Q4 2021 Thoughtworks Holding Inc Earnings Call
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Hello, everyone and welcome to thought works earnings call for the fourth quarter of 2021, we will be recording today's call and during the presentation. All lines will be on listen only joining me today will be thought works president and CEO goes Yao and CFO Aaron comments.
The earnings press release was issued earlier today and is also available on the Investor Relations page on <unk> Dot 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 registration statement on form S. One in connection with our initial public offering in our annual report on form.
10-K to be filed with the SEC 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 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 in 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 measure.
<unk> in our press release furnished as an exhibit to our form 8-K, which is available on the Investor Relations section of our website at <unk> Dot 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.
<unk> assumes no obligation to update or revise the information presented on this conference call I will now hand over to Joe. Thank you, Michael and welcome everyone to our fourth quarter earnings call I'd like to start the call by sharing an overall update on the business and then area would take you through our Q4 financial results in more detail.
I will then share with you some of the highlights in the quarter.
Before ARINC shares our guidance and we open for Q&A.
Let me start with the recap of both outwards, where global technology consultancy integrates strategy design and engineering to drive digital innovation.
We nibble enterprises and technology Disruptors to thrive as modern digital businesses.
I'm pleased to report that our fourth quarter close on a strong note driven by the continued market demand for our digital transformation services, we delivered revenue of $287 million in the fourth quarter of 2021, reflecting year on year growth of 39% and 39, 2% at constant currency.
In the fourth quarter, we achieved adjusted EBITDA of $52 million.
<unk>, a 45, 2% growth compared to the fourth quarter 2020, and coming to the full year I'm delighted to share that our revenues now exceed $1 billion.
We grew 33, 2% year on year.
Resulting in 2021 reported revenue of $1.07 billion and our adjusted 2021 EBITA was $223 million.
A 45, 7% year over year growth.
<unk> has established a reputation for thought leadership and fostering a unique and cultivating culture.
The diverse and global culture continues to track and retain what we believe to be the best talent in the industry.
At the end of December 2021.
We were 10642 workers strong in 17 countries across five continents.
This represents a net headcount increase of 33, 4% year on year.
I would like to thank every thought walk around the world for the extraordinary impact a create throughout technology excellence and culture.
Looking at the market.
Pwc survey highlighted that closer to 50% of Ceos globally, we expect to increase their rate of digital investment through 2023, and also expect high market demand to be a multi year cycle.
Markets and markets expect spending on digital transformation services to more than double to around one two trillion dollars by 2026 with all works, we see evidence of this growth across our services.
Digital transformation cloud platforms data and AI.
Digital products and customer experience and we're excited by the growing client interest in emerging technologies like augmented and virtual reality <unk>.
Sustainable Tech and defy decentralized finance technology.
We continue to see our key growth opportunities coming from deepening relationships with existing clients.
<unk> new client relationships.
Developing new technical capabilities and client solutions.
<unk> and growing our strategic partnerships.
Focused geographic expansion.
And undertaking strategic targeted acquisitions.
Strong themes are prevailing the market, let me share a few examples.
Digital transformation remains a top strategy for clients.
<unk> movement to the cloud with a focus on enterprise monetization and platforms.
Launching new digital products and services.
<unk> customer experiences, removing friction and bringing customer facing services together under one platform.
Data governance to improve quality and access to data.
Scaling updated platforms and a move to distributed data architectures like data mash T nimble business domain agility.
The depth of our expertise and breadth of our capabilities means that we can help clients address all of these challenges from strategies right through to business outcomes and accelerate their time to impact.
And we're seeing larger longer term client deals.
Many clients have ambitions to scale their digital transformations at a faster pace.
In 2021.
The average tenure across our top 10 clients that revenue is seven years.
And we continue to grow our relationships.
For example, Thomson Reuters.
The world's leading provider of news and information based tools to professionals, we're collaborating with Thomson Reuters on their digital transformation journey, including strategy and enterprise architecture.
To support their ambitions as a content driven technology company.
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 Q3, and we have contracted with 36, new clients in Q4, I'm delighted that we have some excellent new client wins to share this quarter.
The first one to mention is John Deere.
John Deere is a world leader in providing advanced products technology and services for the agriculture, and construction industries Jamba yard sign a multi year agreement with all works, we will work together on new digital technology and micro services intended to deliver a seamless and then you've reached digital experience.
For their customers dealers and other stakeholders across traditional and digital channels.
And in Asia Pacific.
We have entered a multiyear relationship with standard chartered.
To develop their strategic next generation program.
Our cloud based digital banking proposition for our retail and wealth customers.
This collaboration will support standard charters ambition to expand the reach and scale of their digital first strategy.
Elevate banking experiences for retail and wealth customers.
And in the U K, we're working with our new client ITV Itv's integrated producer broadcaster, who creates owns and distribute high quality content on multiple platforms globally.
Consumer viewing behavior is constantly evolving and we're working with AWS to help ITV further leverage their significant data assets to create brilliant customer experiences and to better serve their commercial partners.
In North America.
We're working with our new client work rise, whose mission is to empower the people who get worked out.
<unk> is a leading workforce management platform for the skilled trades across industries, including wind solar and construction.
We will be working with work rise to reengineer their software development lifecycle integrating continuous integration continuous delivery tools into a more seamless and frictionless developer experience. We continue to see good client growth in financial services.
Winning new Fintech client Voyager digital limited one of the fast growing publicly traded crypto currency platforms. Voyager offers a secure way to trade over 70, crypto assets and earn rewards using their mobile applications Voyager engage towers to help scale that platform. We have work on the Voyager loyalty program helped to launch that.
Voyager debit card, which lets voyages customers arent rewards and spent crypto everywhere Mastercard debit is accepted going forward. We will help Voyager to continue scaling internationally you can find details of some of these customer successes on a new section of our website felt worse dot com.
I'm now going to hand over to Erin so that she can take you through the numbers in greater detail. Thank.
Thank you Sal and thanks to all of you for joining us today.
We were very pleased with our results in the fourth quarter, which demonstrated continued robust demand across our geographies and verticals. Let me begin by summarizing a few of the highlights for the quarter.
In the fourth quarter, we saw strong revenue growth of 39% compared to the prior year period.
Constant currency revenue growth with 39, 2%, our adjusted EBITDA margin of 18% was 50 basis points higher compared to the midpoint of the range I guided to in our Q3 earnings. This is an increase of 70 basis points compared to the fourth quarter 2020.
We also continued to generate solid free cash flow with $18 million generated in the fourth quarter now.
Now, let me share the highlights for 2021 full year.
2021 reported revenues surpassed the 1 billion Mark at 1.07 billion, representing 33, 2% of year over year revenue growth and 29, 3% in constant currency.
For the full year acquisitions contributed 240 basis points of this growth.
These results are in line with our full year guidance I shared during the Q3 earnings of 33% reported revenue growth at the midpoint of the range or 29% in constant currency.
Adjusted EBITDA for the full year with $223 million representing year over year growth of 45, 7%.
Adjusted EBITDA margin was 29%, a 180 basis points higher than the prior year and higher than the midpoint of our guidance at 27, 5%.
The adjusted EBITDA margin expansion compared to last year was due to higher demand for our services improved pricing and improved staffing leverage now let me share some of the details.
Turning to revenue for the fourth quarter revenue growth year over year, with 39% and 39, 2% on a constant currency basis.
Acquisitions completed in January 2021 contributed 230 basis points of growth in the quarter.
<unk> is a premium brand with a diversified business across industry verticals and geographies and we have high demand for our services.
Full year 2021 clients accelerated their digital transformations with thought works at the end of 2021, we had 40 clients with bookings greater than $10 million compared to 31 clients at the end of 2020.
Our overall bookings at the end of 2021 increased by 68% year on year to one 5 billion with strong momentum across geographies and verticals.
We saw strong growth in the quarter in all regions, especially in APAC, Europe and North America.
North America grew by 36, 3% APAC by 45, 7% Europe by 36, 6% and Latam at 28%.
We also continued to see good growth across our industry verticals during the quarter. The strongest growth was in financial services growing at 68, 6%.
Our retail and consumer vertical grew by 53, 6% and continues to rebound post the global pandemic and we are very pleased with our growth from existing clients energy.
NRG public and health grew at 23, 7% technology and business services at 33, 5% automotive travel and transport grew at 31, 3% for the full year 2021 around 86, 5% of our business came from existing clients I am pleased to share that.
We continue to grow our business with our top 10 clients also achieving another milestone with one of those top 10 clients, reaching $50 million and revenues.
We now have 30 clients with trailing 12 month revenues greater than 10 million seven more than the fourth quarter of 2020 or 34% increase from the same time last year.
Moving down the income statement for the quarter adjusted gross margin was 42, 9%, a 180 basis points of improvement compared to fourth quarter 2020.
This performance rounds off an excellent year of adjusted gross margin expansion with full year 2021, adjusted gross margin of 44, 2% an increase of 230 basis points on full year 2020.
Our adjusted gross margin expansion reflects benefits from improved staffing leverage alongside our differentiated value proposition and premium services driving a higher bill rates.
Adjusted SG&A as a percentage of revenue was 24, 6% for the quarter compared to 23, 5% for the fourth quarter last year as we continue to invest in our growth while leveraging our global scale.
Adjusted EBITDA was $52 million for the fourth quarter, an increase of 45, 2% compared to the prior year quarter.
Adjusted EBITDA margin was 18% up 70 basis points compared to the fourth quarter last year.
GAAP diluted loss per share was <unk> 12 cents, primarily due to noncash stock compensation charges related to our successful IPO on it.
On adjusted basis, our adjusted diluted earnings per share was nine cents compared to <unk> in the fourth quarter of 2020.
Free cash flow for the quarter was $18 million compared to $20 million in the prior year quarter, driven by strong operating profitability offset by acquisition and IPO related costs.
And we continue to have good liquidity, our cash balance at December 31, 2021 was $368 million compared to $491 million at December 31, 2020.
Further we paid down $100 million of debt in the fourth quarter, leaving us with a balance of approximately $510 million as of December 31.
Now I'd like to hand back to <unk> to share additional updates on our business in the fourth quarter.
Thanks, Erinn, let me start with our amazing thought workers as I mentioned earlier, we've grown our community of thought workers to 10642.
33, 4% net increase year on year.
With a long term focus on diversity and inclusion.
46% of all workers are now women and underrepresented gender minorities.
We're pleased to have been recognized that many awards again this year, including by Indians associated Chamber of Commerce and industry as the best employer for diversity and inclusion and the best employer for women, where category or strong employer brand continues to attract the best talent in the market.
We had over a quarter of a million applicants to thought works during 2021, when continue to innovate our people sourcing and onboarding processes and tools.
Leveraging our geographically diversified model and strong candidate pipeline, where it is.
Secondly, attracting new talent to our business.
Attrition for the full year 2021 was 15, 1%.
Compared to 11, 5% in 2020.
Driven by strong market demand for digital talent.
Our children rate has trended downwards now for five months in a row.
We're managing attrition and continued to invest in our people.
Let me share a couple of examples that highlight our approach to talent retention and development for talent retention we.
We were proud to make every thought Walker equity holder at the time of our IPO in September 2021.
Going forward.
Offer equity as part of the total reward package to a broad set of our people. This approach aligns with our inclusive culture and proactive approach to employee retention.
Second talent and capability development.
We hire poly scale high aptitude thought workers, who have the ability to learn new skills quickly.
We see this as a competitive advantage in the talent market <unk>.
Technology is advancing very fast with high demand for top talent in areas like data and cloud infrastructure. So we plan to scale up our training efforts to around 1000 thought workers in 2022.
This training with focus on the latest technologies and approaches to data and cloud.
It's all workers are excited about the opportunity to grow and Loren and I see this scale program as an important way to support our growth ambitions and our clients' business goals.
Sure. Another initiative that all workers are very proud of ex comp ex comp was established in 2014 as a global platform to share Thoughtworks latest thought leadership, it's a vibrant community, bringing together some of the brightest in the industry to explore topics like how to build a tech stack for beta users developing ethical augmented.
In virtual reality and creative sessions like how to operationalize music theory, which code.
These were thought worse to be a place for talented technologies to grow and have impact.
Our overall global Glassdoor rating is $4 five for the quarter, which is again higher than the rating for the ICT services sector of 395.
Continuing to focus on in reaching our unique contributing culture is paying off.
We ran our annual employee engagement program in a quarter with feedback from over 7000 thought workers.
Our overall engagement increased to $8 seven.
Which is in the top 25% for the technology sector.
Our diversity and inclusion score increased $8 nine.
Which puts <unk> in the top 5% in the sector.
We engage thought workers advocate for the company and help recruit.
30% of new hires are sourced through referrals and based on employee feedback in the fourth quarter. We were awarded a great place to work certified in Ecuador. This means that 12 thought works countries now have the certification. We're proud that we have achieved industry, leading great place to work Trust index scores with a global.
Average of 90%.
We're known as thought leaders, who will revolutionize the technology industry and that's how we build our brand and our reputation.
From our early days as a company let.
Let me share. Some recent thought leadership that is being well received in the market in December we launched our latest addition of thought works looking glass.
Our annual Technology report.
It's a critical look at the big technology, driven shifts set to shape industry.
It's really valued by our clients.
Talented thought workers have evaluated over 100 technologies and the looking glass guys our clients on how to prepare which technologies to anticipate annualized and adopt and I'm often asked how come about workers right. So many books with over 100 published books.
Something unique and very special aspect of our cultivating culture.
Recent book <unk>.
Software architecture. The hard parts released in November was written by three hours luminaries in the industry veteran as software continues to eat the world distributed architectures are increasingly underpinning business success.
And in the fourth quarter, we achieved another milestone.
Our first global brand campaign, where extra overcomes ordinary this campaign strongly aligns our external brand to Thoughtworks company purports to.
Extraordinary impact in the world through our culture and technology.
Early results are promising.
<unk> loved the new brand the.
The campaign's, beating industry benchmark by 14% and scoring highly on the brand recall and engagement with <unk> scores in the top 85% of all advertisers on premium business media our focus on building our premium Brent is paying off.
And I am delighted to share that for 2022 with hours brand is now a Brent financed top 25 global it services brand.
Now, let me hand back to Erin.
Michelle I would like to update you on some areas of focus within our ESG priorities, let me start with our approach to the environment. We have two areas of focus first our own carbon reduction strategy, including our commitment to the science based target initiative second we are committed to helping the technology industry.
Reduced its carbon footprint.
For example in sustainable technology is the work we've been doing with our clients trade water trade waters mission is to reduce the world's carbon footprint. We helped them develop F. O N. A fractional lies offset management system and less than 60 days.
<unk> provides trade water customers with web based tools to measure their carbon footprint across business and personal activities educates and offers high quality carbon offset credits and one year trade water has seen its offset credit subscriptions grew by 419% and in November we partnered with trade water.
At AWS re invent and achieved our goal of eliminating 2000 tons of greenhouse gases from participants with our Green code initiative, so moving to social within our ESG strategy social change is deeply ingrained in our culture and our business.
Salt workers continue to do transformational social impact projects around the World. A. Good example is the work we do in support of the digital public goods Alliance, whose mission is to promote digital public goods to create a more equitable world.
Digital public goods are open source and help attain the United Nations sustainable development goals.
Thought worked strongly supports these goals in 2021, we provided support to open source digital solutions that can play a critical role in advancing the sustainable development goals and areas, including energy Education and healthcare. One example is upper rust upper rust is an open source.
<unk> fast agent based simulation framework to model epidemics, such as smallpox each one and one and COVID-19 in cities.
Now, let me turn to our business outlook, we expect demand to remain strong and we are confident in our ability to hire the best talent in the market. Our pipeline is very robust we are seeing increases in the value and link of the average client contract sites from a year ago for the first quarter of 2022, we expect revenues to be.
In the range of 303 million to $305 million, reflecting year over year growth at the midpoint of 28% or 31% on a constant currency basis.
We expect adjusted EBITDA margin for Q1 to be between 19% and 20%.
For the first quarter, we expect adjusted diluted earnings per share to be in the range of 11 to 12, assuming a weighted average share count of approximately 332 million diluted shares outstanding for the full year 2022, we expect revenue growth to be in the range of 25% to 26% year over year.
On a constant currency basis, our adjusted EBITDA margin, we expect our full year 2022 to be 19% to 20%.
We expect full year adjusted diluted earnings per share for 2022 to be in the range of 50.
To 52.
Assuming a weighted average share count of approximately 335 million diluted shares outstanding for 2022, we believe our employee brand is strong and that the demand environment will continue to support our growth ambitions now let me hand back to Michael. Thanks, Erin you can find our investor presentation on the thought works investor.
<unk> website, we now move on to Q&A I would ask that you each keep to one question and a follow up to allow as many participants as possible to ask a question. Operator would you. Please provide instructions for those on the call.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key.
Please standby, we compile the Q&A roster.
Our first question comes from Tien Tsin Huang with Jpmorgan you May proceed with your question.
Hey, Thank you so much nice results here everyone just.
I thought I'd, maybe start with gross margin.
Which was solid and ahead of our view can you just comment on.
On pricing and mix contribution.
What youre doing with the trends Youre seeing there I know you commented on a little bit in the prepared remarks, but if you can expand on that.
It would be great and what youre thinking on gross margin for fiscal 'twenty two as well.
I can take that Eric feel free to jump in any time.
In June .
So we.
The gross margin is definitely a outcome of several factors no business. The first one is as you mentioned we have seen.
Price mix increased across all the markets, including both onshore and offshore.
And the product mix I mentioned.
Yes, Scott, we're adding more premium services through our innovation and more higher value add.
<unk> tends to give us higher rate whether it's.
And direct monetization platform and data.
And second is the high demand kind of low supply situation, where right now Craig with better pricing environment as well.
So we can be more selective on taking deals where we can better pricing.
Jeremy drive.
Revenue per employee.
And that number by the way.
<unk> hundred 8000 last year, and then as far as 2020 and for 2021 is 116000.
So that give us the baseline of driving a higher gross margin through pricing increase.
Increasing.
And then second factor is that we do see a higher reflect they should compare with 2020, which was the word.
Situation.
Colby.
Of that.
Is another.
A factor that's driving up the gross margin.
We have always been intending to.
Sure.
To drive more offshore onshore nearshore warrant portfolio.
And then we have been doing that through our plants.
One as well to some extent offset.
The revenue per employee by having more work down at lower rate regions right.
Net result of that has higher revenue per employee.
Tim.
We see we've seen.
In.
Wage inflation.
I will now.
Environment.
And then.
Somewhat.
Offset by better leverage so overall, adding all the factors together, we have the gross margin, where we reported pretty happy with that and also with.
Some of these factors will continue to move up and down a little but overall, we expect pretty stable gross margin going forward as well.
Okay, that's perfect with good stuff great. There. So so just my quick follow up if you don't mind.
On the first quarter revenue guidance showing some good.
Strong sequential growth here, a little bit of again it seems like you expect a strong start digital budget and mobile from.
Political uncertainty just wanted to make sure because.
And generally getting questions given what's going on.
In Ukraine. Thank you.
Sure.
Okay.
Yes.
Terrible situations.
Now.
Heartbreaking to see the loss of lives.
Sure.
Given the current crisis.
Peter.
Alright.
Yes.
Yes.
Okay.
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All right.
Okay.
Okay.
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How about that.
Yes.
Okay.
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Yes.
Please remain on the line.
Thank you.
Thank you Charlie.
Can you hear me now.
Operator.
Okay.
Okay.
Thanks.
Yeah.
Okay.
Okay.
Okay.
Okay.
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Okay.
Sure.
Okay.
You may begin whenever you're ready.
Great job.
Okay.
So can you hear me now.
Comment.
The current situation from a business perspective.
We don't have direct exposure, we don't have people based in Ukraine, Russia Belarus.
And then we don't have clients in Ukraine or Russia.
In addition, our business is highly diversified geographically with.
North America.
Representing 37% of revenue APAC, 34%. So Europe is only about 25% at the moment, so we feel pretty comfortable dealing with.
Any potential economic impact caused by geopolitical tension.
Thank you our next door. Thank you.
Perfect.
Thank you.
Question.
Yes, Sir.
Hello.
Okay.
Yes.
Hi, Ashwin, yes, I can hear you.
Oh, Okay sorry.
Hey, Joe.
Ed.
I was wondering if you could provide some color with regards to cadence.
Anything to look for in terms of typical seasonality year over year comps.
Client ramps things like that as we as we think of the four quarters of this this year.
It seems to me as though perhaps.
Just looking at <unk>.
Full year.
That growth should.
Should decelerate to a more normalized level by the end of this year, but.
Would love to hear your thoughts.
Sure.
Hi, Ashwin.
So from a cadence perspective.
We definitely obviously, we believe we're still in this month.
A multiyear growth cycle, where there's a bit of a.
Hyper growth.
I think this is driven both by.
The fact that there is a.
Just a lot of.
Digital transformation going on at this moment as well as.
Post COVID-19 acceleration the pent up demand.
So so we are still moving into the year with strong growth, but as we go throughout the year.
Feel that from a base.
Hyper growth is going to gradually.
Come down at all and we're going to end.
Perhaps with a lower growth rate on a better quarter level, then we start the year with but we still believe that is a it can be a higher level than the pre pandemic period.
And then we're seeing higher growth cycle.
Exiting 2022.
Understood understood.
Then you had the comment on including equity as a part of <unk> com.
It's quite understandable it should be a good thing I think retention, but could you maybe scale led photos in terms of expected financial impact in 'twenty, two and going forward, how should we think of it.
And also I should have said at the beginning good quarter. Thanks.
Okay.
Okay.
Aaron do you want to comment on that.
And sorry, everybody I realize there was a double muted and I think the problem now is that excuse me, yes, I will definitely comment on that.
So yes, ashwin as you noted with respect to stock based compensation.
We still have a higher level of stock based comp that relate to.
The IPO there was various triggers in any IPO that lead to an outsized stock based comp expense and for US. This really means that we will see a higher level or this dynamic into the 2023 fiscal years. So as we think about 2022 and you should expect to see.
Higher levels of stock based comp.
We also have been waiting to get approval with China's state approvals for the equity program. We have there we just heard in.
In the last few days that we've received that approval and so that is also going to factor into the Q1 expense now that we have that approval. So.
In summary, we will have a higher level of stock based comp expense in 2023 in 2022 excuse me in a little bit into 2023 is part of really the.
The IPO program and then we'll start to see normalized levels as we head into 2023.
I was wondering also just give maybe a little bit of color around the seasonality question that you asked a few minutes ago.
And so already touched on the growth dynamics essentially that we do expect to see strong growth throughout the year.
And then just a bit on the margin.
I'd highlight that for two.
2022 margins.
And we will see similar.
I know mix that we saw in 2021 and so.
For us really it tends to be that Q3 is a strong quarter from a margin perspective Q4 has the impact of the increased holiday season, lower utilization that we saw in Q4 so.
Nothing nothing special to know in 2022, but I think in 2021 is a reasonable view on how to inform 2022.
Understood.
You bet.
Thank you. Our next question comes from Maggie Nolan with William Blair. You May proceed with your question.
Okay.
Thank you.
And congrats from me as well I'm curious has there been any changes in your ability to hire or the labor market in the first couple of months of this year.
Hi, Maggie.
No changes in our ability to hire.
Have a very strong recruiting engine and capability.
We are confident in our ability to continue to attract talent south talked earlier around our sourcing in his prior comments and we've.
We've seen that continue in this first quarter.
Investing in our recruitment as well as our on boarding process over the past years, if we think about our recruiting process.
Where we're investing is both the technology side as well as the process side and what we're seeing today is that our recruitment teams are more productive than ever. So so we're feeling good about hiring in general for 2022, and this is confirmed with what's happening so far in Q1.
Got it. Thank you and then how are you thinking about that.
The drivers of growth in terms of the buckets of your kind of top 10 clients and non top 10 clients. It seems like the non top 10 with a pretty big driver of the strong growth. This year can you comment on kind of where you're focusing your efforts across those two kind of stratification.
Sure.
I'll take that so as we mentioned earlier for 2021 revenue from our top five and top 10 top 10 clients as a percentage of total revenue was 27%.
And so that continues to be a strong driver for our growth for sure.
And then from a smaller client new logo perspective, there was definitely.
Shift we can see from 2020 in 'twenty or 'twenty, one again in 2020 due to Covid. There was just less growth from new logos.
A large part of our growth come from.
Client relationships.
And in 2021, we see that new logo pipeline fully recover we saw 44 new logos.
Q3, 2021, and then 36, new logos in Q4 plus.
A lot of them are continuing to grow and ramp up even though start at a smaller client relatively to some of the top clients.
We see that part of the portfolio growing.
Faster than 2020, but not unexpected in a normal year. So at this moment we feel.
Pretty comfortable with the portfolio overall.
We continue to see strong growth from top client also this new logos smaller clients ramping up.
Give us a.
Much better.
The chance to continue to diversify our portfolio.
The top 50, we definitely see that growing faster than top 10, and then Additionally, we have now 30 clients with.
Trailing 12 month revenue of over 10 million.
Seven more than the same time Q4 2020.
Okay.
Thank you.
Thank you. Our next question comes from Brian Essex with Goldman Sachs. You May proceed with your question.
Yes.
Hi, Good morning, and thank you for taking the question and congrats from me on a nice set of results as well.
I was maybe wondering if we could start I think there was some commentary previously about over the long term driving.
A bit of a more of a mix shift too.
Offshore nearshore, but maybe could you comment on.
What's your mix things like onshore versus nearshore offshore now what it's been in the past and given that given the pace of reopening on a global basis.
Is that view of how that mix should level out changing as you kind of head into fiscal 'twenty two.
Sure Hi, Brian Thanks for the question.
So we have always been before even before.
Intentionally pushing for more onshore near shore delivery than we have done traditionally.
So our business started more than 20 years ago, and it was 100% onshore so over the years, we have slowly gradually.
<unk> increased our.
For near shore delivery to regions like India and Latam.
In China Southeast Asia, a little bit right now in Europe , the percentage of head count.
You can go from a head count perspective doing offer natural work has.
<unk> increased to about 60% of our total head count.
And then post pandemic and as you mentioned remote working just we'll just give us more opportunity to deliver work in different locations, especially offshore and near shore region.
The declines are getting more comfortable and open to it. So we do expect this percentage to further increase and perhaps to the 70% range in the <unk>.
Next few years, and maybe even higher but thats. It we don't intend to move to a extreme position where for example, 90% of our head count offshore mutual wages, because we do believe that the onsite presence is a strategic advantage and differentiating.
Give us the ability to be co located with our clients to keep we'll continue to have a strong presence there, but number wise continuing to shift to hopefully to 17 and beyond.
<unk>.
Got it that's very helpful. I appreciate that and maybe just a follow up financial services strength.
Is there is there anything there to call out in terms of building explicit domain expertise around that particular.
Set of technologies or or reference ability such as <unk>.
Payments or or user experience or anything really notable thats driving that strength.
Okay.
I think the interesting aspect of thoughts we have historically not organized our our organization in the vertical matter. So we never had a strong domain specific go to market approach now.
And then in the latter.
Theres a lot of reasons to that mostly because we believe technology should be able to move from vertical to vertical from tech stack to text stack. So that they can become poly scale and more innovative.
In recent years, we have been adding more and more domain expertise.
Specifically around financial services retail so that we can have.
Both just just a better conversation with the client but also frame.
Frame, our offerings, which is generally horizontal bye bye.
By technology and by capability, but we can frame them, better and making more relevant for our clients.
Financial services.
Pointed out that's the one area, we've been doing probably more than the other domains.
And then we're definitely seeing is paying off with its strong growth.
But it's not just the domain. Obviously, it's also the fact that we intentionally investing in this area and Thats why.
We're seeing very strong growth from the bump in their services.
Just a sector, where theres a lot there.
A lot of new things going on besides.
The general digital transformation there is.
Theres always a third party payment.
<unk> bank in crypto currency. So we'll continue to add more domain expertise in this area, but probably.
And we're going to switch to a domain oriented organization structure that makes sense.
Great very helpful color. Thank you.
Okay.
Thank you. Our next question comes from Matthew Roswell with RBC Capital markets. You May proceed with your question.
Yes, good morning, and thank you for taking my question and congratulations on a nice quarter.
You've mentioned a couple of times that you are.
The contract length.
And here also.
Increasing and the amounts are increasing.
Specific to Thoughtworks or is it something in the industry overall and if it is specific to thought works is it a sign that you're sort of going deeper in client, meaning meaning that the clients are just giving you more and more work in that separating it from the from the competitor. Thank you.
I'll take that so.
It's definitely both.
For one there's a <unk>.
Strong momentum in the in the industry from a digital transformation perspective, there is a.
Also pent up demand so that's generally drives up.
Yes.
The pipeline strength of the pipeline in terms of larger contracts longer term contracts.
Lines.
I understand now you have to sign a bigger deal to secure some key resources.
So that's the industry from dollars perspective.
We definitely see we go further into the engagement because of the relationship with our with our clients.
And over time, what we tend to see that especially the ones who are just got through that first wave or so call. It maybe the first or second inning.
Digital transformation.
They are convinced about the value of digital transformation and then they start to invest heavily more heavily into.
Beyond just for example relationship and cloud they want to invest in modernizing their legacy systems.
So that they can be move not just to the cloud, but also re architecture to become a cloud native architecture to take advantage of the scalability of the cloud.
And then they also want to.
Modernize their development practices across the board so their teams become more productive.
A huge amount of work to keep doing this.
In its journey to become more and more digital oriented. So so we tend to be able to.
In the later stage Theres also the work will be even more difficult complex.
And in return higher value add.
So as a premium service provider.
From a <unk> perspective.
We definitely believe that.
The total addressable market continues to grow and expand.
For <unk> and then the right the right to win in this sector of high end premium.
Hi.
Services towards these very unique uniquely.
<unk> uniquely positioned to take advantage of this sector and that's why we believe the fundamental reason why we're seeing.
A strong demand for our services.
Okay. Thank you very much.
Thank you.
Thank you. Our next question comes from Bryan Bergin with Cowen You May proceed with your question.
Yes.
Hi, all thank you I wanted to dig into the comments about selectivity and your approach to clients and how to think about how that may impact your growth potential. So understanding the elevated industry demand can you talk about levels of growth at what youre comfortable operating.
You just grew headcount at over 30% year over year and <unk>. Just curious is that a level of growth. Your operations are able to operate over a sustainable timeframe.
Yes.
Sure. So from a first of all from a selectivity perspective would do.
We're very careful selecting our clients from a quantification perspective.
It's both a growth but also for make sure that we can build a long term strategic relationship with them, having making sure that there is a strong.
Support from the.
Clients active they appreciate the high value proposition followers.
And then from a gross like how can we sustain that from that perspective, there is no doubt that the overall demand is.
I'll take the supply market and then with the premium value proposition, there's even higher demand for that.
With the premium value proposition you have to take some more investments and longer time too.
To onboard people train them and integrate them into our culture. So we always want to make sure that our growth rate is compatible with this premium out of completion.
And so that we can we can maintain the secret sauce and high quality work.
And then as Ed.
As I mentioned earlier in the last few years, we have been experimenting with many new techniques and process for recruiting onboarding training and integrating people into our business.
And then and then allow us to grow at a faster pace without diluting the premium amount of proposition culture.
Help us doing this hyper growth phase so we're able to capture a bit of a more growth than we did pre pandemic.
We are confident now we can do.
Well thank you.
At a higher level than.
Historically I've.
Just 20% slightly above 20%.
We're very careful not pushing this.
Too high for too long to the point that is not sustainable anymore.
And I hope that explains it.
I answered the question.
Yes, yes definitely that was very helpful.
My follow up is on margins. So can you talk about just the puts and takes in the 2022 margin outlook, how should we be thinking about the ongoing SG&A optimization versus growth investments this year.
Okay.
Sure So Joe talked about gross margin.
Little bit already so some of the points that he touched on and of course, our relevant is that we do expect a stronger gross margin to continue in 2022.
What we are seeing of course is.
Higher and higher level of competition for talent, we know this.
<unk> in 2020.
Steve meter in 2021 and also two in 2022.
But our clients understand that and we've been able to drive price increases to offset so if we think about gross margin and the dynamics of pricing in wages. We think we'll we'll keep pace with wages and then as Joe mentioned earlier, we have other things at our disposal in terms of <unk>.
Average in onshore near shore, so on and so forth and so that helps us maintain that gross margin now one of the things that we know is that travel has been very low in both 2020 and 2021. So if we think about the guidance that I've given for 2022 and the margin profile we do.
You anticipate an increase in travel expense compared to the very low 2021.
We would see this come through gross margin so non client travel and maybe just a little bit of client travel as well as SG&A.
And then the other thing I've talked about before and just well we'll mention again is.
What 2022 is for US, which is our first full year operating as a public company and so we do have additional.
Additional costs that have come into our business both in Q4 and Q1 as it relates to that.
But with that said there's opportunities to continue to drive efficiencies in our business as we scale and we have an operational efficiency program that is geared up both to operational effectiveness as well as driving cost efficiencies over time so.
Travel costs and the public company costs are something that we anticipate coming in in 2022.
Over the medium term, we definitely see opportunities to continue to drive operating leverage in SG&A.
Okay.
Okay, great. Thank you for all the detail.
Thank you. Our next question comes from Moshe Countrywide.
Wedbush Securities You May proceed with your question.
Hey, thanks.
Thats on strong numbers.
First.
Can you.
Give us some color on bookings very strong numbers in terms of growth.
Can you get some more feedback in terms of where the growth is coming from and some of the vertical holes and then is there a way to kind of split it between renewals and new logos and then I have a follow up.
Sure so from a gross pattern perspective.
We have seen it coming from.
A very broad range in terms of geographies and verticals and service offerings.
I mentioned earlier.
And Ray mentioned earlier geography wise, we have.
Very light.
Base revenue come from all continents voting.
Political wise similarly.
And then if you if your specific questions about renewals versus expansions versus new new opportunities.
From from existing customer perspective about 86%.
The percent of revenue come from existing customers.
Definitely a large amount of that is.
As we renew and then we get pretty high.
We weighed on renewals in general.
Same high even with the.
Relationships, we tend to move across business functions different type of product and then we are also pursuing a lot of new opportunities and winning them as well. So it does come from a broad base.
From a growth perspective.
Great and then it was really helpful. When you provided the <unk>.
<unk> mix by offshore to on site.
I think you said 60 40 on the object.
Shall we get to 70, maybe a bit higher than that.
Is there a sensitivity analysis that we can use in terms of what happens to margins.
As you expand your offshore mix I don't know 100, Bips expansion results and X amount of basis points, just for us to kind of get a feel.
That actually helps your comment of offset some of the other headwinds including wage inflation. Thanks.
That's a great question and I don't know whether.
I know exactly how to calculate that but I can say it.
Will help to offset some of the wage inflation.
And do you know is there any way to.
Calculate that.
I wouldn't say any specifics I would say that in general it tends to be margin positive.
At the same time, we do invest in offshore and near shore.
And so there are puts and takes even in their equation. So I would just say broadly that tends to be somewhat margin beneficial but in order to make that happen successfully for our clients. We do make sure that we invest so it's a good experience for them.
Understood. Thanks for the color.
Okay.
Thank you. Our next question comes from Andrew <unk> with Wolfe Research you May proceed with your question.
Hey, Thanks, it's Andrew on for Darrin.
I just want to ask about if you could elaborate on your strategy to address the cross selling and any trends around the investments youre, making in the internal sales force.
From a cross selling perspective our.
Our goal is really to.
To make sure that all of the four main service lines. We have are offered property to our clients and then.
Still early in that journey, a lot of times, we will enter a engagements one one particular service offering whether it's indirect monetization or data or customer experience product design.
And as we go along with the journey with our clients on their digital transformation transfer.
Transformation journey, we do feel strongly that the other service offerings are highly relevant and then from a salesforce perspective, we have.
<unk> invested in teams to develop new business in the market, but also invested heavily into business development teams that focus on.
Upselling cross selling with reducing customer in fact.
Is the size of the.
Our business development team.
That is even bigger than <unk>.
Thanks, That's all for me I appreciate it.
Thank you.
Our next question comes from Arvind <unk> with Piper Sandler You May proceed with your question.
Hi, Thanks, Thanks for taking my question I just wanted to ask.
What are you seeing the strongest interest in New York capabilities and pipeline.
For the next 12 to 18 months and if you can categorize that both in terms of.
The.
The geos as well as the verticals.
Okay.
Sure so from a.
<unk>.
Yeah.
From interest can be billings perspective is the strongest.
Gross were going to see we believe we'll be in.
Thanks, Mike modernization and data needs two areas.
And Black Mountain region, because that's.
<unk>.
Companies get into further.
Deep into the digital transformation, there's a lot of monetization.
Is it mostly just moving things to the digital infrastructure.
Or the digital platform.
They have to reengineer re architects Lauder.
Like his assistance from data perspective that we have seen this.
The wave of big data.
Last few years, but then it really.
Getting to a lot of Chinese challenged situations with the quality of the data and then the way that they can make sense of it.
On the service lines, where we see strong growth come from.
It's pretty much in all geographies and also in all the verticals.
So so theres no specific geography, or vertical where we see one service line grows faster than the other.
Pretty.
Broad based and then.
Great universities as well.
Terrific and just a.
Just in terms of my follow up.
Suddenly you have.
So our drug has more of an onsite.
Operating model.
But if you look out over the next couple of years, it would deem as being more.
Disbursed in working from home or working remotely.
Do you see that could change in the operating model or do you think that could it be.
Sort of.
The.
Stability in terms of.
The operating model, how you deliver services.
We do believe that there'll be some changes specifically the amount of time.
Our people spend with declining co located or some type of their own office.
This collaboration will be done remotely, but we also think that it will.
We'll most likely to be a hybrid going forward, meaning that team could work remotely for awhile and then during the specific milestones of our project whether its kickoff showcase they will travel and get together.
And then.
The most effective way to solve certain problems and then so we believe that.
Even with our current operating model with people on site that a lot of them.
Work remotely but.
We'll see.
Do you need to travel and get co located from time to time.
That kind of hybrid model as opposed to the everyone slides at the same location all the time now pre pandemic.
Alright, perfect. Thank you.
Thank you Harvey.
Yeah.
Thank you and I'm not showing any further questions. At this time I would now like to turn the call back over to Joe <unk> for any further remarks.
Yeah.
Yes.
First of all thank you all for joining us today I just want to acknowledge the continued support of our board and our shareholders and also want to just thank all thought workers, our clients and partners.
<unk> achievements.
Stay well, everyone and we look forward to seeing you again next quarter.
Yeah.
Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.
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