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
OR
| 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
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | |||||||
(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 | ||||||||||||
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 | ☐ | ||||||||
| ☒ | 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.
THOUGHTWORKS HOLDING, INC. | ||||||||
QUARTERLY REPORT ON FORM 10-Q | ||||||||
TABLE OF CONTENTS | ||||||||
| Page | ||||||||
Part II. Other Information | ||||||||
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
3
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 | $ | $ | |||||||||
Trade receivables, net of allowance of $ | |||||||||||
| Unbilled receivables | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Total current assets | |||||||||||
| Property and equipment, net | |||||||||||
| Right-of-use assets | — | ||||||||||
| Intangibles and other assets: | |||||||||||
| Goodwill | |||||||||||
| Trademark | |||||||||||
| Customer relationships, net | |||||||||||
| Other non-current assets | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities and stockholders' equity | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Long-term debt - current | |||||||||||
| Income taxes payable | |||||||||||
| Accrued compensation | |||||||||||
| Deferred revenue | |||||||||||
| Value-added tax and sales tax payable | |||||||||||
| Accrued expenses | |||||||||||
| Lease liabilities, current | — | ||||||||||
| Total current liabilities | |||||||||||
| Lease liabilities, non-current | — | ||||||||||
| Long-term debt, less current portion | |||||||||||
| Deferred tax liabilities | |||||||||||
| Other long-term liabilities | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies | |||||||||||
| Stockholders’ equity: | |||||||||||
Convertible preferred stock, $ | |||||||||||
Common stock, $ | |||||||||||
Treasury stock, | ( | ( | |||||||||
| Additional paid-in capital | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Retained deficit | ( | ( | |||||||||
| Total stockholders' equity | |||||||||||
| Total liabilities and stockholders' equity | $ | $ | |||||||||
The accompanying notes form an integral part of the condensed consolidated financial statements.
5
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 | $ | $ | |||||||||
| Operating expenses: | |||||||||||
| Cost of revenues | |||||||||||
| Selling, general and administrative expenses | |||||||||||
| Depreciation and amortization | |||||||||||
| Total operating expenses | |||||||||||
| (Loss) income from operations | ( | ||||||||||
| Other income (expense): | |||||||||||
| Interest expense | ( | ( | |||||||||
| Net realized and unrealized foreign currency gain (loss) | ( | ||||||||||
| Other income, net | |||||||||||
| Total other income (expense) | ( | ||||||||||
| (Loss) income before income taxes | ( | ||||||||||
| Income tax expense | |||||||||||
| Net (loss) income | $ | ( | $ | ||||||||
| Other comprehensive (loss) income, net of tax: | |||||||||||
| Foreign currency translation adjustments | ( | ( | |||||||||
| Comprehensive (loss) income | $ | ( | $ | ||||||||
| Net (loss) earnings per common share: | |||||||||||
| Basic (loss) earnings per common share | $ | ( | $ | ||||||||
| Diluted (loss) earnings per common share | $ | ( | $ | ||||||||
| Weighted average shares outstanding: | |||||||||||
| Basic | |||||||||||
| Diluted | |||||||||||
6
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 | $ | $ | $ | ( | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock on exercise of options | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of Series A redeemable convertible preferred stock, net of issuance costs of $ | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Other | — | — | — | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Tender offer | — | — | ( | — | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2021 | $ | $ | $ | ( | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2021 | $ | $ | $ | ( | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | — | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for equity incentive awards, net of withholding taxes | — | — | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Reissuance of treasury shares for equity incentive awards | — | — | — | ( | ( | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2022 | $ | $ | $ | ( | $ | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
The accompanying notes form an integral part of the condensed consolidated financial statements.
7
THOUGHTWORKS HOLDING, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (In thousands) | |||||||||||
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net (loss) income | $ | ( | $ | ||||||||
| Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: | |||||||||||
| Depreciation and amortization expense | |||||||||||
| Bad debt recovery | ( | ( | |||||||||
| Deferred income tax benefit | ( | ( | |||||||||
| Stock-based compensation expense | |||||||||||
| Unrealized foreign currency exchange (gains) losses | ( | ||||||||||
| Non-cash lease expense on right-of-use assets | — | ||||||||||
| Other operating activities, net | |||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Trade receivables | ( | ||||||||||
| Unbilled receivables | ( | ( | |||||||||
| Prepaid expenses and other assets | ( | ( | |||||||||
| Lease liabilities | ( | — | |||||||||
| Accounts payable | |||||||||||
| Accrued expenses and other liabilities | ( | ||||||||||
| Net cash (used in) provided by operating activities | ( | ||||||||||
| Cash flows from investing activities: | |||||||||||
| Purchase of property and equipment | ( | ( | |||||||||
| Proceeds from disposal of fixed assets | |||||||||||
| Acquisition of businesses, net of cash acquired | ( | ||||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from issuance of Series A redeemable convertible preferred stock, net of issuance costs | |||||||||||
| Proceeds from issuance of common stock | |||||||||||
| Payments of obligations of long-term debt | ( | ( | |||||||||
| Payments of debt issuance costs | ( | ||||||||||
| Proceeds from borrowings on long-term debt | |||||||||||
| Proceeds from issuance of common stock on exercise of options, net of employee tax withholding | |||||||||||
| Shares and options purchased under tender offer | ( | ||||||||||
| Withholding taxes paid on tender offer | ( | ||||||||||
| Withholding taxes paid on dividends previously declared | ( | ||||||||||
| Withholding taxes paid related to net share settlement of equity awards | ( | ||||||||||
| Other financing activities, net | ( | ( | |||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | ( | ||||||||||
| Net decrease in cash, cash equivalents and restricted cash | ( | ( | |||||||||
| Cash, cash equivalents and restricted cash at beginning of the period | |||||||||||
| Cash, cash equivalents and restricted cash at end of the period | $ | $ | |||||||||
8
THOUGHTWORKS HOLDING, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (In thousands) | |||||||||||
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Supplemental disclosure of cash flow information: | |||||||||||
| Interest paid | $ | $ | |||||||||
| Income taxes paid | $ | $ | |||||||||
| Supplemental disclosures of non-cash financing activities: | |||||||||||
| Withholding taxes payable included within accrued expenses | $ | $ | |||||||||
| Withholding taxes payable included within accrued compensation | $ | $ | |||||||||
| Option costs receivable included within prepaid expenses and other current assets | $ | $ | |||||||||
| Reconciliation of cash, cash equivalents and restricted cash: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash included in other current assets | |||||||||||
| Restricted cash included in other non-current assets | |||||||||||
| Total cash, cash equivalents and restricted cash | $ | $ | |||||||||
9
THOUGHTWORKS HOLDING, INC.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
Note 1 – Business and Summary of Significant Accounting Policies
Thoughtworks Holding, Inc. (together with its subsidiaries, the “Company”) develops, implements, and services complex enterprise application software, and provides business technology consulting. The Company conducts business in Australia, Brazil, Canada, Chile, China, Ecuador, Finland, Germany, Hong Kong, India, Italy, the Netherlands, Romania, Singapore, Spain, Thailand, the United Kingdom and the United States. Thoughtworks Holding, Inc. is the ultimate parent holding company of Thoughtworks, Inc. among other subsidiaries.
Basis of Presentation and Consolidation
The accompanying unaudited condensed consolidated financial statements include the accounts of Thoughtworks Holding, Inc. and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s 2021 Annual Report.
Certain amounts in the prior period consolidated financial statements and notes have been reclassified to conform to the 2022 presentation. These reclassifications had no effect on results of operations previously reported.
Preparation of Financial Statements and Use of Estimates
Stock Split
Prior to the Company's initial public offering (the "IPO") which closed on September 17, 2021, the Company effected an approximate 43.6-for-1 split of each outstanding share of common stock (the "Stock Split"). All share and per share information has been retroactively adjusted to effect the Stock Split for all periods presented.
Restricted Cash
10
Government Assistance
Allowance for Credit Losses
The Company adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326) in the first quarter of 2022. See “—Recently Adopted Accounting Standards” below for further discussion. The Company is exposed to credit risk primarily through trade receivables and unbilled receivables. Activity related to the Company’s allowance for credit losses is as follows (in thousands):
| Three Months Ended March 31, | |||||
| 2022 | |||||
| Allowance for credit losses, beginning balance | $ | ( | |||
| Impact of accounting standard adoption | ( | ||||
| Current provision for expected credit losses | |||||
| Write-offs charged against allowance | |||||
| Recoveries of amounts previously written off | |||||
| Changes due to exchange rates | ( | ||||
| Allowance for credit losses, ending balance | $ | ( | |||
Recently Adopted Accounting Standards
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") No. 2016-02, Leases (Topic 842), which amends existing accounting standards for lease accounting and requires lessees to recognize virtually all leases on the balance sheet by recording a right-of-use asset and a lease liability (for other than short term leases). The Company early adopted the standard effective January 1, 2022. The Company elected the modified retrospective transition method, and as a result, the Company did not adjust its comparative period financial information or make the new required lease disclosures for periods before the date of adoption. The Company elected to use the package of practical expedients, which permits the Company to not reassess: (i) whether a contract is or contains a lease, (ii) lease classification, and (iii) initial direct costs resulting from the lease. The Company did not elect the hindsight practical expedient, which permits the use of hindsight when determining lease term and impairment of operating lease assets. The Company is electing not to apply the recognition requirements to short-term leases of 12 months or less and instead will recognize lease payments as expense on a straight-line basis over the lease term. The Company also elected the option to combine lease and non-lease components as a single component for the Company's entire population of lease assets. Upon adoption, the Company recorded $40.9 million of right-of-use assets ("ROU") and $43.7 million of lease liabilities. Refer to Note 5, Leases, for further discussion.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which amends the accounting guidance and requires the measurement of all expected losses based on historical experience, current conditions, and reasonable and supportable forecasts, or a current expected credit loss (“CECL”) model. For trade receivables, loans, and other financial instruments, companies are required to use a forward-looking expected loss model rather than the incurred loss model for recognizing credit losses which reflects losses that are probable. In November 2019, the FASB issued ASU 2019-10 which delayed the effective date for the CECL standard. The guidance and related amendments are effective for the Company for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted. Application of the amendments is through a cumulative-effect adjustment to retained earnings as of the effective date.
11
The Company early adopted the accounting standard by recording a cumulative effect adjustment to retained earnings as of January 1, 2022 using a modified retrospective approach. The adoption mainly impacts trade receivables and unbilled receivables. The Company analyzed its historical credit loss experience and considered current conditions and reasonable forecasts in developing the expected credit loss rates. The adoption of this new standard did not have a material impact on the Company's condensed consolidated financial statements.
In November 2021, the FASB issued ASU 2021-10, Disclosures by Business Entities About Government Assistance (Topic 832), which requires business entities to provide certain disclosures when they (1) have received government assistance and (2) use a grant or contribution accounting model by analogy to other accounting guidance. The guidance is effective for all entities for fiscal years beginning after December 15, 2021. Entities may apply the ASU’s provisions either (1) prospectively to all transactions within the scope of ASC 832 that are reflected in the financial statements as of the adoption date and all new transactions entered into after the date of adoption or (2) retrospectively. The Company adopted the standard on January 1, 2022 on a prospective basis. The adoption of this standard did not have a material impact on the Company's condensed consolidated financial statements.
Recently Issued Accounting Pronouncements Not Yet Adopted
Concentration of Credit Risk and Other Risks and Uncertainties
Revenue generated from the Company's operations outside of the United States for the three months ended March 31, 2022 and 2021 was 63 % and 64 %, respectively.
As of March 31, 2022 and December 31, 2021, approximately 68 % and 73 %, respectively, of trade accounts receivable and unbilled accounts receivable was due from customers located outside the United States. At March 31, 2022 and December 31, 2021, the Company had net fixed assets of $26.2 million and $26.6 million, respectively, outside the United States.
Note 2 – Revenue Recognition
12
Disaggregation of Revenues
The following table presents the disaggregation of the Company’s revenues by customer location (in thousands):
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| North America (1) | $ | $ | |||||||||
| APAC (2) | |||||||||||
| Europe (3) | |||||||||||
| LATAM | |||||||||||
| Total revenues | $ | $ | |||||||||
(1)For the three months ended March 31, 2022 and 2021, the United States represented 35.9 %, or $115.1 million, and 36.1 %, or $85.9 million, respectively, of the Company’s total revenues. Canadian operations were determined to be immaterial given the revenues generated from such operations as a percentage of total North America revenues was less than 10% for the three months ended March 31, 2022 and 2021.
(2)For the three months ended March 31, 2022 and 2021, Australia represented 11.3 %, or $36.3 million, and 11.1 %, or $26.5 million, respectively, of the Company’s total revenues.
(3)For the three months ended March 31, 2022 and 2021, the United Kingdom represented 11.7 %, or $37.7 million, and 12.0 %, or $28.6 million, respectively, of the Company’s total revenues. For the three months ended March 31, 2021, the revenues generated in Germany represented 11.0 %, or $26.0 million, of the Company’s total revenues. For the three months ended March 31, 2022, revenues generated in Germany as a percentage of the Company’s total revenues was less than 10%.
Other foreign countries were determined to be immaterial given the revenues generated from such operations as a percentage of the Company’s total revenues was less than 10% for the three months ended March 31, 2022 and 2021.
The following table presents the disaggregation of the Company’s revenues by industry vertical (in thousands):
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Technology and business services | $ | $ | |||||||||
| Energy, public and health services | |||||||||||
| Retail and consumer | |||||||||||
| Financial services and insurance | |||||||||||
| Automotive, travel and transportation | |||||||||||
| Total revenues | $ | $ | |||||||||
The following table presents the disaggregation of the Company’s revenues by contract type (in thousands):
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Time-and-material | $ | $ | |||||||||
| Fixed-price | |||||||||||
| Total revenues | $ | $ | |||||||||
13
Contract Balances
The following table is a summary of the Company’s contract assets and contract liabilities (in thousands):
As of March 31, 2022 | As of December 31, 2021 | ||||||||||
| Contract assets included in unbilled receivables | $ | $ | |||||||||
| Contract liabilities included in deferred revenue | $ | $ | |||||||||
Contract liabilities represent amounts collected from the Company’s customers for revenues not yet earned. Such amounts are anticipated to be recorded as revenues when services are performed in subsequent periods. For the three months ended March 31, 2022 and 2021, the Company recognized $10.1 million and $6.2 million, respectively, of revenues that were included in current liabilities at the prior year end.
Costs to Obtain a Customer Contract
The Company incurs certain incremental costs to obtain a contract that the Company expects to recover. The Company applies a practical expedient and recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that the Company otherwise would have recognized is one year or less. These costs would primarily relate to commissions paid to our account executives and are included in SG&A expenses. The Company did not have long term contracts to capitalize related costs prior to the fourth quarter of 2021.
The following table is a summary of the Company’s costs to obtain contracts and related amortization and impairment where the amortization period of the assets is greater than one year (in thousands):
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Costs to obtain contracts, beginning balance | $ | $ | |||||||||
| Costs to obtain contracts capitalized | |||||||||||
| Amortization of capitalized costs | ( | ||||||||||
| Impairment of costs to obtain contracts | |||||||||||
| Changes due to exchange rates | ( | ||||||||||
| Costs to obtain contracts, ending balance | $ | $ | |||||||||
Transaction Price Allocated to Remaining Performance Obligations
The Company does not have material future performance obligations that extend beyond one year. Accordingly, the Company has applied the optional exemption for contracts that have an original expected duration of one year or less.
Note 3 – Income Taxes
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the Company computed the effective tax rate for the three month period ended March 31, 2022 using actual results, as allowed by ASC 740-270-30-18, Income Taxes-Interim Reporting.
The Company’s effective tax rate for the three months ended March 31, 2022 and March 31, 2021 was (0.5 )% and 19.9 %, respectively. The effective tax rate in each period differed from the U.S. statutory rate of 21% for such period primarily due to U.S. corporate state income taxation and the effect of foreign operations which reflects the impact of higher income tax rates in locations outside the United States, offset by excess tax benefits on stock-based compensation. The decrease in the effective tax rate for the three months ended March 31, 2022, as compared to the prior period, was primarily due to the non-deductibility of China SAFE restricted stock units ("RSUs"), the unfavorable impact of valuation allowances on deferred tax assets of select foreign operations, and the non-deductibility of executive compensation expense in compliance with §162(m) of the Internal Revenue Code. The negative effective tax rate for the three months ended March 31, 2022 is a result of the aforementioned unique net unfavorable items when compared to the pre-tax loss recorded for the quarter.
Note 4 – (Loss) Earnings Per Common Share
Basic (loss) earnings per common share is computed by dividing the net (loss) income allocated to common shareholders by the weighted average of common shares outstanding for the period.
Diluted loss per common share is computed by giving effect to all potential shares of common stock of the Company, including outstanding stock options and unvested equity-settled RSUs, to the extent dilutive. Basic and diluted loss per common share is the same for the current period ended, as the inclusion of all potential shares of common stock of the Company outstanding would have been anti-dilutive. The dilutive effect of potentially dilutive securities is reflected in diluted earnings per common share by application of the treasury stock method. For comparability purposes, all prior period share amounts presented have been retroactively adjusted to give effect to the Stock Split, and share counts below also reflect the conversion of preferred stock to common stock on a 1-for-1 basis upon the occurrence of the IPO.
The components of basic and diluted (loss) earnings per common share are as follows (in thousands, except share and per share data):
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Basic (loss) earnings per common share: | |||||||||||
| Net (loss) income | $ | ( | $ | ||||||||
| Earnings allocated to Preferred Stock | ( | ||||||||||
| Net (loss) income allocated to common shareholders – Basic | $ | ( | $ | ||||||||
| Weighted average common shares outstanding – Basic | |||||||||||
| Basic (loss) earnings per common share | $ | ( | $ | ||||||||
| Diluted (loss) earnings per common share: | |||||||||||
| Net (loss) income allocated to common shareholders – Basic | ( | ||||||||||
| Weighted average shares outstanding – Basic | |||||||||||
| Dilutive effect of: | |||||||||||
| Employee stock options and common shares (1) | |||||||||||
| Weighted average common shares outstanding – Diluted | |||||||||||
| Diluted (loss) earnings per common share | $ | ( | $ | ||||||||
(1) Reflects the dilutive effects of applying the treasury stock method to the employee stock options, after effects of an approximate 43.6-for-1 stock split noted above. Dilutive options include time and performance vesting options. Performance vesting options represent the accelerated vesting of all performance vesting
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The following potentially dilutive securities were excluded from the computation of diluted (loss) earnings per common share calculations because the impact of including them would have been anti-dilutive:
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Employee stock options and RSUs | |||||||||||
Note 5 – Leases
The Company leases facilities (office space and corporate apartments) and equipment (IT equipment) under various non-cancelable operating leases that expire through December 2031, some of which include one or more options to extend the leases, generally at rates to be determined in accordance with the agreements. The Company's facility leases generally provide for periodic rent increases and may contain escalation clauses and renewal options. The Company's lease terms include options to extend the lease if they are reasonably certain of being exercised.
The Company recognizes operating lease expense on a straight-line basis over the lease term and variable lease payments are expensed as incurred. Operating lease expense and the related variable lease expense is recorded within SG&A expenses in the Company's condensed consolidated statements of (loss) income and comprehensive (loss) income. The Company does not have finance leases.
The Company determines if a contract contains a lease at lease inception. If the borrowing rate implicit in the lease is not determinable, the Company uses its incremental borrowing rate ("IBR") based on information available at lease commencement including prevailing financial market conditions to determine the present value of future lease payments. The Company has elected the option to combine lease and non-lease components as a single component for the Company's entire population of lease assets.
Operating lease assets and lease liabilities are recognized at the lease commencement date. Operating lease liabilities represent the present value of lease payments not yet paid. Operating lease assets represent the right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, and lease incentives. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. Leased assets are presented net of accumulated amortization. Variable lease payment amounts that cannot be determined at the commencement of the lease, such as increases in lease payments based on changes in index rates or usage, are not included in the ROU assets or liabilities; instead, these are expensed as incurred and recorded as variable lease expense.
Adoption of Topic 842 resulted in the initial recognition of ROU assets of $40.9 million and lease liabilities of $43.7 million.
As of March 31, 2022, the Company does not have any leases that create significant rights and obligations that have not yet commenced. For the three months ended March 31, 2022, operating lease cost was $4.7 million. The Company's short-term lease cost and variable lease cost were immaterial.
The following table presents supplemental cash flow information (in thousands):
March 31, 2022 | ||||||||
| Cash paid for amounts included in the measurement of operating lease liabilities | $ | |||||||
| ROU assets obtained in exchange for new operating lease liabilities | ||||||||
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The following table presents average lease terms and discount rates (in thousands):
March 31, 2022 | ||||||||
| Weighted-average remaining lease term (years) | ||||||||
| Weighted average discount rate | % | |||||||
As of March 31, 2022, the aggregate future lease payments under all operating leases are as follows (in thousands):
| Operating | |||||
| Remainder of 2022 | $ | ||||
| 2023 | |||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| Thereafter | |||||
| Total lease payments | |||||
| Less: imputed interest | |||||
| Present value of lease liabilities | $ | ||||
ASC 840 Disclosures
Prior to the adoption of Topic 842, aggregate future minimum lease payments, net of sublease income, under all operating leases were as follows as of December 31, 2021 (in thousands):
| 2022 | $ | ||||
| 2023 | |||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| Thereafter | |||||
| Total future minimum lease payments | $ | ||||
Total rent expense for all operating leases for the three months ended March 31, 2021 was $4.8 million.
Note 6 – Stock-Based Compensation
The following is a summary of the components of stock-based compensation expense for the periods indicated (in thousands):
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Cost of revenues | $ | $ | |||||||||
| Selling, general and administrative expenses | |||||||||||
| Total stock-based compensation expense | $ | $ | |||||||||
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Stock Options
The following is a summary of performance and time vesting stock option activity for the three months ended March 31, 2022 (in thousands, except share and per share data):
| Number of Stock Options | Weighted Average Exercise Price | Aggregate Intrinsic Value | Weighted- Average Remaining Contractual Term (years) | ||||||||||||||||||||
| Balance at December 31, 2021 | $ | ||||||||||||||||||||||
| Granted | |||||||||||||||||||||||
| Forfeited | ( | ||||||||||||||||||||||
| Exercised | ( | ||||||||||||||||||||||
| Cancelled | |||||||||||||||||||||||
| Expired | |||||||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | |||||||||||||||||||||
| Exercisable at March 31, 2022 | $ | $ | |||||||||||||||||||||
As of March 31, 2022, total compensation cost related to time vesting options not yet recognized was $6.7 million, which will be recognized over a weighted-average period of 1.6 years. Unless otherwise prohibited by law in local jurisdictions, time vesting options will continue to vest according to the 2017 Stock Option Plan.
The following table summarizes the weighted-average assumptions used in estimating the fair value of stock options granted to employees during the three months ended March 31, 2021. No options were granted during the three months ended March 31, 2022.
| Three Months Ended March 31, | ||||||||
| 2021 (1) | ||||||||
| Risk-free interest rate | % | |||||||
| Dividend yield | % | |||||||
| Expected volatility | % | |||||||
| Expected term (years) | ||||||||
(1) The risk-free interest rate is based on the rates of U.S. Treasury securities with a maturity similar to the term to liquidity, continuously compounded. The expected equity volatility is estimated based on an analysis of guideline public companies’ historical volatility. As these stock options were awarded prior to the IPO, the expected term was estimated based on management’s assumptions of time to a liquidity event.
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Restricted Stock Units
The following is a summary of RSU activity for the three months ended March 31, 2022:
| Number of Restricted Stock Units | Weighted Average Grant Date Fair Value | ||||||||||
| Unvested balance at December 31, 2021 | $ | ||||||||||
| Granted (1) | |||||||||||
| Forfeited | ( | ||||||||||
| Vested (2) | ( | ||||||||||
| Unvested balance at March 31, 2022 | $ | ||||||||||
(1)Includes 4.4 million RSUs that were contingent upon the successful and active registration with the State Administration of Foreign Exchange of the People's Republic of China (“China SAFE”), which occurred on February 25, 2022.
(2)Includes 1.3 million shares that were net settled when released and returned to the share pool for future grants.
As of March 31, 2022, total compensation cost related to all RSUs not yet recognized was $226.3 million, of which $145.2 million is IPO related and considered nonrecurring. The remainder of $81.1 million is expected to be recurring in relation to the annual grant. The unamortized expense is anticipated to be recognized over a weighted-average period of 1.6 years.
Note 7 – Credit Agreements
The following table presents the Company's outstanding debt and borrowing capacity (in thousands):
| March 31, 2022 | December 31, 2021 | ||||||||||
| Availability under revolving credit facility (due March 26, 2026) | $ | $ | |||||||||
| Borrowings under revolving credit facility | $ | $ | |||||||||
| Long-term debt (due March 24, 2028), including current portion (1) | $ | $ | |||||||||
| Interest rate | % | % | |||||||||
(1)The balance includes deferred financing fees. A reconciliation of gross to net amounts is presented below.
The following table presents the carrying value of the Company’s credit facilities (including current maturities) (in thousands):
| March 31, 2022 | December 31, 2021 | ||||||||||
| Long-term debt, less current portion | $ | $ | |||||||||
| Capitalized deferred financing fees | ( | ( | |||||||||
| Long-term debt | |||||||||||
| Current portion of long-term debt | |||||||||||
| Total debt carrying value | $ | $ | |||||||||
The Company estimates the fair value of the Term Loan using current market yields. These current market yields are considered Level 2 inputs. The book value of the Company’s credit facilities is considered to approximate its fair value as of March 31, 2022 as the interest rates are considered in line with current market rates. The fair value of the Term Loan was $485.0 million as of December 31, 2021.
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Note 8 – Accrued Expenses
The following is a summary of the Company’s accrued expenses (in thousands):
| March 31, 2022 | December 31, 2021 | ||||||||||
| Accrued interest expense | $ | $ | |||||||||
| Accrued employee expense | |||||||||||
| Accrued travel expense | |||||||||||
| Operating lease expenses | |||||||||||
| Insurance charges | |||||||||||
| Professional fees | |||||||||||
| Withholding taxes payable | |||||||||||
| Other taxes payable | |||||||||||
| Rebates payable | |||||||||||
| Other accrued expenses | |||||||||||
| Accrued expenses | $ | $ | |||||||||
Note 9 – Subsequent Events
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our interim condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and the related notes included in our 2021 Annual Report. Some of the information contained in this discussion and analysis, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should read the sections titled “Risk Factors” in our 2021 Annual Report and “Forward-Looking Statements” herein for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Quarterly results reflected herein are not necessarily indicative of our operating results for a full year or any future period.
Overview
We are a global technology consultancy that integrates strategy, design and engineering to drive digital innovation. We are 11,000+ Thoughtworkers strong across 49 offices in 17 countries. Over the last 25+ years, we have delivered extraordinary impact together with our clients by helping them solve complex business problems with technology as the differentiator.
Our revenues are generated from providing professional services based on the mix and locations of delivery professionals involved, the pricing structure, which is predominantly time-and-materials, and the type of services, including: enterprise modernization, platforms & cloud; customer experience, product & design; data & artificial intelligence; and digital transformation & operations.
Key Operational and Business Metrics
In addition to the measures presented in our condensed consolidated financial statements, we use the following key operational and business metrics to evaluate our business, measure our performance, develop financial forecasts and make strategic decisions (in thousands, except percentages):
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Revenues | $ | 320,940 | $ | 237,662 | |||||||
| Revenue Growth Rate as reported (1) | 35.0 | % | 10.6 | % | |||||||
| Revenue Growth Rate at constant currency (1) | 38.2 | % | 6.1 | % | |||||||
| Net (loss) income | $ | (59,904) | $ | 18,585 | |||||||
| Net (loss) income margin | (18.7) | % | 7.8 | % | |||||||
| Adjusted Net Income (2) | $ | 43,992 | $ | 35,079 | |||||||
| Adjusted EBITDA (3) | $ | 72,872 | $ | 53,836 | |||||||
| Adjusted EBITDA Margin (3) | 22.7 | % | 22.7 | % | |||||||
(1)Certain of our subsidiaries use functional currencies other than the U.S. dollar and the translation of these foreign currency amounts into the U.S. dollar can impact the comparability of our revenues between periods. Accordingly, we use Revenue Growth Rate at constant currency as an important indicator of our underlying performance. Revenue Growth Rate at constant currency is calculated by applying the average exchange rates in effect during the earlier comparative fiscal period to the later fiscal period.
(2)We use Adjusted Net Income as an important indicator of our performance. See “—Non-GAAP Financial Measures” below for a definition of and reconciliation of Adjusted Net Income to net (loss) income, the most directly comparable GAAP measure, how we use this measure and an explanation of why we consider this non-GAAP measure to be helpful for investors.
(3)We also use Adjusted EBITDA and Adjusted EBITDA Margin as important indicators of our performance. See “—Non-GAAP Financial Measures” below for a definition of and a reconciliation of Adjusted EBITDA
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to net (loss) income, the most directly comparable GAAP measure, how we use Adjusted EBITDA and Adjusted EBITDA Margin and an explanation of why we consider these non-GAAP measures to be helpful for investors.
Revenue Growth Rate and Revenue Growth Rate at constant currency
For the three months ended March 31, 2022, revenues increased 35.0%. Had our consolidated revenues been expressed in constant currency terms using the exchange rates in effect for the three months ended March 31, 2021, we would have reported revenue growth of 38.2%. The negative impact to revenues, from foreign currencies, was as a result of the appreciation of the U.S. dollar relative to certain principal functional currencies of our subsidiaries.
For more detail regarding our exposure to foreign currency rate fluctuations, see Note 2, Revenue Recognition, to our condensed consolidated financial statements and “Item 3. Quantitative and Qualitative Disclosures About Market Risk.”
Net (Loss) Income, Net (Loss) Income Margin and Adjusted Net Income
For the three months ended March 31, 2022, we reported a net loss of $59.9 million, a decrease of $78.5 million, or 422.3%, compared to net income of $18.6 million for the three months ended March 31, 2021. We reported net loss margin for the three months ended March 31, 2022 of 18.7%, a decrease of approximately 26.5%, compared to a net income margin of 7.8% for the three months ended March 31, 2021. The decreases in net income and net income margin were driven by increased stock-based compensation expense of $118.9 million, $82.7 million included in cost of revenues and $36.2 million included in SG&A expenses, which includes (a) $47.7 million related to the approval of China SAFE RSUs; (b) $56.2 million related to the RSU grants issued in connection with the IPO; (c) $15.2 million related to RSU grants awarded post-IPO; and (d) $(0.2) million related to options granted in 2021. The decrease was also driven by increased payroll expenses (excluding stock-based compensation) of $50.3 million, $42.3 million included in cost of revenues and $8.0 million included in SG&A expenses, due to our investment in additional headcount to support revenue growth. The aforementioned increases in stock-based compensation expense and payroll expenses were partially offset by revenue growth of 35.0% reflecting strong demand for our services and our continued focus on obtaining new clients and growing our existing client relationships, a $6.4 million decrease in acquisition related expenses and a $4.3 million decrease in income tax expense. For more information, see “—Results of Operations.” We consider net income margin as the most directly comparable GAAP measure to Adjusted EBITDA Margin.
For the three months ended March 31, 2022, we reported Adjusted Net Income of $44.0 million, compared to $35.1 million for the three months ended March 31, 2021, an increase of $8.9 million, or 25.4%. The increase was primarily due to higher revenues as a result of strong demand for our services, improved staffing leverage alongside our differentiated value proposition and premium services driving a higher bill rate, improved efficiencies in the cost of delivering the general and administrative activities of our business, and a decrease in income tax expense. This was partially offset by increased payroll expenses (excluding stock-based compensation) to support revenue growth.
Adjusted EBITDA and Adjusted EBITDA Margin
For the three months ended March 31, 2022, we reported Adjusted EBITDA of $72.9 million, compared to $53.8 million for the three months ended March 31, 2021, an increase of $19.0 million, or 35.4%, and we reported an Adjusted EBITDA Margin of 22.7% compared to 22.7% for the three months ended March 31, 2021. The increase in Adjusted EBITDA was due to higher revenues as demand for our services increased, improved staffing leverage and efficiencies in our general and administrative expenses, partially offset by operating expenses such as increased payroll expenses (excluding stock-based compensation) to support revenue growth.
Business Update Regarding COVID-19
Since early 2020, the COVID-19 pandemic has caused general business disruption worldwide. As a result of the COVID-19 pandemic, we took precautionary measures to minimize the risk of the virus to our personnel, our clients and the communities in which we operate, including the temporary suspension of all non-essential
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business travel of personnel and the temporary closure of all of our major offices. Although a significant portion of our workforce has worked remotely through the COVID-19 pandemic, there has been minimal disruption in our ability to effectively provide our service offerings, as our employees are accustomed to operating in remote and distributed environments. Going forward, we will continue to monitor working conditions and adapt as needed.
We may continue to experience a modest adverse impact on certain parts of our business, including a lengthening of the sales cycle for some prospective clients and delays in the delivery of professional services and trainings to our clients. In addition, the continuing pandemic or potential recovery may impact our ability to retain our workforce, integrate new employees, preserve our culture and attract skilled talent. We also experienced, and we may continue to experience, a modest positive impact on other aspects of our business, such as slower growth in certain operating expenses due to reduced business travel and the virtualization or cancellation of in-person client and workforce events. The COVID-19 pandemic has caused substantial global public health and economic challenges. Our employees, communities and business operations and the global economy and financial markets continue to be affected. We cannot accurately predict the extent to which the COVID-19 pandemic will continue to directly and indirectly impact our business, results of operations and financial condition. Future developments and actions to contain the public health and economic impact of the COVID-19 pandemic in the markets we serve are rapidly evolving and highly uncertain.
Key Factors Affecting Our Performance
Our long-term financial trend is characterized by strong organic growth, strong client retention, a significant amount of revenues from recurring clients and substantial margin optimization with the support of onshore, nearshore and offshore delivery centers. Our performance for historical periods and future periods is driven by numerous factors discussed, including the following key factors.
Ability to retain and expand existing client relationships
For the trailing twelve months ended March 31, 2022, we served over 380 clients, which we define as clients with annual spend in excess of $25,000 within the preceding twelve months, many of whom we work with across multiple geographies. We actively manage our client portfolio and target clients where we believe there is opportunity to develop long-term relationships and drive significant growth. Accordingly, for both the three months ended March 31, 2022 and 2021, 95.4% of our revenues were derived from recurring clients, which we define as clients for whom we have done work and generated revenues in excess of $25,000 within the preceding fiscal year. For the trailing twelve month periods through March 31, 2022 and 2021, 88.3% and 89.9% of our revenues were derived from recurring clients, respectively, which we define as clients for whom we have done work and generated revenues in excess of $25,000 within the preceding twelve months. This represents increases of 62.4% and 37.0% in revenues from new and existing clients, respectively. For the trailing twelve month periods through March 31, 2022 and 2021, 31 and 23 clients, respectively, generated greater than $10 million in revenues, a 34.8% increase in the number of clients.
While we continue to derive a substantial part of our overall revenues from recurring clients, we maintain relatively low client concentration among our largest clients. For the three months ended March 31, 2022, revenues from our top five, ten and fifty clients as a percentage of total revenues were 15.0%, 25.9% and 66.1%, respectively, compared to 19.4%, 30.9% and 75.1%, respectively, for the three months ended March 31, 2021. The overall decrease of a percentage of total revenues for our top five and top ten clients is a result of a higher contribution of revenues from our top fifty clients growing at a faster pace than our top five and top ten clients in the first quarter of 2022 compared to the first quarter of 2021.
Net Dollar Retention Rate
We also utilize the net dollar retention ratio to measure revenue growth from our clients. Net dollar retention rate provides visibility into the risks associated with our revenues and expected growth, and it measures our ability to continually offer and deliver innovative services to our clients. We use this metric to appropriately manage resources and client retention and growth, such as account management and capability development of our account leadership teams. The net dollar retention ratio is calculated by dividing (a) the trailing twelve month period revenue from recurring clients by (b) the prior comparative period revenue from recurring clients.
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The net dollar retention ratio increased to approximately 132% for the trailing twelve months ended March 31, 2022 from 101% for the trailing twelve months ended March 31, 2021. The net dollar retention ratio for the trailing twelve months ended March 31, 2021 was largely driven by the impact of COVID-19. Starting in the second quarter of 2020, we experienced pauses in ongoing engagements and select project cancellations as certain of our clients focused on the immediate challenges linked to the COVID-19 pandemic. We believe that the financial challenges caused by COVID-19 contributed to lower technology spending by our existing customers concentrated in certain verticals, such as automotive, travel and transportation and retail and consumer. To partially offset the impact on revenue from the affected verticals, we pivoted our focus to companies that were increasing their spending on digital transformation in response to the COVID-19 pandemic. During the trailing twelve months ended March 31, 2022, sector diversification enabled us to re-balance sales exposure to verticals that were spending incrementally through the pandemic, such as technology and business services and energy, public and health services. As a result of our continued growth trend, the net dollar retention rate increased for the trailing twelve months ended March 31, 2022.
Ability to acquire new clients
We intend to continue to acquire new clients through programs designed to generate new business demand and position us as a trusted partner. Winning new business in existing and new geographies and industry verticals is a critical component of our growth strategy. Dedicated new business teams work with marketing using data-driven approaches to focus on client acquisition efforts. Commensurately, our total number of clients increased to 384 as of March 31, 2022 from 353 as of March 31, 2021, as we saw increased demand for our global services, including in North America, Europe, Asia-Pacific region ("APAC") and Latin America ("LATAM"). Going forward, we may also add new clients, including in new geographies and industry verticals, through selective strategic acquisitions.
Expanding our technical capabilities and client solutions
We combine strategy, design and software engineering expertise to offer premium, end-to-end solutions to our clients. Our value proposition is based on our thought leadership and expertise across innovative new technologies, differentiated client solutions across our service lines and local and nearshore capabilities (i.e., those delivered from nearby countries in similar time zones) and offshore capabilities (i.e., those delivered from distant countries in different time zones). Our premium position enabled us to drive average revenue per employee of approximately $29,000, or $116,000 annualized, for the three months ended March 31, 2022, which is consistent with the comparative period in 2021. We believe our average revenue per employee is meaningfully higher than all our pure-play competitors. We define average revenue per employee as total revenues for the period divided by the average number of employees in such period. Our ability to continue delivering premium and innovative services to our clients depends on evolving our technical and engineering capabilities.
Ability to recruit and retain talent
To provide services to our clients, we must efficiently hire, train and retain skilled professionals without compromising on the high standards we set for our people. We believe our ability to attract and retain top talent drives high client satisfaction and enables us to deliver on strong client demand to generate growth. Apart from driving high client satisfaction, lower attrition leads to lower hiring and training costs and increased productivity. For the trailing twelve month period through March 31, 2022, our voluntary attrition rate was 14.1%, up from 12.3% for the trailing twelve month period through March 31, 2021 driven by strong market demand for digital talent. We increased our total number of employees to over 11,000 as of March 31, 2022.
Ability to optimize our global delivery
We have a global footprint with the ability to deliver services from multiple geographic regions. As of March 31, 2022, 9 out of our top 10 clients relied on Thoughtworks’ delivery from more than one region. We utilize a blended delivery model, which means we are able to offer a combination of local talent with nearshore/offshore talent, allowing us to maintain close proximity to our clients for context and local market knowledge, while driving rapid and high-quality delivery at scale.
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Components of Our Operating Results
We operate and manage our business as one reportable segment. While the Company has offerings in multiple market segments and operates in multiple countries, the Company’s business operates as one operating segment. Almost all of the Company’s service offerings are delivered and supported on a global basis. Additionally, most of the Company’s service offerings are deployed in a nearly identical way and the Company’s chief operating decision maker, who is the Company's Chief Executive Officer, evaluates the Company’s financial information and resources and assesses the performance of these resources on a consolidated basis.
Revenues
Time-and-Materials Revenues. We generate the majority of our revenues under time-and-materials contracts, which are billed using hourly, daily or monthly rates to determine the amounts to be charged to the client. Revenue from time-and-material contracts is based on the number of hours worked and at contractually agreed-upon hourly rates and is recognized as those services are rendered as control of the services passes to the customer over time.
Fixed-Price Revenues. Fixed-price contracts include application development arrangements, where progress towards satisfaction of the performance obligation is measured using input methods as there is a direct correlation between hours incurred and the end product delivered to the client. Assumptions, risks and uncertainties inherent in the estimates used to measure progress could affect the amount of revenues, receivables and deferred revenues at each reporting period. Revenues under these contracts are recognized using costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying performance obligations.
For a detailed discussion of our revenue recognition policy, refer to the notes to our consolidated financial statements included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Cost of Revenues
Cost of revenues consists primarily of personnel and related costs directly associated with the professional services, including salaries, bonuses, fringe benefits, share-based compensation, project related travel costs and costs of contracted third-party vendors. Also included in cost of revenues is depreciation attributable to the portion of our property and equipment utilized in the delivery of services to our clients.
Gross Profit and Gross Margin
Gross profit represents revenues less cost of revenues. Gross margin represents gross profit as a percentage of revenues.
Selling, General and Administrative Expenses
SG&A expenses represent expenses associated with promoting and selling our services and general and administrative functions of our business. These expenses include the costs of salaries, bonuses, fringe benefits, stock-based compensation, severance, bad debt, travel, legal and accounting services, insurance, facilities (including operating leases), advertising and other promotional activities.
Depreciation and Amortization
Depreciation and amortization consist primarily of depreciation of fixed assets, amortization of capitalized software development costs (internal-use software) and amortization of acquisition-related intangible assets.
Other (Expense) Income
Other (expense) income consists of interest expense, impacts from foreign exchange transactions, gains (losses) on the sale of assets and the write-off of deferred financing fees.
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Income Tax Expense
Determining the consolidated income tax expense, deferred income tax assets and liabilities and any potential related valuation allowances involves judgment. We consider factors that may contribute, favorably or unfavorably, to the overall annual effective tax rate in the current year as well as the future. These factors include statutory tax rates and tax law changes in the countries where we operate as well as consideration of any significant or unusual items. Our income tax expense includes the impact of provisions established for uncertain income tax positions, as well as any related interest and penalties. These reserves are adjusted given changing facts and circumstances, such as the closing of a tax audit, statute of limitation lapse or the refinement of an estimate. To the extent the final outcome of an uncertain income tax position differs from the amounts recorded, such differences will impact our income tax expense in the period in which such determination is made.
Results of Operations
The following table sets forth a summary of our condensed consolidated results of operations for the periods indicated (in thousands, except percentages):
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Revenues | $ | 320,940 | $ | 237,662 | |||||||
| Operating expenses: | |||||||||||
| Cost of revenues (1) | 263,349 | 134,791 | |||||||||
| Selling, general and administrative expenses (1) | 111,734 | 66,516 | |||||||||
| Depreciation and amortization | 5,846 | 4,346 | |||||||||
| (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 | |||||||
| Effective tax rate | (0.5) | % | 19.9 | % | |||||||
(1) Includes stock-based compensation as follows (in thousands):
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Cost of revenues | $ | 83,493 | $ | 782 | |||||||
| Selling, general and administrative expenses | 37,243 | 1,092 | |||||||||
| Total stock-based compensation expense | $ | 120,736 | $ | 1,874 | |||||||
Summary Comparison of Three Months Ended March 31, 2022 with the Three Months Ended March 31, 2021
Revenues for the three months ended March 31, 2022 increased $83.3 million, or 35.0%, to $320.9 million, compared to $237.7 million for the three months ended March 31, 2021. The increase in revenues was driven by higher demand for services as certain clients accelerated their digital transformation projects. The majority of our revenues are generated from recurring clients or those expanding their usage of our services. Revenue recognized from our recurring client base was approximately 95.4% for the three months ended March 31,
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2022 and 95.4% for the three months ended March 31, 2021, with the remainder of our revenue attributable to new clients.
Our revenue growth primarily depends on our ability to retain and drive growth from existing clients. The net dollar retention ratio was approximately 132% and 101% for the trailing twelve months ended March 31, 2022 and 2021, respectively. For a discussion of the factors impacting our net dollar retention ratio, see "—Key Factors Affecting Our Performance—Net Dollar Retention Rate."
Income from operations for the three months ended March 31, 2022 decreased $92.0 million, or approximately 287.4%, to a loss from operations of $60.0 million compared to income from operations of $32.0 million for the three months ended March 31, 2021. Loss from operations as a percentage of revenues for the three months ended March 31, 2022 was (18.7)%, compared to income from operations of 13.5% for the three months ended March 31, 2021. The decrease was primarily driven by stock-based compensation of $118.9 million, as previously discussed.
Our effective tax rates for the three months ended March 31, 2022 and 2021 was (0.5)% and 19.9%, respectively. The effective tax rate in each period differed from the U.S. statutory tax rate of 21% principally due to U.S. corporate state income taxation and the effect of foreign operations which reflects the impact of different income tax rates in locations outside the United States, offset by excess tax benefits on stock-based compensation. The decrease in the effective tax rate for the three months ended March 31, 2022 as compared to the prior year was primarily due to the non-deductibility of China SAFE RSUs, the unfavorable impact of valuation allowances on deferred tax assets of select foreign operations, and the non-deductibility of executive compensation expense in compliance with §162(m) of the Internal Revenue Code. The negative effective tax rate for the three months ended March 31, 2022 is a result of the aforementioned unique net unfavorable items when compared to the pre-tax loss recorded for the quarter.
Net income for the three months ended March 31, 2022 decreased $78.5 million to a loss position of $59.9 million compared to net income of $18.6 million for the three months ended March 31, 2021. The decrease was driven by stock-based compensation.
Revenues
We continue to expand our international presence and nearshore capabilities in different geographies. For the three months ended March 31, 2022, total revenues grew 35.0% to $320.9 million compared to $237.7 million for the first quarter of 2021. The increase was attributable to strong demand for our services, including strong growth across geographies and verticals, and expansion in our top fifty clients.
Revenues by Industry Vertical
The following table presents our revenues by industry vertical and revenues as a percentage of total revenues by industry vertical for the periods indicated (in thousands, except percentages):
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Technology and business services | $85,349 | 26.6% | $66,210 | 27.9% | |||||||||||||||||||
| Energy, public and health services | 77,110 | 24.0% | 63,664 | 26.8% | |||||||||||||||||||
| Retail and consumer | 62,435 | 19.5% | 41,133 | 17.3% | |||||||||||||||||||
| Financial services and insurance | 58,464 | 18.2% | 34,254 | 14.4% | |||||||||||||||||||
| Automotive, travel and transportation | 37,582 | 11.7% | 32,401 | 13.6% | |||||||||||||||||||
| Total revenues | $320,940 | 100.0% | $237,662 | 100.0% | |||||||||||||||||||
During the three months ended March 31, 2022, we continued to see a strong demand environment and sustained revenue growth in the financial services and insurance and retail and consumer industry verticals which grew by 70.7% and 51.8%, respectively.
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Revenues by Customer Location
Our revenues are sourced from four geographic markets: North America, APAC, Europe and LATAM. We present and discuss our revenues by the geographic location where the revenues are under client contract; however, the delivery of those client contracts could be supported by offshore delivery locations.
The following table presents our revenues by customer location and revenues as a percentage of total revenues by customer location for the periods indicated (in thousands, except percentages):
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| North America | $121,949 | 38.0% | $89,795 | 37.8% | |||||||||||||||||||
| APAC | 102,206 | 31.9% | 72,590 | 30.5% | |||||||||||||||||||
| Europe | 82,926 | 25.8% | 64,114 | 27.0% | |||||||||||||||||||
| LATAM | 13,859 | 4.3% | 11,163 | 4.7% | |||||||||||||||||||
| Total revenues | $320,940 | 100.0% | $237,662 | 100.0% | |||||||||||||||||||
For the three months ended March 31, 2022, we had revenue growth of 35.8% in North America, with the United States generating revenues of $115.1 million, compared to $85.9 million for the same period in 2021. The largest client demand came from the energy, public and health services vertical which was primarily driven by our clients' increased focus on digital transformation. Further, our ability to retain existing clients and increase the level of services we provide resulted in incremental revenue expansion.
For the three months ended March 31, 2022, we had revenue growth of 40.8% in APAC where the top revenue contributing customer location country was Australia, generating revenues of $36.3 million, compared to $26.5 million for the same period in 2021. The largest client demand came from the technology and business services industry vertical driven by increased client demand on digital transformation projects.
For the three months ended March 31, 2022, we had revenue growth of 29.3% in Europe where the top revenue contributing customer location countries were the United Kingdom and Germany generating revenues of $37.7 million and $31.8 million, respectively, compared to $28.6 million and $26.0 million, respectively, for the same period in 2021. The largest driver of client demand came from our automotive, travel and transportation industry vertical where certain automotive manufacturers and service providers continued to focus on digital transformation.
For the three months ended March 31, 2022, we had revenue growth of 24.2% in LATAM, with Brazil being our largest customer location generating revenues of $7.8 million compared to $6.4 million for the same period in 2021. The largest driver of client demand came from our retail and consumer vertical where our clients continue to focus on digital transformation.
Revenues by Client Concentration
We have long-standing relationships with many of our clients. We seek to grow revenues from our existing clients by continually increasing the value we provide and expanding the scope and size of our engagements. Revenues derived from these clients may fluctuate as these accounts mature or upon beginning or completion of multi-year projects. We believe there is significant potential for future growth as we expand our capabilities and offerings within existing clients. In addition, we remain committed to diversifying our client base and adding new clients to our client mix.
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The following table presents revenues contributed by our largest clients by amount and as a percentage of total revenues for the periods indicated (in thousands, except percentages):
| Three Months Ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Top five clients | $48,120 | 15.0% | $45,996 | 19.4% | |||||||||||||||||||
| Top ten clients | $83,031 | 25.9% | $73,544 | 30.9% | |||||||||||||||||||
| Top fifty clients | $212,012 | 66.1% | $178,470 | 75.1% | |||||||||||||||||||
For the three months ended March 31, 2022, revenues from our top five and top ten existing clients experienced strong but slower growth compared to our year-over-year growth rate of 35.0% as we saw a higher contribution of revenues from our top fifty clients growing at a faster pace compared to the the same period in 2021. Additionally, we continued to focus on opportunities with new and existing clients, with 4.6% of revenues from new clients and 95.4% of revenues from existing clients, representing increases of 35.7% and 35.0% in revenues from new and existing clients, respectively.
Bookings
We use Bookings ("Bookings") as a forward-looking metric that measures the value of new contracts, renewals, extensions and changes to existing contracts during the fiscal period. We believe Bookings provides a broad measure of useful trend information regarding changes in the volume of our business. We use Bookings to evaluate the results of our operations, generate future operating plans and assess the performance of our company. However, Bookings can vary significantly quarter to quarter due to both timing and demand from our clients and thus the conversion of Bookings to revenues is uncertain. The amount of Bookings involves estimates and judgments and is not a reliable predictor of revenues over time. There is no standard definition or measurement of Bookings thus our methodology may not be comparable to other companies. Bookings were $1,510 million and $1,082 million for the trailing twelve months ended March 31, 2022 and 2021, respectively.
Cost of Revenues
| Three Months Ended March 31, | |||||||||||||||||||||||
| (in thousands, except percentages) | 2022 | 2021 | Change | % Change | |||||||||||||||||||
| Cost of revenues | $263,349 | $134,791 | $128,558 | 95.4% | |||||||||||||||||||
During the three months ended March 31, 2022, cost of revenues (including stock-based compensation) increased by $128.6 million, or 95.4%, compared to the three months ended March 31, 2021. This increase was primarily driven by an increase in payroll and benefit expenses of $42.3 million due to higher headcount as we invested in additional talent to support growth and stock-based compensation expense of $82.7 million.
Gross Profit and Gross Margin
| Three Months Ended March 31, | |||||||||||||||||||||||
| (in thousands, except percentages) | 2022 | 2021 | Change | % Change | |||||||||||||||||||
| Gross profit | $57,591 | $102,871 | $(45,280) | (44.0)% | |||||||||||||||||||
| Gross margin | 17.9% | 43.3% | |||||||||||||||||||||
Our gross margin decreased by 25.4% for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 primarily due to an increase in stock-based compensation of $82.7 million. This was partially offset by our revenue growth from the increased demand for our services along with our ability to execute certain strategic operational efficiency initiatives.
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Selling, General and Administrative Expenses
| Three Months Ended March 31, | |||||||||||||||||||||||
| (in thousands, except percentages) | 2022 | 2021 | Change | % Change | |||||||||||||||||||
| Selling, general and administrative expenses | $111,734 | $66,516 | $45,218 | 68.0% | |||||||||||||||||||
For the three months ended March 31, 2022, SG&A expenses were $111.7 million, representing an increase of approximately 68.0%, compared to the three months ended March 31, 2021. The increase was primarily due to stock-based compensation expense of $36.2 million and payroll expenses (excluding stock-based compensation) of $8.0 million, partially offset by a decrease in acquisition-related retention payments of $6.4 million.
Depreciation and Amortization
| Three Months Ended March 31, | |||||||||||||||||||||||
| (in thousands, except percentages) | 2022 | 2021 | Change | % Change | |||||||||||||||||||
| Depreciation and amortization | $5,846 | $4,346 | $1,500 | 34.5% | |||||||||||||||||||
Depreciation and amortization relate to depreciation charges on our fixed assets, capitalized software amortization expense and intangible asset amortization expense. The increase was primarily due to an increase in the amortization expense related to increased capitalized software development costs for the three months ended March 31, 2022 compared to the three months ended March 31, 2021.
Interest Expense
| Three Months Ended March 31, | |||||||||||||||||||||||
| (in thousands, except percentages) | 2022 | 2021 | Change | % Change | |||||||||||||||||||
| Interest expense | $4,647 | $6,194 | $(1,547) | (25.0)% | |||||||||||||||||||
Interest expense is primarily related to our term loan and revolving credit facilities. The decrease was primarily due to decreased borrowings under our term loan facility for the three months ended March 31, 2022 compared to the three months ended March 31, 2021.
Income Tax Expense
| Three Months Ended March 31, | |||||||||||||||||||||||
| (in thousands, except percentages) | 2022 | 2021 | Change | % Change | |||||||||||||||||||
| Income tax expense | $301 | $4,623 | $(4,322) | (93.5)% | |||||||||||||||||||
The Company’s income tax expense decreased by $4.3 million for the three months ended March 31, 2022 as compared to the three months ended March 31, 2021 primarily due to the pre-tax loss recorded for the period from IPO related stock-based compensation and related excess tax benefits on stock-based compensation, offset by the non-deductibility of China SAFE RSUs, the unfavorable impact of valuation allowances on deferred tax assets of select foreign operations, and the non-deductibility of executive compensation expense in compliance with §162(m) of the Internal Revenue Code.
Foreign Currency Exchange Gains and Losses
See “Item 3. Quantitative and Qualitative Disclosure About Market Risk” included elsewhere in this Quarterly Report as well as “Item 1A. Risk Factors—Risks Related to Our Global Operations—Our business, financial condition and results of operations may be adversely affected by fluctuations in foreign currency exchange rates" as included in our 2021 Annual Report.
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Non-GAAP Financial Measures
We define Adjusted Net Income as net (loss) income adjusted for unrealized (gain) loss on foreign currency exchange, stock-based compensation expense, employer payroll tax on employee equity incentive plan, amortization of acquisition-related intangibles, acquisition costs, certain professional fees that are considered unrelated to our ongoing revenue-generating operations, tender offer compensation expense that is considered one-time in nature, IPO-related costs and income tax effects of adjustments.
We define Adjusted EBITDA as net (loss) income adjusted to exclude income tax expense, interest expense, other expense (income), net, unrealized (gain) loss on foreign currency exchange, stock-based compensation expense, employer payroll tax on employee equity incentive plan, depreciation and amortization expense, acquisition costs, certain professional fees that are considered unrelated to our ongoing revenue-generating operations, tender offer compensation expense that is considered one-time in nature and IPO-related costs. Adjusted EBITDA Margin is calculated by dividing Adjusted EBITDA by total revenues.
We use Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted Net Income as measures of operating performance and the operating leverage in our business. We believe that these non-GAAP financial measures are useful to investors for supplemental period-to-period comparisons of our business and in understanding and evaluating our operating results for the following reasons:
•Our management uses Adjusted Net Income to assess our overall performance, without regard to items that are considered to be unique or non-recurring in nature or otherwise unrelated to our ongoing revenue-generating operations, net of the income tax effect of the adjustments;
•Adjusted EBITDA and Adjusted EBITDA Margin are widely used by investors and securities analysts to measure a company’s operating performance without regard to items such as stock-based compensation expense, employer payroll tax on employee equity incentive plan, depreciation and amortization expense, interest expense, other expense (income), net, and income tax expense which can vary substantially from company to company depending upon their financing, capital structures, and the method by which assets were acquired or costs that are unique or non-recurring in nature or otherwise unrelated to our ongoing revenue-generating operations;
•Our management uses Adjusted Net Income, Adjusted EBITDA and Adjusted EBITDA Margin in conjunction with financial measures prepared in accordance with GAAP for planning purposes, including the preparation of our annual operating budget, as a measure of our core operating results and the effectiveness of our business strategy, and in evaluating our financial performance; and
•Adjusted Net Income, Adjusted EBITDA and Adjusted EBITDA Margin provide consistency and comparability with our past financial performance, facilitate period-to-period comparisons of our core operating results, and also facilitate comparisons with other peer companies, many of which use similar non-GAAP financial measures to supplement their GAAP results.
Adjusted Net Income, Adjusted EBITDA and Adjusted EBITDA Margin have limitations as analytical tools, and you should not consider these measures in isolation or as substitutes for analysis of our financial results as reported under GAAP. Some of these limitations are, or may in the future be, as follows:
•Although depreciation and amortization expense is a non-cash charge, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA and Adjusted EBITDA Margin do not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;
•Adjusted Net Income, Adjusted EBITDA and Adjusted EBITDA Margin exclude stock-based compensation expense, which has recently been, and will continue to be for the foreseeable future, a significant recurring expense for our business and an important part of our compensation strategy;
•Adjusted Net Income, Adjusted EBITDA and Adjusted EBITDA Margin do not reflect changes in, or cash requirements for, our working capital needs;
•Adjusted EBITDA and Adjusted EBITDA Margin do not reflect (i) interest expense, or the cash requirements necessary to service interest or principal payments on our debt, which reduces cash available to us; or (ii) accruals or tax payments that may represent a reduction in cash available to us;
•Adjusted Net Income, Adjusted EBITDA and Adjusted EBITDA Margin do not reflect transaction costs related to acquisitions; and
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•The expenses and other items that we exclude in our calculations of Adjusted Net Income, Adjusted EBITDA and Adjusted EBITDA Margin may differ from the expenses and other items, if any, that other companies may exclude from similarly-titled non-GAAP measures when they report their operating results, and we may, in the future, exclude other significant, unusual or non-recurring expenses or other items from these financial measures.
Because of these limitations, Adjusted Net Income, Adjusted EBITDA and Adjusted EBITDA Margin should be considered along with other financial performance measures presented in accordance with GAAP.
The following tables present a reconciliation of Adjusted Net Income, Adjusted EBITDA and Adjusted EBITDA Margin to their most directly comparable financial measure prepared in accordance with GAAP, for the periods indicated (in thousands, except percentages):
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Net (loss) income | $ | (59,904) | $ | 18,585 | |||||||
| Unrealized foreign exchange (gains) losses | (5,847) | 3,929 | |||||||||
| Stock-based compensation | 120,736 | 1,874 | |||||||||
| Amortization of acquisition-related intangibles | 2,992 | 2,981 | |||||||||
| Acquisition costs (a) | 20 | 6,403 | |||||||||
| Certain professional fees (b) | 803 | 1,648 | |||||||||
| Non-recurring tender offer compensation expense (c) | — | 2,714 | |||||||||
| IPO-related costs (d) | — | 1,043 | |||||||||
| Employer payroll tax on employee equity incentive plans (e) | 3,622 | — | |||||||||
| Income tax effects of adjustments (f) | (18,430) | (4,098) | |||||||||
| Adjusted Net Income | $ | 43,992 | $ | 35,079 | |||||||
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Net (loss) income | $ | (59,904) | $ | 18,585 | |||||||
| Income tax expense | 301 | 4,623 | |||||||||
| Interest expense | 4,647 | 6,194 | |||||||||
| Other income, net | (88) | (61) | |||||||||
| Unrealized foreign exchange (gains) losses | (5,847) | 3,929 | |||||||||
| Stock-based compensation | 120,736 | 1,874 | |||||||||
| Depreciation and amortization | 8,582 | 6,884 | |||||||||
| Acquisition costs (a) | 20 | 6,403 | |||||||||
| Certain professional fees (b) | 803 | 1,648 | |||||||||
| Non-recurring tender offer compensation expense (c) | — | 2,714 | |||||||||
| IPO-related costs (d) | — | 1,043 | |||||||||
| Employer payroll tax on employee equity incentive plans (e) | 3,622 | — | |||||||||
| Adjusted EBITDA | $ | 72,872 | $ | 53,836 | |||||||
| Net (loss) income margin | (18.7) | % | 7.8 | % | |||||||
| Adjusted EBITDA Margin | 22.7 | % | 22.7 | % | |||||||
(a)Reflects costs for certain professional fees and retention wage expenses related to certain acquisitions.
(b)Adjusts for certain transaction expenses, non-recurring legal expenses, and one-time professional fees.
(c)Adjusts for the additional compensation expense related to the tender offer completed in the first quarter of 2021.
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(d)Adjusts for IPO-readiness costs and expenses that do not qualify as equity issuance costs.
(e)We exclude employer payroll tax expense on equity incentive plans as these expenses are tied to the exercise or vesting of underlying equity awards and the price of our common stock at the time of vesting or exercise. As a result, these taxes may vary in any particular period independent of the financial and operating performance of our business.
(f)Adjusts for the income tax effects of the foregoing adjusted items.
Liquidity and Capital Resources
The following table summarizes certain key measures of our liquidity and capital resources (in thousands):
| March 31, 2022 | December 31, 2021 | ||||||||||
| Cash and cash equivalents | $ | 339,638 | $ | 368,209 | |||||||
| Availability under revolving credit facility | 165,000 | 165,000 | |||||||||
| Borrowings under revolving credit facility | — | — | |||||||||
| Long-term debt, including current portion (1) | 502,935 | 504,530 | |||||||||
(1)The balance includes deferred financing fees. A reconciliation of gross to net amounts is presented in Note 7, Credit Agreements.
Our cash generated from operations and financing activities has been our primary source of liquidity to fund operations and investments. Our capital investments focus on our technology solutions, corporate infrastructure and strategic acquisitions to further expand into new business sectors and/or expand sales in existing sectors. The Company generates sufficient cash flows for working capital and expects to do so for the foreseeable future.
As of March 31, 2022, our principal sources of liquidity were cash and cash equivalents of $339.6 million and $165.0 million of available borrowings under our revolving credit facility. Cash and cash equivalents as of March 31, 2022 continue to include (a) proceeds from the issuance of preferred stock in the first and second quarter of 2021 of $322.8 million, net of equity issuance costs of $7.2 million, which proceeds were subsequently used to repurchase equity from existing shareholders; and (b) proceeds from the completion of our IPO in the third quarter of 2021 of $314.7 million, net of the underwriting discounts and commissions and other offering expenses of approximately $30.3 million.
In the future, we may enter into arrangements to acquire or invest in complementary businesses, services and technologies, or intellectual property rights. To fund these acquisitions or investments, we may seek to access the debt or capital markets. Our ability to obtain additional funding will be subject to various factors, including general market conditions, our operating performance, the market’s perception of our growth potential, lender sentiment and our ability to incur additional debt in compliance with our contractual restrictions, including those in our Credit Agreement (as defined below).
Our Credit Facilities
Our subsidiaries are party to an amended and restated credit agreement, dated as of March 26, 2021 (as amended, the “Credit Agreement”), among Thoughtworks, Inc., Turing Acquisition LLC and Turing Midco LLC (collectively, the “Borrowers”), Turing Topco LLC (“Holdings”), Credit Suisse AG, Cayman Islands Branch, as administrative agent, the lenders party thereto and the other parties from time-to-time party thereto. The Credit Agreement provides for a senior secured term loan of $715.0 million (the “Term Loan”) and a senior secured revolving credit facility of up to $165.0 million (the “Revolver”). As of March 31, 2022, we had $507.9 million outstanding under our Term Loan with an interest rate of 3.25% and no borrowings outstanding under the Revolver.
Borrowings under the Credit Agreement are guaranteed by substantially all the Borrowers’ direct and indirect wholly owned material domestic subsidiaries subject to customary exceptions (the “Guarantors” and together with the Borrowers and Holdings, the “Loan Parties”). The obligations under the Credit Agreement and the guarantees of the Guarantors are secured by substantially all of the Loan Parties’ assets, subject to customary exceptions and thresholds.
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Borrowings under the Term Loan bear interest at a rate per annum equal to an applicable margin plus either (a) a base rate or (b) a LIBOR rate, at our option, subject to interest rate floors. Borrowings under the Revolver bear interest at a rate per annum equal to an applicable margin plus either (x) a base rate or (y) a LIBOR rate at our option. In addition to paying interest on outstanding borrowings under the Revolver, we are required to pay a commitment fee to the lenders under the Revolver in respect of unutilized commitments thereunder and customary letter of credit fees. The applicable margins in respect of both the Term Loan and the Revolver are subject to adjustments based on our first lien leverage ratios and corporate family ratings. In the first quarter of 2022, the interest rate applicable to our Term Loan and our Revolver was permanently reduced by 25 basis points.
The Credit Agreement requires compliance with certain covenants customary for agreements of this type. As of March 31, 2022, we were in compliance with our debt covenants.
Cash Flows
The following table shows a summary of our cash flows for the periods indicated (in thousands):
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Net cash (used in) provided by: | |||||||||||
| Operating activities | $ | (6,095) | $ | 29,761 | |||||||
| Investing activities | (4,998) | (50,266) | |||||||||
| Financing activities | (29,792) | (56,620) | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | 182 | (1,204) | |||||||||
| Net decrease in cash and cash equivalents | $ | (40,703) | $ | (78,329) | |||||||
Operating Activities
Net cash used in operating activities during the three months ended March 31, 2022 was $6.1 million compared to net cash provided by operating activities of $29.8 million in the comparable period in 2021. The increase in cash used was primarily due to an increase in trade receivables and unbilled receivables as a result of increased revenue in the first quarter of 2022 compared to the first quarter of 2021 and a decrease in accrued expenses and other liabilities due to the payment of bonus, annual wage payment and commissions.
Investing Activities
Net cash used in investing activities during the three months ended March 31, 2022 was $5.0 million compared to $50.3 million in the same period in 2021. The decrease was primarily attributable to the acquisition of Gemini and Fourkind in 2021.
Financing Activities
Net cash used in financing activities during the three months ended March 31, 2022 was $29.8 million driven by withholding taxes paid related to the following: net share settlement on equity awards of $7.3 million, tender offer of $15.5 million and dividends previously declared of $5.9 million.
Net cash used in financing activities of $56.6 million during the three months ended March 31, 2021 was primarily attributable to the repurchase of shares and vested options from our securityholders using the proceeds from the issuance of $720.0 million of preferred stock, partially offset by proceeds from an increase in our term loan (which were subsequently used to pay a dividend to our securityholders in April 2021).
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Contractual Obligations and Future Capital Requirements
Contractual Obligations
There were no material changes in our contractual obligations and commitments during the three months ended March 31, 2022 from the contractual obligations and commitments disclosed in the 2021 Annual Report. See Note 5, Leases, of the notes to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report for additional information regarding our lease commitments.
Except as disclosed in “—Our Credit Facilities” and those mentioned above, we did not have other material contractual obligations for cash expenditures.
Future Capital Requirements
We believe that our existing cash and cash equivalents combined with our expected cash flow from operations will be sufficient to meet our projected operating and capital expenditure requirements for at least the next twelve months and that we possess the financial flexibility to execute our strategic objectives, including the ability to make acquisitions and strategic investments in the foreseeable future. However, our ability to generate cash is subject to our performance, general economic conditions, industry trends and other factors. To the extent that existing cash and cash equivalents and operating cash flow are insufficient to fund our future activities and requirements, we may need to raise additional funds through public or private equity or debt financing. If we incur new debt, the debt holders would have rights senior to common stockholders to make claims on our assets, and the terms of any debt could restrict our operations, including our ability to pay dividends on our common stock. If we issue additional equity or convertible debt securities, existing stockholders may experience dilution, and such new securities could have rights senior to those of our common stock. These factors may make the timing, amount, terms and conditions of additional financings unattractive. Our inability to raise capital could impede our growth or otherwise require us to forego growth opportunities and could materially adversely affect our business, financial condition and results of operations. There is no assurance that we would be able to raise additional funds on favorable terms or at all.
Commitments and Contingencies
Certain conditions may exist as of the date of the condensed consolidated financial statements which may result in a loss to the Company but will only be resolved when one or more future events occur or fail to occur. Such liabilities for loss contingencies arising from claims, assessments, litigation, fines, penalties and other sources, are recorded when the Company assesses that it is probable that a future liability has been incurred and the amount can be reasonably estimated. Recoveries of costs from third parties, which the Company assesses as being probable of realization, are recorded to the extent of related contingent liabilities accrued. Legal costs incurred in connection with matters relating to contingencies are expensed in the period incurred. The Company records gain contingencies when realized.
Off-Balance Sheet Arrangements
We did not have during any of the periods presented, and we do not currently have, any off-balance sheet financing arrangements or any relationships with unconsolidated entities or financial partnerships, including entities sometimes referred to as structured finance or special purpose entities, that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Recent Accounting Pronouncements
See Note 1, Business and Summary of Significant Accounting Policies, in the notes to our condensed consolidated financial statements included in Part I, Item I of this Quarterly Report for a discussion of recent accounting pronouncements.
Critical Accounting Policies
Our condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report are prepared in accordance with GAAP. In preparing the condensed consolidated financial statements, we make estimates and judgments that affect the reported amounts of assets, liabilities,
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stockholders’ equity, revenues, expenses and related disclosures. We re-evaluate our estimates on an on-going basis. Our estimates are based on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Because of the uncertainty inherent in these matters, actual results may differ from these estimates and could differ based upon other assumptions or conditions.
There have been no material changes to our critical accounting policies and estimates as compared to those described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” set forth in our 2021 Annual Report.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to certain market risks in the ordinary course of our business. These risks primarily result from changes in concentration of credit, interest rates and foreign currency exchange rates. In addition, our international operations are subject to risks related to differing economic conditions, civil unrest, political instability or uncertainty, military activities, broad-based sanctions, differing tax structures, and other regulations and restrictions.
There were no material changes to the information on market risk disclosure from our 2021 Annual Report.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, the "Exchange Act"), as of the end of the period covered by this Quarterly Report.
Based on such evaluation, our principal executive officer and principal financial officer have concluded that as of such date, our disclosure controls and procedures are designed to, and are effective to, provide assurance at a reasonable level that the information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (identified in management's evaluation pursuant to Rules 13a-15(d) and 15d-15(d) under the Exchange Act) that occurred during the period covered by this Quarterly Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures and internal control over financial reporting, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures and internal control over financial reporting must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may be involved in litigation relating to claims arising out of our operations and businesses that cover a wide range of matters, including, among others, intellectual property, data privacy and cybersecurity, contract and employment, personal injury, product liability and warranty. Currently, there are no claims or proceedings against us that we believe will have a material adverse effect on our business, financial condition, results of operations or cash flows. However, the results of any current or future litigation cannot be predicted with certainty and, regardless of the outcome, we may incur significant costs and experience a diversion of management resources as a result of litigation.
Item 1A. Risk Factors
The business, financial condition and operating results of the Company can be affected by a number of factors, whether currently known or unknown, including but not limited to those described in the 2021 Annual Report in Part I, Item 1A. “Risk Factors,” any one or more of which could, directly or indirectly, cause the Company’s actual financial condition and operating results to vary materially from past, or from anticipated future, financial condition and operating results. Any of these factors, in whole or in part, could materially and adversely affect the Company’s business, financial condition, operating results and stock price. There have been no material changes to the Company’s risk factors since those set forth in the 2021 Annual Report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
There were no unregistered sales of the Company's equity securities during the first quarter of 2022.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
None.
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Item 6. Exhibits
| Exhibit Number | Description | ||||||||||||||||
| 31.1* | |||||||||||||||||
| 31.2* | |||||||||||||||||
| 32.1** | |||||||||||||||||
| 32.2** | |||||||||||||||||
| 101.INS* | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | ||||||||||||||||
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document | ||||||||||||||||
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | ||||||||||||||||
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | ||||||||||||||||
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document | ||||||||||||||||
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | ||||||||||||||||
| 104* | Cover Page Interactive Data File - (formatted as inline XBRL and contained in Exhibit 101) | ||||||||||||||||
| * | Exhibits filed herewith | ||||||||||||||||
| ** | Exhibits furnished herewith | ||||||||||||||||
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: May 9, 2022
| THOUGHTWORKS HOLDING, INC. | ||||||||||||||
| By: | /s/ Guo Xiao | |||||||||||||
| Guo Xiao | ||||||||||||||
| Chief Executive Officer and Director | ||||||||||||||
| (Principal Executive Officer) | ||||||||||||||
| By: | /s/ Erin Cummins | |||||||||||||
| Erin Cummins | ||||||||||||||
| Chief Financial Officer | ||||||||||||||
| (Principal Financial Officer and Principal Accounting Officer) | ||||||||||||||
39
EXHIBIT 31.1
Certification by Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Guo Xiao, certify that:
1.I have reviewed this quarterly report on Form 10-Q of Thoughtworks Holding, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c.Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: May 9, 2022
| /s/ Guo Xiao | |||||
| Guo Xiao | |||||
| Chief Executive Officer and Director | |||||
| (Principal Executive Officer) | |||||
EXHIBIT 31.2
Certification by Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Erin Cummins, certify that:
1.I have reviewed this quarterly report on Form 10-Q of Thoughtworks Holding, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c.Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: May 9, 2022
| /s/ Erin Cummins | |||||
| Erin Cummins | |||||
| Chief Financial Officer | |||||
| (Principal Financial Officer and Principal Accounting Officer) | |||||
EXHIBIT 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Thoughtworks Holding, Inc. (the "Company") for the quarter ended March 31, 2022 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Guo Xiao, as Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge:
i.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
ii.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.
Date: May 9, 2022
| /s/ Guo Xiao | |||||
| Guo Xiao | |||||
| Chief Executive Officer and Director | |||||
| (Principal Executive Officer) | |||||
EXHIBIT 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Thoughtworks Holding, Inc. (the "Company") for the quarter ended March 31, 2022 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Erin Cummins, as Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to her knowledge:
i.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
ii.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report.
Date: May 9, 2022
| /s/ Erin Cummins | |||||
| Erin Cummins | |||||
| Chief Financial Officer | |||||
| (Principal Financial Officer and Principal Accounting Officer) | |||||