Thank you very much. Welcome to the second annual TD Cowen IT Services and Digital Engineering Summit. Very pleased to have Thoughtworks with us here today. With us, we have Chad Wathington, Chief Strategy Officer. Chad, good to see you again. Thanks again for being here. Yeah, thanks for having us. Thank you for inviting us. Absolutely. For the audience, this is gonna be a 35-minute fireside discussion. You can submit questions through the webcasting platform if you like, and I'll work those into the conversation. We're gonna begin with that, Chad, so let's get right into an intro for everybody- Yeah ... first. Sure. Maybe provide just your personal, the brief overview of your time with Thoughtworks, the different roles that you've held with the organization, and what you've been working on here in, as Chief Strategy Officer. Yeah. So I'm Chief Strategy Officer. I've been with Thoughtworks almost 20 years, started in 2004, so seeing the company grow from about 400 people to where we are today. In my time, I first joined the professional services part of the business, and then I started our innovation and product group that we had for about a decade and ran that for about 10 years or so. And then a few years back, I was in a similar role around our service offerings expansion. And then more recently, in 2019, I became the Chief Strategy Officer, accountable for global business strategy, business planning, partnerships, corp dev, and a few other things. All right, a lot going on there. I guess, you know, as you think about the last year or so, strategic focus areas and your priorities, talk to us about where you've been spending most of your time this past year in 2023. And then, as you think forward here to 2024, does anything change for you? Any new priorities you plan to lean into? Yeah, sure. So my primary responsibility has been working through our restructuring program over the last particularly six months or so. Yeah. Org design is one of those functions I left off. I think it's been really critical for us to make sure that we are doing this restructuring with a client-centric focus. And so really trying to work through how do we make our Digital Engineering Center, which is to help us be more efficient and operate better, how do we bring more domain expertise? How do we do all the things that we need to, to get even closer to clients? I think we're making fast progress on that and driving some real efficiency and some client intimacy. I would say for 2024, I am accountable for our partnerships, and we're trying to grow our partnerships across the board to get to roughly 25% of our growth coming from partners. We want that channel to be more robust. It's not something historically, a few years ago that we were doing, and so we're trying to drive that motion. Also, we've mentioned a lot outbound demand, and making sure that we get the balance right of generating our own demand that we want to create, and invest more in that program. And then I spend a lot of time working on our with our service line leaders on our service offerings. And one of the really critical things is, we've been working to be more of a strategic partner to our clients. What I mean by that is, yeah, we do all this transformation work, all these really hard, complex things, but, client sourcing behavior has started to change around, "Let me not just cobble together a bunch of best-of-breed providers to solve a problem. I want, our strategic partners to really cover more scope." And so that's what we're trying to do, is to cover more scope. Okay. Okay, makes sense. All right, so we're, we're definitely gonna dig into a couple different facets there that you mentioned. But before we do that, I guess, as you think about the strategy of the company and how that's changed over time, can you talk about any elements that have gone, that have evolved here as you've transitioned from a private company to a public one? And, and then, you know, naturally, the IPO occurred in, in relatively healthy markets. You know, fast-forward, now you have more macro volatility. You know, then fast-forward it to there as well. Just over the last year, what parts of the strategy have you had to reassess? I think the core of our strategy remains the same, that we want to be at the forefront of technological innovation and bring the right talent to help our clients with, you know, this whole big digital thing. Yeah. And we've been doing that well for a while, and that's, you know, we're not gonna change that. I think from change with capital structure, of course, we've changed. I would say largely our strategy shifts, though, have been more about our growth, ambition, and scale than necessarily being, you know, public or private. And I would say that, like, you know, part of our bits around scale have been to say, "Okay, we've got to make more of our own destiny with our demand, so we're gonna start the outbound program. Yeah, yeah. We're going to think about the, the structure of our business and what our clients need from a running software versus building software, and how do we do that? Now, both those things, you know, we made some pretty good progress on, and I would say that in that transition from private to public, they're really helpful, because we want to drive more consistent revenue. We wanna shape our own destiny, and I think driving our own demand and doing more run work, which has a good, stable base, does help us deliver more consistent revenue performance, as a public company. So I would say, we've sort of chosen that. You asked, you know, has the macro made us reassess? I would say the macro made us accelerate. We knew we needed to do some of these things, and the macro has helped us say, "Okay, yeah, that was the right thing to do. Let's go make that happen, make it smooth, increase the performance and drive it harder." So I wouldn't say the macro, many of those things were in flight before, but the macro has certainly said, "Okay, yeah, you know, getting the run part of our business right now is critical. Got it. Okay, okay. So yeah, just on the outbound sales organization, so sounds like you knew you had to make these changes, but the backdrop obviously just made you accelerate, forced the hand. So it wasn't a function of not knowing, it was a function of you had the inbound, right? The demand was there. Yeah. It wasn't necessarily necessary at that point in time before. Yeah. Yeah, so I mean, historically, we are known for our thought leadership. Yeah. and so the thought leadership, plus a little outbound marketing, I shouldn't say a little, but plus some outbound marketing- Yeah ... our marketing team works very hard, created this inbound engine, and I think that that inbound engine is great. Historically, outbound was maybe 10%-15% of our revenue. And so in the more challenging environment in Q3, we talked about outbound getting to 51%. We're still early days, but I think the critical thing is that inbound is awesome when you have it, and so in no way do we want to diminish ready-made opportunities that come our way. We're good at that. A lot of enterprise-focused companies would want to be good at it. What we're doing is adding this additional engine that we think we need to kind of shape our own destiny. Okay. I guess, what stage would you kind of characterize that outbound investment in? And, talk about some of the areas where you're spending money specifically. Yeah. So I would say we're still early days. We brought on Chris Murphy as our Chief Client and Revenue Officer to shape that up. And we're really thinking through from a sales management perspective, how do we orchestrate the process better? How do we do, I call it, sales process engineering, where we know you know, from a volumetric approach with our marketing team, all the way down to the execution and sales, what we're doing. And that means, you know, bringing in the right business development managers. That means bringing in you know, SDRs, where we need it. And it means really working through with our account teams that you know, kind of run the day-to-day business, how many people we need to do what. So we're working through that. I would still classify us at the beginning of our journey. I think we're getting really, really good at proactive proposals to our existing clients. And you know, there's more work to do to get the full sales process engineering that we want to create, you know, to being the core capability that we're designing. Okay. And you mentioned, what was it? 51%, that third quarter stat- Yeah ... of the pipeline or the bookings? What was that? of new bookings. New bookings. Right. Mm-hmm. Now, is there... I guess, as you think about this, and you're bringing this, this demand channel in, is there an optimal mix when things, you know, start to- when you've scaled the investment, when decision-making starts to get a little, a little bit more like it used to? Yeah ... about the client side? How do you think about that? Yeah. So, it's hard to give an optimal mix. I would say certainly above the 10%-15% that we're at, say in the 20%-30%, sounds good, but I'll give you this caveat that if inbound is roaring- Yeah ... and it's the right kind of inbound, of course, we want that. Yeah. So, it's a little bit hard to say, but I think we certainly want to build... I think of it as building the capability and having the levers to turn it up and, you know, turn it on even more when we need it. And to get the shape of it to be helping us drive the portfolio of work that we want to drive. Inbounds can be, you know, you do a good marketing event on Data Mesh, and then people call you about Data Mesh. Sure, that's amazing, but it still may not be the right quite shape that you want from a portfolio perspective. And so outbound gives us the ability to do that. Okay. Okay. So, so I, I guess the net of the message is a continued area you guys will be leaning into in 2024, and, and, and certainly, it seems like you've got early traction, here, as you've gone through the second half of 2023. Yeah, I would say that the 51% is great, but can't say that that's the optimal mix yet. Yep, yep. Okay. Let's talk about DAMO and kind of this piece. You had also mentioned, obviously, sticking with clients for, you know, I guess more end-to-end engagements, right? More, more, opportunity to work on the operations side or the management of something that might be already built, right? So service offering diversification, so to speak, which I think in the past wasn't something that the company had focused as much around, right? Yeah. Can you give a little bit more background around Digital Application Management and Operations? Sure, sure. So in general, in terms of the service offering expansion, I like to say that, it's more services to more stakeholders. And in specific around DAMO, what we know is that our clients have been asking us, "Hey, yeah, you built this thing for us. It's much better if you can run it as well." And to think about it really specifically, right, we could do all kinds of managed services, but in digital, there's these digital applications that are business-critical. And so how do you say to someone, "Okay, actually, I understand your financial constraints, your capital structure, et cetera," that would lead you to say, "I wanna do more CapEx and OpEx?"... and I wanna, you know, do this a certain way. When we talk about, product thinking, often we say these long-lived product teams running around, building stuff for a long time. But realistically, with a lot of clients, they're like, "Yeah, that sounds great, I love that, but I need, you know, financially, I, I just can't do that." And so how do you take managed services and do it in a way that it really addresses that, that I have this really interesting or useful or, an application that's customer-facing, and say, "You know, I actually wanna run it at a lower cost structure, but I wanna keep it competitive. I wanna have some product thinking and design applied to it. I wanna make sure that, you know, I'm not putting it in maintenance mode and it's declining"? And so that's what we're really trying to do, and really give our clients more options on how to optimize their spend, and it builds a nice business foundation for us. How does that... So, so I guess the typical life cycle of an engagement that incorporates DAMO going forward, what does that look like versus what you were doing before, though? Yeah. So let's say we build a new application, say, a new product. You know, in the product-thinking-only mindset, we'd have a product team on that in perpetuity. And so maybe we might transition that. If it was more onshore when it started, we would transition it more to offshore over time to manage the cost structure. With DAMO, we're gonna say, "Hey, here's a line in the sand of when you need to transition it. We're gonna transition that to a new managed services team," and that engagement's gonna run, you know, the contract's usually a few years. And what we're gonna do then is transition it to that team. They're gonna run it for the few years, and any additional things that the client may need to drive over and above that contract becomes an additional contract. Got it. Okay, okay. Any metrics around DAMO that you're able to share, number of clients or any revenue mix or anything else just to give the audience a better sense of kind of the- Yeah, so we're- Portion of this? ... yeah, we're still in our early days and getting this right, but I can say that in Q3, we talked about 10 of our top 50 clients are using DAMO. Okay. That was our initial kind of internal KPI. Can we drive it in our top 50 clients? Okay, okay, so you get the proof point there in some of the biggest relationships. Very good. Okay. Yeah. Let's pivot to the current demand dynamics. So, what are you seeing out there in the client conversation in the market? How would you characterize client demand? Yeah. So we're seeing some early signs of stability from our clients. I think we talked about that in Q3. We're hearing that budget pressures are starting to ease. We see that, like, the programs of work are still there, and demand remains kind of subdued, but it hasn't gotten worse. And I think the, you know, June/July timeframe, we really saw, you know, some project churn, some slowdowns, and I think that has all stabilized. So while we haven't seen, you know, a massive reversal yet, there's... It's holding steady, and we're starting to see some good signs. You know, clients in particular are talking about budgets opening up as they go through this budget cycle. Okay, okay. We're kind of taking a snap poll here across the firesides as we go, trying to just plot this on a spectrum. And, you know, if 1 was extremely cautious, as sounds like most of the year has been for the sector, 10 was extremely robust, and 5 was kind of a pre-pandemic behavior of clients- Yeah. Where would you plot it on the spectrum today? Can't split hairs between, you know, 2 and 3, but I would say probably closer to 3. Yeah. Again, I don't think it's getting any worse, and we're seeing some signs, so it could tick up more. But I'll be fairly cautious in saying, yeah, about a 3. Okay. Has there been any, you know, geos or industries that have been, you know, outperformers versus underperformers over the last, call it, 9+ months? Yeah. For us, automotive, travel and transport has been really strong- Yeah ... is a bright spot for us, which is great. There's a lot of opportunity in software-defined vehicles, autonomy. My car gets over-the-air updates, and so, that's a really great space for us. Public sector, energy, and healthcare, and I would say with healthcare, really we mean, pharma and life sciences, have been strong for us. On the weaker side, tech and, the tech sector, obviously there's been a fair amount of layoffs in big companies in tech, so the tech sector remains pretty weak. Retail as well. Yeah. and then from a geo perspective, I would say Europe, with the exception of the UK, has. And you know, that dovetails with the auto. and APAC, with the exception of Australia, has been growing pretty well. Okay. Okay, let's, you know, one thing the company talked about here was it sounded like relative stability, revenue stability from the fourth quarter of this year into the first quarter next. Can you unpack that a little bit here? What's giving you the confidence of that view? Yeah. So we always talk about that we, you know, we're always listening and staying close to clients. I think in professional services, that's the thing, and in terms of digital transformation, clients being on this journey, you know, listening and having these conversations, like I said, around budgets. We think that, as I said, that the budget pressure is starting to ease, and that's what we're getting from clients. Our bookings continue to be solid, and we've got a robust pipeline. So even though it's converting slower, we see that there's work there to be done. I personally believe, and I think, I said this to you last time we saw each other, that we're in the Fourth Industrial Revolution. So we're in the Fourth Industrial Revolution. There's a lot of strategic projects, there's a lot of important projects to be done. There's a lot of technology still to be built. And so I think just the general big trend is that we're still in the, in the throes of this, and things like GenAI, AI are a signal to that. I think with respect to Q4 to Q1 our bottoms-up analysis from our client relationships and individual contracts looks good, as well as our top-down view of kind of where our pipeline needs to be to hit that. So, I think, from, you know, looking at Q2 to Q1 stability, if we address—if we think about the holidays and, you know, the mix changes that we have to nearshore and offshore, if you account for all that, it looks fairly stable to us. And then, I would say that, you know, we're still in the end of the year with budgeting contract decisions actually happening. A lot of our clients close their quarters now, so we'll know more, and we'll give more specific guidance, you know, after we announce Q4 next year. But yeah, it looks, we have good reason to believe that things will be stable. Okay. Okay, makes sense. And then, you know, a statement like Fourth Industrial Revolution suggests, you know, there certainly remains structural tailwinds potentially to, for things to get back to normal when clients are more comfortable with the economic backdrop. It doesn't sound like there's any change in your view about what used to be normal can be so again at some point in this space. Yes. I agree with that. I think that we're seeing successive waves, so- Yeah ... from things like cloud and cloud adoption to now GenAI. I think, the number of waves, we still have a few left in us to get us to where we're trying to go. Okay. So GenAI here is certainly, you know, another technology wave, a very loud one, right now, certainly in the space and in, you know, I guess in the world, right? How do you think about just the opportunity versus threat dynamics for services? That's been a common question for many this year. Yeah. So we're definitely in the positive zone. You know, we think that there's a lot of opportunity. I would say we break down GenAI work into three areas, and I think that's instructive in terms of how we think about it. One is building new products and services with GenAI built in. Sort of obvious, right? New LLMs, I do something, helps client do something with the customer. Second is building GenAI into software development itself, and obviously, we're known for software development practices, so we've been really pushing hard on not only using things like Copilot and but also seeding the thought leadership intellectual space on how to use those things effectively. Mm. And then the third is more radical, business transformation. So I think there can be, definitely in the sort of second category, some headwinds and time and materials contracts around, "Hey, you're more productive." But we fundamentally believe, like, that there's a lot of scope to be built, and a lot of clients would say: "Well, actually build me all the stuff that I wanted," not just say: "Oh, well, we'll reduce scope 'cause you're gonna be more efficient." It's like, "Great, there's a lot of stuff to be done. Let's make it happen." So I think, we see an opportunity there. I think there's definitely upside, and if you look at the cloud providers, what they're trying to go to market with, you know, training models, running models in production, all of this work, there's a huge upside to that. For the people that are fundamentally gonna change their business based on this, right? Mm. If I'm a law firm and I'm gonna change litigation, there's a lot of work in that space as well. So we think the net new work sort of cancels out any productivity issue that might sort of drive pressure on contracting. Okay. I guess, how prevalent is the discussion within your client base? Is it the vast majority of clients where you're actually in there talking and potentially converting? Yeah, I think it's a board-driven discussion point. I think a lot of things are still exploratory, and I think people are, some businesses are moving aggressively, but a lot of companies are sitting on the sidelines for a bunch of reasons. One is security and safety and data, you know, bits. Can we make sure that, hey, this thing's gonna hallucinate, or, hey, I don't want my data leaking out? So a lot of companies are taking a kind of cautious- Mm ... perspective. I think, but in places where the risk is low, we're seeing more acceleration that I think, you know, is driving the conversation. So I would say most companies are talking about it from the board down. We're seeing a lot of exploratory stuff still, and that's starting to convert into interesting things. Okay, maybe what dig in a little bit there on the places where there might be less risk. So maybe any examples of those common use cases where they are leaning in a little bit more aggressively? Yeah, so, the one of the obvious ones that everyone's talking about is contact center and- Right Those kinds of things with chatting with, with clients. Some of the less obvious ones are around really processing of a lot of information. So, this approach, RAG, Retrieval Augmented Generation, gives people the ability to say, "I'm a scientist doing pharmacological research, and I wanna understand what the latest research about this is," with citations and understanding. The ability to dump a lot of information and reason about it is increasing. I mentioned law firms. You can imagine discovery changing, right? I've got some litigation going. I got all these documents and an army of people scanning them. Imagine putting it in one place and querying it. So I think this large data. The other thing, and, for people who saw Google Next keynote, Google's keynote at Next, they showed security. So, you got this fire hose of information, and so how do you then understand what actual threats are? How do you process all of that, and using LLMs to do that? I think that's some of the low-hanging fruit because those use cases aren't a customer-facing mistake, where a hallucination might cause a bad business process to happen, might, you know, make somebody angry, et cetera, et cetera. So, that kind of sifting through large amount of information is very exciting. Okay. How do you think about the timeframe over which this will be a meaningful revenue contributor? Yeah, I think it's gonna depend on a lot of factors. I think the faster some of the companies at a core provider perspective can address some of the safety concerns, the better. I think, the more we have clear traceability, the more the hallucinations we've got under control, the better. I'd be cautious to say, like, "Hey, next year is the big wave," because obviously we're in a bit of a hype cycle. Right. But I think, I think, you know, we're starting to see more models being trained and more models being tweaked, and the foundational infrastructure, foundational models that a lot of the players are providing are a good start point to start to drive some of this change in real services. Okay. Okay, and then I guess just internally, how are you thinking about potential contractual or delivery organization structure changes? I would say, not on the contractual end, so much as thinking about how to enable teams to use the tech. Right ... with, so we don't obviously wanna take on all the liability, but we wanna help our clients think through, you know, and their, their teams, what things are acceptable to them. Right. So we wanna make sure that we're able to use the tools in our work because we can accelerate, and so we've been pushing that. We've been enabling our teams to try the technology, to be armed to go talk to clients about it, and to make that happen. I would say on the contracting side of things, my expectation is that in the longer term, you know, people will experiment with more outcome-based work, more outcome-based contracts. We're not seeing that, like, explode at the moment, but you know, my expectation is that the industry has been circling around that for a while. And then this is a good impetus to say, "Hey, these kind of engagements aren't about, you know, a person and the quantity of work. They're about, hey, can I deliver value quickly and increase time to market? Okay. Okay. Let's pivot over to just some of the current pricing conversations you're having, and then I wanna get into some of the changes you guys are talking about as it relates to the delivery and some of the restructuring actions that you've been taking here. So first, just on the pricing front, what are you seeing kinda in the marketplace out there and kinda clients' reception to increments in the current environment? Yeah, pricing remains competitive, and clients are continuing to be cost-conscious. I think I call it the return of procurement. During the post-pandemic hockey stick- Yeah ... procurement lost a lot of power because people were trying to get work done. I think procurement has re-established a stronghold. On a like-for-like basis, we're seeing mid-single-digit pricing declines on a year-over-year basis, and I think clients are fairly consistent in you know, asking for the right kind of commercial structure you know, to show that ROI. So, we think about concessions you know, we think about concessions in a way to sort of drive a good commercial outcome for us, so longer contract terms, volume discounts, et cetera. And so, we've also seen that nearshore and offshore have accelerated in terms of our mix. Right. Clients say, "Hey, we're used to this remote thing. We can get a better price by doing that," and so switching to that as well. Okay. Okay, and I guess from your standpoint, trying to gain more volume, trying to go more end to end, I guess this all happens in the same conversation, right? Yes. As it relates to... Yeah. Okay. Yeah. Got it. Yes. Um- You know, hopefully, the DAMO-type offerings actually give us another piece in that puzzle. Yes. Yeah, yeah. Okay. And then just on the restructuring plan that was announced in the 2Q call, can you remind us where most of the cost efficiency is happening? And then are there kind of skills that are being de-emphasized, or is it more just rebalancing of where maybe the services are being delivered from? Yeah, so, we expect to deliver cost savings of $75,000,000-$85,000,000. I think we said in Q3 that we had seen $68,000,000 realized, annualized. Okay. We've made fast progress. Most of the cost cutting has come from back office and non-client-facing. So when you ask about, you know, are we balancing, we've tried to focus on, you know, the SG&A side of the house to do that. I mentioned the mix shift towards, you know, nearshore and offshore. So while our hiring is limited, and we're doing the right things to get the right skill sets, we are seeing some of that shift to, hey, actually, that work needs to be done offshore, and previously would have done it onshore. So I would say we're not rebalancing skills, though, in that sense. Okay. Talk about the centralized delivery model, and I believe that was introduced here with this program. Maybe how is that different from the prior approach and any kind of early learnings you've had around it? So the prior approach, we were organized very much by country. And it's one of our areas of pride that a ThoughtWorker is a ThoughtWorker is a ThoughtWorker, which is great. However, when you're trying to staff an engagement, trying to drive for efficiency, trying to reach into, you know, other people's PNLs to grab a person is hard. And so we think we can deliver a better, more consistent experience in terms of bringing the right people to the right engagement at the right time, by having a centralized model. And we're seeing already improvements in utilization as we rolled out the Digital Engineering Center. So we can manage internally our own staffing better, and then we can find the right person at the right time to go to the client. As you know, remote work and nearshore, offshore, all of this has become more prevalent. A lot of clients are like: I don't really care if that person's in Germany. I just care that can you bring me the right skill set? And so, being able to do that. You still there, Chad? I think you froze, or maybe I froze. I think, Chad, we'll give you a minute to come back here. He's back. Hey, Chad. Hello. Yeah. My internet, my internet dropped, so I went to the backup. That's fine. No, no worries. Yeah. No worries. I know we caught most of your answer there. I guess, yeah, I know we got a minute left here. Just as you kind of think about the centralized delivery model, just top risks for you that you're mindful of as you make this change? Yeah, I think, you know, we've already been thinking about this change for a while, so, we feel pretty confident we can make it happen. Obviously, the biggest constituent in doing something like this is our clients first, and then our people second, right? And then if our people look at it and go, "Why are we doing this? It doesn't make sense." But so far, so good. Our attrition rate, actually, on a trailing twelve-month basis, it declined to 12.2% in Q3. So I think actually, so far, so good. I think people are seeing the value of doing it, but that's, you know, by far and away, the biggest risk is that, you know, our team say: "Hey, we liked doing this country thing that we were doing. Okay. Okay, fair. It sounds like it was a natural evolution as you gained scale anyway. It feels a natural operational efficiency that would have come into the model. We're in 18 countries. Yeah ... I think more now because of Switzerland, so 19, 20 countries. It just doesn't make sense to run that way, yeah. Yeah, makes sense. Okay, well, I know we're at time now. Chad, again, I appreciate your time. Great discussion again with you. So thank you for joining us today. And for everybody else, we've got one more session to go today. At 2:15 P.M., we're going to have a private equity and a portfolio company panel with FTV Capital and DataArt. But again, thank you, Chad, and everybody, happy holidays. Appreciate the time and opportunity, and good to see you again.