Jacob Haggarty: That makes sense. Thanks. And then just one more question for you. So the share count guide was down. Could you guys explain on why that was?
Erin Cummins: The share count guide would just be from some changes that took place, some assumptions that took place in Q1 because we did have some issue of shares in the quarter. But for the fuller review, I will come back to you with a question. I don’t have the specific answer now, but we’ll make sure that we get an answer out. That’s clear.
Operator: Thank you. Our next question comes from Matthew Roswell with RBC. Your line is open.
Matthew Roswell: Yes. Good morning. Thank you very much. And Xiao it’s been a pleasure to work with you over the last couple of years. I guess following up on the restructuring question, what makes you think that you’re maybe not cutting too much when it comes to the restructuring? And I guess as part of that, what areas where are you finding the extra cost savings in?
Erin Cummins: As I mentioned earlier, in terms of the restructuring savings, we are being very thoughtful about the actions that we’re taking, and we’re very focused on client execution as well as making sure that we see continued momentum into our demand at our go-to-market. So where we are focused is areas where it’s non-client facing in particular. Again, there’s some adjustments because of the onshore/offshore mix. And so, where we don’t expect to see improvements in utilization over the next six months or so and that would be a place where we’re looking. In addition to that, we are seeing from an operating expense perspective, we’ve really by the end of Q1 fully realize what we expected. We had good movement with our function supporting our business as part of the restructuring around the globe.
We see further opportunities for decreased operating expenses in some of our office space rationalization as well as some of our vendor expenses. So on the whole, it really is in line with the restructuring program that we started last year. It’s very consistent. It’s just an increase because we’ve identified more opportunities. We are treading very carefully to make sure that client service continues to go well.
Guo Xiao: Yes. And then just to add to that client services part, we do expect to see sequential growth. We do think that demand for services are increasing, but it’s unevenly distributed. Now we know that we’re going to see more demand for offshore services, for example, we’re going to see more demand for infrastructure skill sets, data skill sets and cloud skill sets. And then that’s slightly different what we have developed so far over the last few years. So as we move forward, we’re trying to increase capacity skill set in certain areas and reducing in some of the other areas. So all this is done in the spirit to support the growth, to empower the growth as opposed to optimization at the cost of the growth.
Matthew Roswell: And if I could follow up on the mix shift and increasing the utilization on the onshore utilization, is that – what percentage of the improvement is sort of under your control and what percentage is kind of based on the market stabilizing or improving? Hopefully, that question makes sense.
Erin Cummins: It does make sense. 80% of it, Matthew, would be under our control. Part of it, of course, market dynamics matter. But what we’ve talked a lot about, we have seen stabilization in the market dynamics, which we’re really pleased about, again, worth mentioning the go-to-market momentum, the strong bookings that we had for the quarter and the sequential growth we expect in Q2. So clearly, the market matters. But most of it is under our control, and we feel very confident about the path that we’re on.
Matthew Roswell: Okay. Thank you very much.
Guo Xiao: Thank you, Matthew.
Operator: Thank you. Our next question comes from Darrin Peller with Wolfe Research. Your line is open.
Paul Obrecht: Hi, thanks. This is Paul Obrecht on for Darrin. Can you provide some more detail on how the new industry-based go-to-market approach is resonating with customers? Maybe both as it relates on winning new customers and maintaining existing ones who are going to them for renewals? And do you find that this model is mostly optimized at this point? Or is there still some work to be done to further develop the sales and marketing capabilities?
Guo Xiao: Thank you for the question. We’re definitely only at the beginning of this journey. There’s a lot more to be done. The vertical sales and go-to-market approach is the intention of the hypothesis is that our sales team, our go-to-market team and then especially our professional services team on the ground would focus on a particular vertical over a longer period of time so that we build and retain lot more domain expertise as opposed to they constantly being changed and diluted. So when we talk to our clients, we have more relevant point of views and then understand how to solve their biggest business problems with our technology. And then we’re seeing that paying off, I think, at this moment, especially with new pursuits, new wins where we have people who are more savvy and then – and understand and I can speak the same language with our clients.
That’s why we are seeing higher new logos, especially in the verticals we’ve chosen to focus on. For example, energy, public sector, auto and then in financial services. And then for – it definitely helps with ongoing clients. One of the challenges our clients have had over time with Thoughtworks is we keep rotating people out of their team, out of the vertical and then they seem to believe that it’s a lost opportunity, given the domain knowledge they have built so far. So with this model, we have more key technical talents and delivery talents that’s ring-fenced in a particular vertical over a longer period of time. So they get to becoming a better expert at helping our clients solving their problems. But like I said, it’s only the beginning of the journey.
We have only been doing this for a couple of quarters. We believe that over time, we’re going to see this approach paying off even more.
Paul Obrecht: Great. Thanks. And then as a follow-up on the topic of Gen AI, I know the majority of the work being done is mostly proof of concepts and getting the data platforms ready. But do you anticipate we could see Gen AI work begin materially contributing to revenues maybe by year-end as clients start deploying it at scale? Or do you expect this won’t happen until 2025? I know it’s early. Just trying to think about this from a timeline perspective.
Guo Xiao: You’re definitely spot on in terms of, there’s a lot of POC kind of short-term work. And there’s a lot of preparation work building the data platforms. The Gen AI work itself, especially large language model building, hasn’t really been a main theme yet. We do expect it to pick up at some point. Now it’s going to be end of the year, probably some of them next year, definitely more of it. That’s part of the reason that we have acquired Watchful, it’s a product company. It specializes in building tools to accelerate large language model development from POC to scaling, for example, especially the eval [ph] feature to tell you which model is more effective than the others. And this is definitely what we believe is going to be a key area for us later this year, early next year.
So we do see, we do expect to see more, larger language model development. We’re seeing a few of them, but it’s still not the norm. But your guess is as good as ours, which is probably going to be later at the end of the year or beginning of next year.
Operator: Thank you. Our next question comes from Maggie Nolan with William Blair. Your line is open.
Kate Kronstein: Hi everyone, it’s Kate Kronstein on for Maggie. Congrats, Xiao and we wish you luck on your transition. I wanted to start off asking about the top five and top 10 client buckets. It looks like those both increased sequentially. Can you guys talk a little bit more about the current dynamics you are seeing in those cohorts this quarter?
Guo Xiao: Sure. So the top five and top 10 clients have like, as you pointed out, has increased incrementally by 1%. From a revenue concentration perspective, it’s still in the 18% 29% range, which is relatively well diversified. So we’re not overly concerned about it. But the increase is mostly due to, given the current environment, we tend to focus more on retaining our top clients and then develop longer term, more strategic relationships. For example, adding new service offerings like DAMO packaged software, system integration. So we continue to expand our footprint. Given the macro, it’s easier to, from a revenue perspective, to expand with the current existing top customers, especially when some of them have intention to consolidate their vendors.
And then so we are actually benefiting from that, gaining more momentum with our top clients. That said, we are also seeing a longer tail, especially new logos, increasing. It’s just that some of these new projects, given the current environment is starting at a smaller size, smaller deal size. And then, so we’re not getting a lot of big deals at the get-go. And then we’re following a lot of the land expand approach there.
Kate Kronstein: Great. Thank you, Xiao. That’s helpful. And then my next question is, last quarter it was mentioned that Thoughtworks is seeing some supply constraints around certain skill sets. Can you maybe expand on what you’re seeing now on the hiring front?
Erin Cummins: I’ll take that question. Thanks, Kate. We touched on it a little bit earlier. Xiao was speaking about some of the skill sets where we are seeing lots of demand, where we are doing more hiring. It’s particularly around data and infrastructure skills, that continues to be a place where we’re seeing good demand. And some of the data skill sets do have specialized skill sets or experience requirements. And so that’s been a focus for our recruiting team. We put quite a lot of effort in our recruiting in the last quarter and are seeing some very positive momentum from that. And so on the whole, we’re feeling good about the ability to fulfill that supply and where we continue to expect to see strong demand. The other thing that I would touch on is that offshore has been pretty strong, and so where we’re continuing to hire is more in our offshore locations and on the whole going well.
So the supply constraints we think are well in hand. The recruiting, where we are recruiting in particular areas is going very well, and we’re pleased to see the momentum.
Kate Kronstein: Great. Thank you, Erin.
Guo Xiao: Thank you, Kate.
Operator: Thank you. And our last question comes from Arvind Ramani with Piper Sandler. Your line is open.
Arvind Ramani: Hey, thanks for taking my question. It was a pleasure working with you and wish you the very best on your next endeavor. Yes, I just had a question I mean on the demand environment. You’re kind of characterized it as still kind of really no change, but it’s not getting worse. But is there something specific about kind of your offerings or your services? We are starting to see, some signs of improvement. Is there something idiosyncratic to what you’ll have done or the type of work that they’re doing that you’re seeing an improvement even though the demand, order demand environment has not necessarily improved?
Guo Xiao: Sure. First of all, thank you, Arvind. It’s been a pleasure working with you, too. So from a demand – perspective, we believe that what has made it better for us, despite of the macro environment is that we have invested in additional sales and marketing capacity, especially our focus after the restructuring to focus more on outbound demand generation capabilities. You might remember that historically we have only 15% of our new bookings is generated from outbound, 85% is from inbound, given the strong brand. And then we have enjoyed right now over 60% of our new bookings in Q1, for example came from outbound efforts. That’s definitely, I think, due to the effort the sales and then marketing team has put in. And as a result, we’re also seeing higher conversion from these opportunities.
