Thoughtworkers in GenAI training; embedding AI across services .	Strengthening focus and pipeline.
Macro demand, budgets, pricing	Q2 miss on project deferrals/cancellations; macro headwinds; restructuring announced . Q3 stability, but cautious environment .	Budgets flat YoY; clients doing more with same budget; longer sales cycles; smaller deals; high single-digit price declines; offshore shift .	Cautious; pricing pressure persists.
Supply/utilization	Restructuring to centralize operations and DEC to optimize resources (Q2) . Cost savings building; utilization a focus (Q3) .	~2/3 of Q4 miss from temporary supply disruptions during reorg; utilization improvement targeted in 2024 .	Near-term friction; improving through 2024.
Regional trends	NA/APAC/Europe/LATAM all pressured (Q2/Q3) .	APAC best relative performance; Singapore strong; China gradual; Australia improving; NA/Europe softer .	APAC stabilizing; West slower.
Vertical trends	Auto resilient; retail/consumer, tech services weaker (Q2/Q3) .	Broad declines; FSI relatively stable; auto/travel most resilient despite YoY decline; energy/public/health strategic focus .	Mixed; resilience in auto/FSI.
Partnerships	Emphasis on partner channel (Q3) .	Partner participation in pipeline doubled YoY; embedded in standard sales process .	Positive sales lever.
Bookings/new logos	TTM bookings ~$1.5B (Q2) ; $1.4B (Q3) .	TTM bookings $1.2B; 46 new clients in Q4; 156 new clients FY23 .	New logos up; bookings down.
Talent/attrition	Headcount actions begin (Q2) .	TTM voluntary attrition 12%; selective hiring in data/infrastructure .	Stable attrition; targeted hiring.

Management Commentary

Supply vs demand drivers of the miss: “Around 2/3 of revenue shortfall was due to specific supply-side limitations… due to the scale of the structure change… 1/3… demand side… smaller project ramp-ups, more project delays… slightly higher pricing pressure” — CEO .
Pricing dynamics: “Excluding the shift mix to offshore, we’re seeing high single-digit year-on-year like-to-like pricing decline… we expect [pricing] to stabilize in 2024” — CEO .
Margin pathway: “We expect our adjusted EBITDA margin to expand throughout 2024 as we focus on supply side efficiency… utilization… offshore delivery… and continued G&A efficiencies” — CFO .
AI strategy: “We’re focusing on 4 main areas: AI-assisted software delivery, AI-powered digital products, AI and data platforms at scale and AI adoption strategy” — CEO .

Q&A Highlights

Demand cadence and sequential inflection: Management expects small incremental sequential growth through 2024 but would not call Q2; conversion of large deals and price stabilization are key to the pace .
Supply constraints: Q4 operational friction from restructuring (staffing/leave coverage) has been addressed; not concerned about client losses from this .
Pricing and mix: High single-digit like-for-like price declines; shift to offshore contributes to lower revenue and gross margin; expectation for pricing stabilization as contracts turn over .
Regional/vertical color: APAC outperformed relative to other regions; FSI relatively stable; auto/travel resilient; tech/retail weaker .
Margin recovery timeline: 2024 margin improvement expected but not to high-teens; potential for higher margins beyond 2024 as utilization improves and restructuring benefits accrue .

Estimates Context

S&P Global consensus estimates were unavailable via our tool for TWKS due to a missing Capital IQ mapping; therefore, we cannot quantify beat/miss versus Wall Street consensus for Q4 2023 at this time.
Relative to the company’s own guidance, Q4 revenue and adjusted EBITDA margin missed (revenue $252.4M vs $265–$270M guided; adj. EBITDA margin 5.5% vs 10.5–12.5% guided), while adjusted EPS met the low end ($0.02 vs $0.02–$0.04) .

Key Takeaways for Investors

The Q4 shortfall was primarily operational (restructuring-related supply friction) with a meaningful but smaller demand/pricing component; watch for evidence that utilization and delivery processes normalize in Q1–Q2 to support margin recovery .
Pricing remains the key headwind alongside offshore mix; stabilization as contracts reprice could underpin H2 margin improvement if utilization also rises .
2024 is a transition year with declines embedded in guidance; execution on sales conversion and supply-side efficiency is essential for the sequential growth narrative .
New logo velocity and partner-led pipeline are bright spots; converting these into higher-quality, onshore/offshore-optimized workloads will determine trajectory .
AI/GenAI services are early but strategically important; >50 projects and a scaled training program position TWKS to capture modernization-led demand over time .
Liquidity is adequate with $100.3M cash and an undrawn $300M revolver; term debt of ~$295M underscores the importance of sustaining free cash flow improvements .
Near-term trading setup hinges on signs of utilization recovery, pricing stabilization, and bookings reacceleration; misses vs company guidance in Q4 and a down FY24 guide are likely to keep sentiment guarded until execution improves .

Additional notes:

8-K 2.02 earnings press release and the full call transcript for Q4 2023 were read in full. No additional standalone press releases were found for Q4 2023 beyond the 8-K exhibit – –.
Prior two quarters’ earnings materials (Q2 and Q3 2023 8-Ks) were reviewed for trend analysis – –.

Thoughtworks Holding, Inc. (TWKS)·Q4 2023 Earnings Summary