twks-20240630

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 June 30, 2024


☐			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 13(a) of the Exchange 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 August 1, 2024, there were 323,160,161 shares of the registrant's common stock outstanding.

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THOUGHTWORKS HOLDING, INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS

		Page
Forward-Looking Statements		3

Part I. Financial Information
Item 1	Condensed Consolidated Financial Statements (Unaudited)	6
	Condensed Consolidated Balance Sheets as of June 30, 2024 (Unaudited) and December 31, 2023	6
	Condensed Consolidated Statements of Loss and Comprehensive Loss for the three and six months ended June 30, 2024 and 2023 (Unaudited)	7
	Condensed Consolidated Statements of Changes in Stockholders' Equity for the three and six months ended June 30, 2024 and 2023 (Unaudited)	8
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2024 and 2023 (Unaudited)	9
	Notes to the Condensed Consolidated Financial Statements (Unaudited)	10
Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3	Quantitative and Qualitative Disclosure About Market Risk	37
Item 4	Controls and Procedures	37

Part II. Other Information
Item 1	Legal Proceedings	38
Item 1A	Risk Factors	38
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	40
Item 3	Defaults Upon Senior Securities	40
Item 4	Mine Safety Disclosures	40
Item 5	Other Information	40
Item 6	Exhibits	41
Signatures		42

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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, macroeconomic 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 risk factors that could cause actual results to differ materially from our expectations include:

•our previously announced acquisition by an affiliate of funds advised by Apax Partners LLP (“Apax” and such funds, the “Apax Funds”), including the likelihood of the satisfaction of the conditions to the completion of the transaction, and whether and when the transaction will be consummated;

•the risk of unanticipated costs, liabilities or delays relating to the proposed transaction with Apax Funds;

•economic conditions have resulted in, and may continue to result in, client delays, reductions or cancellations and a decrease in pricing, making it more difficult to forecast client demand and effectively build a pipeline;

•we have, and may continue to, offer significant discounts for our services, which has, and may continue to, put pressure on our margins;

•we face risks associated with having a long selling and implementation cycle for our services that require us to make significant resource commitments prior to realizing revenues for those services;

•if we are required to write down goodwill and other intangible assets, our financial condition and results would be negatively affected;

•our business has been, and may continue to be, adversely affected by volatile or uncertain operational, geopolitical, regulatory, legal and economic conditions;

•we may be unable to implement our strategy;

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

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

•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 in our emerging technology initiatives, which could adversely affect our business, reputation, or financial results;

•if we fail to manage our acquisition strategy, our culture and growth plans could be materially adversely affected;

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

•our cash flows and results of operations may be adversely affected if we are unable to collect on billed and unbilled receivables from clients;

•our effective tax rate could be materially adversely affected by several factors;

•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;

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

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

•our existing indebtedness could adversely affect our business and growth prospect;

•if we cause disruptions to our clients’ businesses, provide inadequate service, or breach contractual obligations, our clients may have claims against us, which our insurance may not adequately protect against, and our reputation may be damaged;

•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;

•a significant failure in our systems, telecommunications or IT infrastructure could harm our service model, which could result in a reduction of our revenues and otherwise disrupt our business;

•changes in privacy and data protection regulations could expose us to risks of noncompliance and costs associated with compliance;

•we are subject to laws and regulations in the U.S. and other countries in which we operate, compliance with these laws requires significant resources and non-compliance may result in civil or criminal penalties and other remedial measures;

•we may become subject to disputes or legal or other proceedings that could involve significant expenditures by us, which could have a material adverse effect on us, including our financial results;

•our environmental, social and governance (ESG) commitments and disclosures may expose us to reputational risks and legal liability;

•we may face intellectual property infringement or misappropriation claims that could be costly to defend or if we do not protect our brand through our intellectual property rights, our business may be harmed;

•we may not be able to prevent unauthorized use of our client's intellectual property and our business and competitive position may be damaged as a result;

•our stock price may be volatile, and the value of our common stock may decline;

•our issuance of additional capital stock in connection with financings, acquisitions, investments, our equity incentive plans, or otherwise will dilute all other stockholders;

•if securities or industry analysts do not publish research or publish unfavorable or inaccurate research about our business, the market price and trading volume of our common stock could decline;

•we do not intend to pay dividends for the foreseeable future and, as a result, the ability of the holders of our common stock to achieve a return on their investment will depend on appreciation in the price of our common stock;

•Apax Funds advised by Apax control us, and such control may give rise to actual or perceived conflicts of interests;

•our status as a “controlled company” grants us exemptions from certain corporate governance requirements;

•as a result of being a public company, we are obligated to develop and maintain proper and effective internal control over financial reporting, and any failure to maintain the adequacy of these internal controls may adversely affect investor confidence in our company and, as a result, the value of our common stock;

•we may fail to comply with the rules that apply to public companies, which could result in sanctions or other penalties;

•provisions of our corporate governance documents could make an acquisition of us more difficult and may prevent attempts by our shareholders to replace or remove our current management, even if beneficial to our shareholders;

•provisions of our certificate of incorporation could limit our shareholders’ ability to obtain a favorable judicial forum for disputes with us;

•a significant portion of our total outstanding shares may be sold into the market, which could cause the market price of common stock to drop; and

•other factors disclosed in the subsection entitled “Risk Factor Summary" and the section entitled "Risk Factors” in the Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the Securities and Exchange Commission (the “SEC”) on February 27, 2024 (the "2023 Annual Report") and the section entitled "Risk Factors" in this Quarterly 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

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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 2023 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 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)
	June 30, 2024		December 31, 2023
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	47,740	$	100,305
Trade receivables, net of allowance of $9,890 and $9,550, respectively	143,849		167,942
Unbilled receivables	133,350		115,150
Prepaid expenses	15,772		19,692
Other current assets	25,906		25,269
Total current assets	366,617		428,358
Property and equipment, net	26,455		26,046
Right-of-use assets	35,274		41,771
Intangibles and other assets:
Goodwill	418,057		424,565
Trademark	273,000		273,000
Other intangible assets, net	107,576		114,186


Other non-current assets	20,121		19,310
Total assets	$	1,247,100	$	1,327,236
Liabilities and stockholders' equity
Current liabilities:
Accounts payable	$	3,114	$	2,767
Long-term debt, current	7,150		7,150

Accrued compensation	80,913		88,712
Deferred revenue	12,714		18,090

Accrued expenses and other current liabilities	24,140		27,260
Lease liabilities, current	13,595		15,301
Total current liabilities	141,626		159,280
Lease liabilities, non-current	24,915		29,791
Long-term debt, less current portion	282,694		286,035
Deferred tax liabilities	44,269		54,907
Other long-term liabilities	24,262		24,093
Total liabilities	517,766		554,106
Commitments and contingencies
Stockholders’ equity:
Convertible preferred stock, $0.001 par value; 100,000,000 shares authorized, zero issued and outstanding at June 30, 2024 and December 31, 2023, respectively	—		—
Common stock, $0.001 par value; 1,000,000,000 shares authorized, 373,578,081 and 372,876,082 issued, 323,109,543 and 322,407,385 outstanding at June 30, 2024 and December 31, 2023, respectively	374		373
Treasury stock, 50,468,538 and 50,468,697 shares at June 30, 2024 and December 31, 2023, respectively	(622,987)		(622,988)
Additional paid-in capital	1,648,567		1,627,491
Accumulated other comprehensive loss	(35,666)		(38,166)
Retained deficit	(260,954)		(193,580)
Total stockholders' equity	729,334		773,130
Total liabilities and stockholders' equity	$	1,247,100	$	1,327,236

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 AND COMPREHENSIVE LOSS (unaudited)

(In thousands, except share and per share data)


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Revenues	$	251,671	$	287,215	$	500,264	$	594,271
Operating expenses:
Cost of revenues	181,444		196,338		360,257		405,860
Selling, general and administrative expenses	79,816		86,626		156,046		172,966
Depreciation and amortization	5,662		5,874		11,297		11,416
Restructuring	7,212		—		9,327		—
Total operating expenses	274,134		288,838		536,927		590,242
(Loss) income from operations	(22,463)		(1,623)		(36,663)		4,029
Other (expense) income:

SEC Form 10-Q filed by Thoughtworks Holding Inc.