twks-20220331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For transition period from to

Commission File Number 001-40812

THOUGHTWORKS HOLDING, INC.

(Exact name of registrant as specified in its charter)


Delaware						82-2668392
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification Number)

200 East Randolph Street, 25th Floor

Chicago, Illinois 60601

(312) 373-1000

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, $0.001 par value

TWKS

Nasdaq Global Select Market

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☐
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No ☒

As of May 5, 2022, there were approximately 310,325,400 shares of the registrant's common stock outstanding.

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THOUGHTWORKS HOLDING, INC.
QUARTERLY REPORT ON FORM 10-Q
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		Page
Forward-Looking Statements		3

Part I. Financial Information
Item 1	Condensed Consolidated Financial Statements (Unaudited)	5
	Condensed Consolidated Balance Sheets as of March 31, 2022 (Unaudited) and December 31, 2021	5
	Condensed Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income for the three months ended March 31, 2022 and 2021 (Unaudited)	6
	Condensed Consolidated Statements of Changes in Redeemable Convertible Preferred Stock and Stockholders' Equity for the three months ended March 31, 2022 and 2021 (Unaudited)	7
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021 (Unaudited)	8
	Notes to the Condensed Consolidated Financial Statements (Unaudited)	10
Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3	Quantitative and Qualitative Disclosure About Market Risk	36
Item 4	Controls and Procedures	36

Part II. Other Information
Item 1	Legal Proceedings	37
Item 1A	Risk Factors	37
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	37
Item 3	Defaults Upon Senior Securities	37
Item 4	Mine Safety Disclosures	37
Item 5	Other Information	37
Item 6	Exhibits	38
Signatures		39

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FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q (the “Quarterly Report”) contains “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, as amended. Forward-looking statements include statements that are not historical facts and can be identified by terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” "strive," “will,” “would” or similar expressions and the negatives of those terms but the absence of these words does not mean that the statement is not forward-looking. The forward-looking statements are contained principally in the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements may include information concerning our possible or assumed future results of operations, client demand, business strategies, technology developments, financing and investment plans, competitive position, our industry and regulatory environment, potential growth opportunities and the effects of competition.

Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Given these uncertainties, you should not place undue reliance on forward-looking statements. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this Quarterly Report. You should read this Quarterly Report and the documents that we have filed as exhibits hereto, completely and with the understanding that our actual future results may be materially different from what we expect.

Important factors that could cause actual results to differ materially from our expectations include:

•the COVID-19 pandemic has impacted our business and operations, and future business and operational challenges posed by the COVID-19 pandemic could materially adversely affect us;

•we may be unable to implement our growth strategy;

•our ability to generate and retain business depends on our reputation in the marketplace;

•we must successfully attract, hire, train and retain skilled professionals to service our clients’ projects and we must productively deploy our professionals to remain profitable;

•increases in wages, equity compensation and other compensation expenses could prevent us from sustaining our competitive advantage and increase our costs;

•our business and operations may be harmed if we cannot positively evolve and preserve our Thoughtworks culture;

•our global business exposes us to operational, geopolitical, regulatory, legal and economic risks;

•our business, financial condition and results of operations may be adversely affected by fluctuations in foreign currency exchange rates or changes in our effective tax rates;

•if we fail to adequately innovate, adapt and/or remain at the forefront of emerging technologies and related client demands, we could be materially adversely affected;

•we may not be successful at attracting new clients or retaining and expanding our relationships with our existing clients;

•we face intense competition and operate in a rapidly evolving industry, which makes it difficult to evaluate our future prospects;

•we generally do not have long-term commitments or contracts with our clients;

•we face risks associated with having a long selling and implementation cycle for our services;

•our profitability could suffer if we cannot accurately price our solutions and services, maintain favorable pricing for our solutions and services, are unable to collect on receivables from clients or fail to meet our contractual and other obligations to clients;

•we face risks associated with security breaches as well as privacy and data protection regulations, and we may incur significant liabilities if we fail to manage those risks;

•we may not be able to prevent unauthorized use of our intellectual property, and our intellectual property rights may not be adequate to protect our business and competitive position;

•investment funds advised by Apax Partners L.L.P. control us, and such control may give rise to actual or perceived conflicts of interests;

•our status as a “controlled company” will grant us exemptions from certain corporate governance requirements, and our status as an “emerging growth company” will allow us to comply with reduced public company reporting requirements; and

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other factors disclosed in the section entitled “Risk Factors” in the Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the Securities and Exchange Commission (the “SEC”) on March 8, 2022 (the "2021 Annual Report").

We derive many of our forward-looking statements from our operating budgets and forecasts, which are based on many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. Important factors that could cause actual results to differ materially from our expectations, or cautionary statements, include, but are not limited to, those disclosed under the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Quarterly Report and in our 2021 Annual Report. All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by these cautionary statements as well as other cautionary statements that are made from time to time in our other Securities and Exchange Commission (“SEC”) filings and public communications. You should evaluate all forward-looking statements made in this Quarterly Report in the context of these risks and uncertainties.

We caution you that the important factors referenced above may not contain all of the factors that are important to you. In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our operations in the way we expect. The forward-looking statements included in this Quarterly Report are made only as of the date hereof. We undertake no obligation to update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

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PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (Unaudited)


THOUGHTWORKS HOLDING, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share data and per share data)
	March 31, 2022		December 31, 2021
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	339,638	$	368,209
Trade receivables, net of allowance of $10,431 and $8,916, respectively	146,835		145,874
Unbilled receivables	139,917		104,057
Prepaid expenses and other current assets	74,067		60,799

Total current assets	700,457		678,939
Property and equipment, net	34,526		34,500
Right-of-use assets	39,377		—
Intangibles and other assets:
Goodwill	345,595		346,719
Trademark	273,000		273,000
Customer relationships, net	123,315		125,867
Other non-current assets	29,610		25,125
Total assets	$	1,545,880	$	1,484,150
Liabilities and stockholders' equity
Current liabilities:
Accounts payable	$	6,379	$	4,773
Long-term debt - current	7,150		7,150
Income taxes payable	20,029		15,693
Accrued compensation	107,598		79,460
Deferred revenue	5,230		13,807
Value-added tax and sales tax payable	5,096		7,954
Accrued expenses	29,845		51,693
Lease liabilities, current	14,426		—
Total current liabilities	195,753		180,530
Lease liabilities, non-current	27,695		—
Long-term debt, less current portion	495,785		497,380
Deferred tax liabilities	74,160		78,944
Other long-term liabilities	17,581		18,805
Total liabilities	810,974		775,659
Commitments and contingencies



Stockholders’ equity:
Convertible preferred stock, $0.001 par value; 100,000,000 shares authorized, zero issued and outstanding at March 31, 2022 and December 31, 2021, respectively	—		—
Common stock, $0.001 par value; 1,000,000,000 shares authorized, 360,854,572 and 356,117,752 issued, 310,024,807 and 305,132,181 outstanding at March 31, 2022 and December 31, 2021, respectively	361		356



Treasury stock, 50,829,765 and 50,985,571 shares at March 31, 2022 and December 31, 2021, respectively	(627,484)		(629,424)
Additional paid-in capital	1,481,524		1,390,630
Accumulated other comprehensive loss	(16,542)		(10,863)
Retained deficit	(102,953)		(42,208)
Total stockholders' equity	734,906		708,491
Total liabilities and stockholders' equity	$	1,545,880	$	1,484,150

The accompanying notes form an integral part of the condensed consolidated financial statements.

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THOUGHTWORKS HOLDING, INC.

CONDENSED CONSOLIDATED STATEMENTS OF (LOSS) INCOME AND COMPREHENSIVE (LOSS) INCOME (unaudited)

(In thousands, except share and per share data)


	Three Months Ended March 31,
	2022		2021
Revenues	$	320,940	$	237,662
Operating expenses:
Cost of revenues	263,349		134,791
Selling, general and administrative expenses	111,734		66,516
Depreciation and amortization	5,846		4,346
Total operating expenses	380,929		205,653
(Loss) income from operations	(59,989)		32,009
Other income (expense):
Interest expense	(4,647)		(6,194)
Net realized and unrealized foreign currency gain (loss)	4,945		(2,668)
Other income, net	88		61
Total other income (expense)	386		(8,801)
(Loss) income before income taxes	(59,603)		23,208
Income tax expense	301		4,623
Net (loss) income	$	(59,904)	$	18,585

Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments	(5,679)		(3,968)
Comprehensive (loss) income	$	(65,583)	$	14,617

Net (loss) earnings per common share:
Basic (loss) earnings per common share	$	(0.20)	$	0.06
Diluted (loss) earnings per common share	$	(0.20)	$	0.06

Weighted average shares outstanding:
Basic	306,189,816		242,471,720
Diluted	306,189,816		249,125,028

The accompanying notes form an integral part of the condensed consolidated financial statements.

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THOUGHTWORKS HOLDING, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (unaudited)

(In thousands, except share data)


	Redeemable, Convertible Preferred Stock			Common Stock			Treasury			Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Retained (Deficit) Earnings
	Shares	Amount		Shares	Amount		Shares	Amount								Total
Balance as of December 31, 2020	23,493,546	$	322,800	278,322,716	$	279	572,711	$	(1,608)	$	381,172	$	(1,589)	$	106,458	$	484,712
Net income	—	—		—	—		—	—		—		—		18,585		18,585
Other comprehensive loss, net of tax	—	—		—	—		—	—		—		(3,968)		—		(3,968)
Issuance of common stock on exercise of options	—	—		27,184	—		—	—		62		—		—		62
Issuance of common stock	—	—		133,313	—		—	—		1,873		—		—		1,873
Issuance of Series A redeemable convertible preferred stock, net of issuance costs of $9.0 million	27,765,084	380,994		—	—		—	—		—		—		—		—
Other	—	—		—	—		—	—		(104)		—		—		(104)
Tender offer	—	—		(50,412,860)	—		50,412,860	(627,816)		(10,391)				(79,222)		(717,429)
Stock-based compensation expense	—	—		—	—		—	—		1,874		—		—		1,874
Balance as of March 31, 2021	51,258,630	$	703,794	228,070,353	$	279	50,985,571	$	(629,424)	$	374,486	$	(5,557)	$	45,821	$	(214,395)

Balance as of December 31, 2021	—	$	—	305,132,181	$	356	50,985,571	$	(629,424)	$	1,390,630	$	(10,863)	$	(42,208)	$	708,491
Net loss	—	—		—	—		—	—		—		—		(59,904)		(59,904)
Other comprehensive loss, net of tax	—	—		—	—		—	—		—		(5,679)		—		(5,679)

Issuance of common stock for equity incentive awards, net of withholding taxes	—	—		4,736,820	5		—	—		(28,047)		—		—		(28,042)
Reissuance of treasury shares for equity incentive awards	—	—		155,806	—		(155,806)	1,940		(1,796)		—		—		144
Stock-based compensation expense	—	—		—	—		—	—		120,737		—		—		120,737
Cumulative effect related to adoption of ASU 2016-13	—	—		—	—		—	—		—		—		(841)		(841)
Balance as of March 31, 2022	—	$	—

SEC Form 10-Q filed by Thoughtworks Holding Inc.