twks-20230630

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, 2023


☐			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 3, 2023, there were 317,728,750 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)	5
	Condensed Consolidated Balance Sheets as of June 30, 2023 (Unaudited) and December 31, 2022	5
	Condensed Consolidated Statements of Loss and Comprehensive Loss for the three and six months ended June 30, 2023 and 2022 (Unaudited)	6
	Condensed Consolidated Statements of Changes in Stockholders' Equity for the three and six months ended June 30, 2023 and 2022 (Unaudited)	7
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2023 and 2022 (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	22
Item 3	Quantitative and Qualitative Disclosure About Market Risk	35
Item 4	Controls and Procedures	35

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	38
Item 3	Defaults Upon Senior Securities	38
Item 4	Mine Safety Disclosures	38
Item 5	Other Information	38
Item 6	Exhibits	40
Signatures		41

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

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

•our restructuring actions may not be successful, may impact our business and financial performance, and may result in additional costs;

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

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

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

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

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

•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 may be unable to implement our strategy;

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

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

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

•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;

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

•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;

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

•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;

•investment funds (the "Apax Funds") advised by Apax Partners L.L.P. ("Apax Partners") 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; 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, 2022, filed with the Securities and Exchange Commission (the “SEC”) on February 28, 2023 (the "2022 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 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 2022 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, 2023		December 31, 2022
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	88,151	$	194,294
Trade receivables, net of allowance of $7,915 and $9,531, respectively	154,208		201,695
Unbilled receivables	137,089		122,499
Prepaid expenses and other current assets	35,262		38,202

Total current assets	414,710		556,690
Property and equipment, net	32,062		38,798
Right-of-use assets	43,577		43,123
Intangibles and other assets:
Goodwill	422,313		405,017
Trademark	273,000		273,000
Customer relationships, net	120,677		124,047
Other non-current assets	20,888		21,175
Total assets	$	1,327,227	$	1,461,850
Liabilities and stockholders' equity
Current liabilities:
Accounts payable	$	4,555	$	5,248
Long-term debt - current	7,150		7,150
Income taxes payable	7,449		22,781
Accrued compensation	77,180		85,477
Deferred revenue	6,007		5,167
Value-added tax and sales tax payable	5,289		7,526
Accrued expenses	14,406		30,227
Lease liabilities, current	15,594		15,994
Total current liabilities	137,630		179,570
Lease liabilities, non-current	30,417		29,885
Long-term debt, less current portion	289,379		391,856
Deferred tax liabilities	54,224		62,555
Other long-term liabilities	21,849		19,762
Total liabilities	533,499		683,628
Commitments and contingencies
Stockholders’ equity:
Convertible preferred stock, $0.001 par value; 100,000,000 shares authorized, zero issued and outstanding at June 30, 2023 and December 31, 2022, respectively	—		—
Common stock, $0.001 par value; 1,000,000,000 shares authorized, 368,253,048 and 366,306,970 issued, 317,647,945 and 315,681,987 outstanding at June 30, 2023 and December 31, 2022, respectively	368		366
Treasury stock, 50,605,103 and 50,624,983 shares at June 30, 2023 and December 31, 2022, respectively	(624,687)		(624,934)
Additional paid-in capital	1,601,559		1,565,514
Accumulated other comprehensive loss	(39,619)		(39,210)
Retained deficit	(143,893)		(123,514)
Total stockholders' equity	793,728		778,222
Total liabilities and stockholders' equity	$	1,327,227	$	1,461,850

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,
	2023		2022		2023		2022
Revenues	$	287,215	$	332,107	$	594,271	$	653,047
Operating expenses:
Cost of revenues	196,338		250,462		405,860		500,227
Selling, general and administrative expenses	86,626		99,352		172,966		204,117
Depreciation and amortization	5,874		4,215		11,416		10,061
Total operating expenses	288,838		354,029		590,242		714,405
(Loss) income from operations	(1,623)		(21,922)		4,029		(61,358)
Other (expense) income:
Interest expense	(6,150)		(4,984)		(13,012)		(9,631)
Net realized and unrealized foreign currency (loss) gain	(30)		(11,512)		1,155		(6,774)
Other income (expense), net	135		(413)		(588)		(325)
Total other (expense) income	(6,045)		(16,909)		(12,445)		(16,730)
Loss before income taxes	(7,668)		(38,831)		(8,416)

SEC Form 10-Q filed by Thoughtworks Holding Inc.