SEC Filing | Thoughtworks, Inc.

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twks-20220630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended June 30, 2022


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

For transition period from ______ to _____

Commission File Number 001-40812

THOUGHTWORKS HOLDING, INC.

(Exact name of registrant as specified in its charter)


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

200 East Randolph Street, 25th Floor

Chicago, Illinois 60601

(312) 373-1000

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

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

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, $0.001 par value

TWKS

Nasdaq Global Select Market

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

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

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


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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

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

As of August 11, 2022, there were approximately 311,131,085 shares of the registrant's common stock outstanding.

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

Part I. Financial Information
Item 1	Condensed Consolidated Financial Statements (Unaudited)	5
	Condensed Consolidated Balance Sheets as of June 30, 2022 (Unaudited) and December 31, 2021	5
	Condensed Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income for the three and six months ended June 30 , 2022 and 2021 (Unaudited)	6
	Condensed Consolidated Statements of Changes in Redeemable Convertible Preferred Stock and Stockholders' Equity for the three and six months ended June 30 , 2022 and 2021 (Unaudited)	7
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30 , 2022 and 2021 (Unaudited)	9
	Notes to the Condensed Consolidated Financial Statements (Unaudited)	11
Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3	Quantitative and Qualitative Disclosure About Market Risk	41
Item 4	Controls and Procedures	41

Part II. Other Information
Item 1	Legal Proceedings	43
Item 1A	Risk Factors	43
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	43
Item 3	Defaults Upon Senior Securities	43
Item 4	Mine Safety Disclosures	43
Item 5	Other Information	43
Item 6	Exhibits	44
Signatures		45

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FORWARD-LOOKING STATEMENTS

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

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

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

•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;

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

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

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

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

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

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

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

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PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (Unaudited)


THOUGHTWORKS HOLDING, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share data and per share data)
	June 30, 2022		December 31, 2021
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	274,527	$	368,209
Trade receivables, net of allowance of $11,774 and $8,916, respectively	160,490		145,874
Unbilled receivables	149,554		104,057
Prepaid expenses and other current assets	33,940		60,799

Total current assets	618,511		678,939
Property and equipment, net	36,593		34,500
Right-of-use assets	43,621		—
Intangibles and other assets:
Goodwill	401,810		346,719
Trademark	273,000		273,000
Customer relationships, net	131,437		125,867
Other non-current assets	33,434		25,125
Total assets	$	1,538,406	$	1,484,150
Liabilities and stockholders' equity
Current liabilities:
Accounts payable	$	6,643	$	4,773
Long-term debt - current	7,150		7,150
Income taxes payable	25,154		15,693
Accrued compensation	80,275		79,460
Deferred revenue	5,601		13,807
Value-added tax and sales tax payable	3,998		7,954
Accrued expenses	37,324		51,693
Lease liabilities, current	16,411		—
Total current liabilities	182,556		180,530
Lease liabilities, non-current	30,042		—
Long-term debt, less current portion	494,193		497,380
Deferred tax liabilities	68,835		78,944
Other long-term liabilities	18,934		18,805
Total liabilities	794,560		775,659
Commitments and contingencies
Stockholders’ equity:
Convertible preferred stock, $0.001 par value; 100,000,000 shares authorized, zero issued and outstanding at June 30, 2022 and December 31, 2021, respectively	—		—
Common stock, $0.001 par value; 1,000,000,000 shares authorized, 361,742,758 and 356,117,752 issued, 310,964,304 and 305,132,181 outstanding at June 30, 2022 and December 31, 2021, respectively	362		356
Treasury stock, 50,778,454 and 50,985,571 shares at June 30, 2022 and December 31, 2021, respectively	(626,845)		(629,424)
Additional paid-in capital	1,538,418		1,390,630
Accumulated other comprehensive loss	(35,144)		(10,863)
Retained deficit	(132,945)		(42,208)
Total stockholders' equity	743,846		708,491
Total liabilities and stockholders' equity	$	1,538,406	$	1,484,150

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

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THOUGHTWORKS HOLDING, INC.

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

(In thousands, except share and per share data)


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Revenues	$	332,107	$	260,432	$	653,047	$	498,094
Operating expenses:
Cost of revenues	239,741		152,311		503,090		287,102
Selling, general and administrative expenses	96,294		68,831		208,028		135,347
Depreciation and amortization	4,215		4,488		10,061		8,834
Total operating expenses	340,250		225,630		721,179		431,283
(Loss) income from operations	(8,143)		34,802		(68,132)		66,811
Other (expense) income:
Interest expense	(4,984)		(7,388)		(9,631)		(13,582)
Net realized and unrealized foreign currency (loss) gain	(13,432)		994		(8,487)		(1,674)
Other (expense) income, net	(413)		83		(325)		144
Total other expense	(18,829)		(6,311)		(18,443)		(15,112)
(Loss) income before income taxes	(26,972)		28,491		(86,575)		51,699
Income tax expense	3,020		10,339		3,321		14,962
Net (loss) income	$	(29,992)	$	18,152	$	(89,896)	$	36,737

Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments	(18,602)		2,075		(24,281)		(1,893)
Comprehensive (loss) income	$	(48,594)	$	20,227	$	(114,177)	$	34,844

Net loss per common share:
Basic loss per common share	$	(0.10)	$	(0.18)	$	(0.29)	$	(0.10)
Diluted loss per common share	$	(0.10)	$	(0.18)	$	(0.29)	$	(0.10)

Weighted average shares outstanding:
Basic	310,575,050		228,078,205		308,394,443		234,995,786
Diluted	310,575,050		228,078,205		308,394,443		234,995,786

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

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THOUGHTWORKS HOLDING, INC.

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

(In thousands, except share data)


	Redeemable, Convertible Preferred Stock			Common Stock			Treasury			Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Retained (Deficit) Earnings
	Shares	Amount		Shares	Amount		Shares	Amount								Total
Balance as of December 31, 2020	23,493,546	$	322,800	278,322,716	$	279	572,711	$	(1,608)	$	381,172	$	(1,589)	$	106,458	$	484,712
Net income	—	—		—	—		—	—		—		—		18,585		18,585
Other comprehensive loss, net of tax	—	—		—	—		—	—		—		(3,968)		—		(3,968)
Issuance of common stock on exercise of options	—	—		27,184	—		—	—		62		—		—		62
Issuance of common stock	—	—		133,313	—		—	—		1,873		—		—		1,873
Issuance of Series A redeemable convertible preferred stock, net of issuance costs of $9.0 million	27,765,084	380,994		—	—		—	—		—		—		—		—
Other	—	—		—	—		—	—		(104)		—		—		(104)
Tender offer	—	—		(50,412,860)	—		50,412,860	(627,816)		(10,391)				(79,222)		(717,429)
Stock-based compensation expense	—	—		—	—		—	—		1,874		—		—		1,874
Balance as of March 31, 2021	51,258,630	$	703,794	228,070,353	$	279	50,985,571	$	(629,424)	$	374,486	$	(5,557)	$	45,821	$	(214,395)
Net income	—	—		—	—		—	—		—		—		18,152		18,152
Other comprehensive income, net of tax	—	—		—	—		—	—		—		2,075		—		2,075
Issuance of common stock on exercise of options	—	—		10,297	—		—	—		24		—		—		24
Issuance of Series B Redeemable Convertible Preferred Stock, net of issuance costs of $2.8 million	8,231,328	122,228		—	—		—	—		—		—		—		—
Dividends	—	—		—	—		—	—		(279,191)		—		(45,821)		(325,012)
Other	—	—		—	—		—	—		104		—		—		104
Stock-based compensation expense	—	—		—	—		—	—		8,362		—		—		8,362
Balance as of June 30, 2021	59,489,958	$	826,022	228,080,650	$	279	50,985,571	$	(629,424)	$	103,785	$	(3,482)	$	18,152	$	(510,690)

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

Issuance of common stock for equity incentive awards, net of withholding taxes	—	—		4,736,820	5		—	—		(28,047)		—		—		(28,042)
Reissuance of treasury shares for equity incentive awards	—	—		155,806	—		(155,806)	1,940		(1,796)		—		—		144
Stock-based compensation expense	—	—		—	—		—	—		120,737		—		—		120,737
Cumulative effect related to adoption of ASU 2016-13	—	—		—	—		—	—		—		—		(841)		(841)
Balance as of March 31, 2022	—	$	—	310,024,807	$	361	50,829,765	$	(627,484)	$	1,481,524	$	(16,542)	$	(102,953)	$	734,906
Net loss	—	—		—	—		—	—		—		—		(29,992)		(29,992)
Other comprehensive loss, net of tax	—	—		—	—		—	—		—		(18,602)		—		(18,602)
Issuance of common stock for equity incentive awards, net of withholding taxes	—	—		888,186	1		—	—		2,442		—		—		2,443
Reissuance of treasury shares for equity incentive awards	—	—		51,311	—		(51,311)	639		(496)		—		—		143
Stock-based compensation expense	—	—		—	—		—	—		54,948		—		—		54,948
Balance as of June 30, 2022	—	$	—	310,964,304	$	362	50,778,454	$	(626,845)	$	1,538,418	$	(35,144)	$	(132,945)	$	743,846

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

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THOUGHTWORKS HOLDING, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (In thousands)
	Six Months Ended June 30,
	2022		2021
Cash flows from operating activities:
Net (loss) income	$	(89,896)	$	36,737
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization expense	16,656		14,041
Bad debt expense (recovery)	2,038		(515)
Deferred income tax benefit	(20,865)		(1,923)
Stock-based compensation expense	175,685		10,236
Unrealized foreign currency exchange losses	9,507		2,519
Non-cash lease expense on right-of-use assets	8,870		—
Other operating activities, net	1,134		1,091
Changes in operating assets and liabilities:
Trade receivables	(20,069)		14,067
Unbilled receivables	(48,629)		(26,734)
Prepaid expenses and other assets	(2,690)		(36,838)
Lease liabilities	(6,951)		—

Accounts payable	1,699		3,615
Accrued expenses and other liabilities	(5,012)		44,000
Net cash provided by operating activities	21,477		60,296
Cash flows from investing activities:
Purchase of property and equipment	(12,459)		(13,824)
Proceeds from disposal of fixed assets	267		193
Acquisitions, net of cash acquired	(65,410)		(44,759)
Net cash used in investing activities	(77,602)		(58,390)
Cash flows from financing activities:

Proceeds from issuance of Series A redeemable convertible preferred stock, net of issuance costs	—		380,994
Proceeds from issuance of Series B redeemable convertible preferred stock, net of issuance costs	—		122,228
Proceeds from issuance of common stock	—		1,873
Payments of obligations of long-term debt	(3,575)		(133,134)
Payments of debt issuance costs	—		(7,098)


Proceeds from borrowings on long-term debt	—		401,285
Proceeds from issuance of common stock on exercise of options, net of employee tax withholding	3,928		86
Shares and options purchased under tender offer	—		(701,960)
Dividends paid	—		(315,003)
Withholding taxes paid on tender offer	(15,469)		—
Withholding taxes paid on dividends previously declared	(10,009)		—
Withholding taxes paid related to net share settlement of equity awards	(29,026)		—
Other financing activities, net	(48)		36
Net cash used in financing activities	(54,199)		(250,693)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(8,884)		(662)
Net decrease in cash, cash equivalents and restricted cash	(119,208)		(249,449)
Cash, cash equivalents and restricted cash at beginning of the period	394,942		492,199
Cash, cash equivalents and restricted cash at end of the period	$	275,734	$	242,750

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THOUGHTWORKS HOLDING, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (In thousands)
	Six Months Ended June 30,
	2022		2021
Supplemental disclosure of cash flow information:
Interest paid	$	8,987	$	12,373
Income taxes paid	$	10,554	$	13,189

Supplemental disclosures of non-cash financing activities:
Withholding taxes payable included within accrued expenses	$	—	$	25,478
Withholding taxes payable included within accrued compensation	$	219	$	—




Reconciliation of cash, cash equivalents and restricted cash:
Cash and cash equivalents	$	274,527	$	215,950
Restricted cash included in other current assets	—		25,478
Restricted cash included in other non-current assets	1,207		1,322
Total cash, cash equivalents and restricted cash	$	275,734	$	242,750

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

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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

The preparation of these condensed consolidated financial statements is in conformity with generally accepted accounting principles in the United States (“GAAP”) and applicable rules and regulations of the SEC regarding interim financial reporting. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. On an ongoing basis, the Company evaluates its estimates, including those related to the allowance for credit losses, valuation and impairment of goodwill and long-lived assets, income taxes, accrued bonus, contingencies, stock-based compensation and litigation costs. The Company bases its estimates on current expectations and historical experience and on other assumptions that its management believes are reasonable under the circumstances. These estimates form the basis for making judgments about the carrying value of assets and liabilities when those values are not readily apparent from other sources. Actual results can differ from those estimates, and such differences may be material to the condensed consolidated financial statements in the future. Operating results for interim periods are not necessarily indicative of results that may be expected to occur for the entire year. In management’s opinion, all adjustments considered necessary for a fair presentation of the accompanying unaudited condensed consolidated financial statements have been included, and all adjustments are of a normal and recurring nature.

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

Restricted cash is included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. Restricted cash is restricted as to withdrawal or use. The Company has restricted cash held on deposit at various financial institutions. The amounts are held to secure bank guarantees of amounts related to government requirements and as collateral for a corporate credit card.

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Business Combinations

The Company accounts for business combinations using the acquisition method of accounting which requires it to allocate the fair value of purchase consideration to the assets acquired and liabilities assumed based on the estimated fair values at the acquisition date. The fair value of the net assets acquired for the business is determined utilizing expectations and assumptions believed reasonable by management. The excess of the purchase consideration transferred over the fair values of assets acquired and liabilities assumed is recorded as goodwill. As additional information is obtained about the assets and liabilities of the acquisition during the measurement period, not to exceed one year from the date of acquisition, the Company may record adjustments to the assets acquired and liabilities assumed with an offset to goodwill. After the measurement period, any adjustments are recorded in the condensed consolidated statements of (loss) income and comprehensive (loss) income. Acquisition costs are expensed as incurred.

Some business combinations may include a contingent consideration agreement. The Company determines the fair value of the contingent consideration liability using a Monte Carlo Simulation. The liability is remeasured to fair value at each reporting date with adjustments recorded within other income, net in the condensed consolidated statements of (loss) income and comprehensive (loss) income.

Government Assistance

The Company has historically received government subsidies in the form of cash in China and Singapore related to expenses such as rent, wages, training benefits and taxes. The subsidies are recorded against the related expense within selling, general and administrative ("SG&A") expense or cost of revenues in the condensed consolidated statements of (loss) income and comprehensive (loss) income. The Company recorded an immaterial amount for the three and six months ended June 30, 2022.

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):


	Six Months Ended June 30,
	2022
Allowance for credit losses, beginning balance	$	(8,916)
Impact of accounting standard adoption	(841)
Current provision for expected credit losses	(2,038)
Write-offs charged against allowance	42
Recoveries of amounts previously written off	—
Changes due to exchange rates	(21)
Allowance for credit losses, ending balance	$	(11,774)

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

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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 7, 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.

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 Accounting Standards Codification ("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

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides temporary optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions to ease the financial reporting burdens related to the expected market transition from LIBOR and other interbank offered rates to alternative reference rates. The optional amendments are effective as of March 12, 2020 through December 31, 2022, and upon adoption may be applied prospectively through December 31, 2022. The Company is currently assessing the impact of this ASU on the condensed consolidated financial statements and will adopt this new standard in the fiscal year beginning January 1, 2023.

In October 2021, the FASB issued ASU 2021-08, which amends ASC 805 to require acquiring entities to apply ASU 2014-09, Revenue from Contracts with Customers (Topic 606), to recognize and measure contract assets and contract liabilities in a business combination. The guidance is effective for public entities for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Entities should apply the ASU’s provisions prospectively to business combinations occurring on or after the effective date of the amendments. The Company is currently assessing the impact of this ASU on the condensed consolidated financial statements and will adopt this new standard in the fiscal year beginning January 1, 2023.

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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 June 30, 2022 and 2021 was 62% and 65%, respectively, and 63% and 65% for the six months ended June 30, 2022 and 2021, respectively.

As of June 30, 2022 and December 31, 2021, approximately 70% and 73%, respectively, of trade accounts receivable and unbilled accounts receivable was due from customers located outside the United States. At June 30, 2022 and December 31, 2021, the Company had net fixed assets of $27.7 million and $26.6 million, respectively, outside the United States.

Note 2 – Revenue Recognition

The Company disaggregates revenues from contracts with customers by geographic customer location, industry vertical and revenue contract types. Geographic customer location is pertinent to understanding the Company's revenues, as the Company generates its revenues from providing professional services to customers in various regions across the world. The Company groups customers into one of five industry verticals. Revenue contract types are differentiated by the type of pricing structure for customer contracts, which is predominantly time-and-materials, but also includes fixed price contracts.

Disaggregation of Revenues

The following table presents the disaggregation of the Company’s revenues by customer location (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021

North America (1)	$	131,486	$	97,391	$	253,435	$	187,185
APAC (2)	109,674		89,581		211,880		162,171
Europe (3)	76,603		62,840		159,529		126,955
LATAM	14,344		10,620		28,203		21,783
Total revenues	$	332,107	$	260,432	$	653,047	$	498,094

(1)For the three months ended June 30, 2022 and 2021, the United States represented 37.2%, or $123.5 million, and 35.6%, or $92.6 million, respectively, of the Company’s total revenues. For the six months ended June 30, 2022 and 2021, the United States represented 36.5%, or $238.6 million, and 35.8%, or $178.5 million, of the Company’s total revenues, respectively. Canadian operations were determined to be immaterial given the revenues as a percentage of total North America revenues was less than 10% for the three and six months ended June 30, 2022 and 2021.

(2)For the three months ended June 30, 2022 and 2021, Australia represented 12.0%, or $39.8 million, and 10.1%, or $26.2 million, respectively, of the Company’s total revenues. For the six months ended June 30, 2022 and 2021, Australia represented 11.7%, or $76.1 million, and 10.6%, or $52.7 million, respectively, of the Company’s total revenues.

(3)For the three months ended June 30, 2022 and 2021, revenue in the United Kingdom as a percentage of the Company’s total revenues was less than 10%. For the six months ended June 30, 2022 and 2021, the United Kingdom represented 10.8%, or $70.3 million, and 10.7%, or $53.5 million, respectively, of the Company’s total revenues. For the three and six months ended June 30, 2022, revenue in Germany as a percentage of the Company’s total revenues was less than 10%. For the three and six months ended June 30, 2021, Germany represented 10.8%, or $28.1 million, and 10.9%, or $54.1 million, respectively, of the Company’s total revenues.

Other foreign countries were determined to be immaterial given the revenues as a percentage of the Company’s total revenues was less than 10% for the three and six months ended June 30, 2022 and 2021.

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The following table presents the disaggregation of the Company’s revenues by industry vertical (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Technology and business services	$	95,247	$	69,930	$	180,596	$	136,140
Energy, public and health services	76,605		70,245		153,715		133,909
Retail and consumer	62,628		47,790		125,063		88,923
Financial services and insurance	59,671		40,855		118,135		75,109
Automotive, travel and transportation	37,956		31,612		75,538		64,013

Total revenues	$	332,107	$	260,432	$	653,047	$	498,094

The following table presents the disaggregation of the Company’s revenues by contract type (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021

Time-and-material	$	275,932	$	208,901	$	547,295	$	398,075
Fixed-price	56,175		51,531		105,752		100,019

Total revenues	$	332,107	$	260,432	$	653,047	$	498,094

Contract Balances

The following table is a summary of the Company’s contract assets and contract liabilities (in thousands):


	As of June 30, 2022		As of December 31, 2021
Contract assets included in unbilled receivables	$	29,237	$	25,408
Contract liabilities included in deferred revenue	$	5,601	$	13,807

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 June 30, 2022 and 2021, the Company recognized $2.5 million and $4.5 million, respectively, of revenues that were included in current liabilities at the prior year end. For the six months ended June 30, 2022 and 2021, the Company recognized $12.6 million and $10.7 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.

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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 June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Balance at beginning of period	$	1,814	$	—	$	2,039	$	—
Costs to obtain contracts capitalized	147		—		238		—
Amortization of capitalized costs	(310)		—		(625)		—
Impairment of costs to obtain contracts	—		—		—		—
Changes due to exchange rates	(9)		—		(10)		—
Balance at end of period	$	1,642	$	—	$	1,642	$	—

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 – Acquisitions

On April 26, 2022, the Company completed the acquisition of Connected Lab Inc. ("Connected"), an end-to-end product design and development firm that partners with their clients to discover and deliver products that drive business impact, in an all-cash transaction for a gross purchase price of approximately $83.8 million, or $79.4 million net of cash acquired of $4.4 million, which is inclusive of a $14.0 million contingent consideration liability as discussed below and other adjustments. Connected is now wholly owned by the Company. The acquisition will advance the Company's capabilities in solving business problems through product-led design processes, from defining the strategy to discovery and delivery and enhance the Thoughtworks customer experience, product and design service line in North America.

In connection with the acquisition, the Company recorded a liability of $14.0 million of contingent consideration, which is included within the total purchase price and classified within accrued expenses in the condensed consolidated balance sheet. The present value of the contingent consideration liability was determined using a Monte Carlo Simulation that calculated the average present value of the earnout payment. The fair value measurement of the earnout includes a performance metric which is an unobservable Level 3 input. The contingent consideration is payable in cash dependent upon achievement of the performance metric. The liability will be remeasured to fair value at each reporting date with adjustments recorded within other income, net in the condensed consolidated statements of (loss) income and comprehensive (loss) income. As of June 30, 2022, the maximum potential payout is $17.1 million and is expected to occur in the second quarter of 2023.

The following table presents the change in the contingent consideration liability (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Balance at beginning of period	$	—	$	—	$	—	$	—
Additions in the period	13,996		—		13,996		—
Change in fair value	528		—		528		—
Change due to exchange rates	(142)		—		(142)		—
Balance at end of period	$	14,382	$	—	$	14,382	$	—

The Company accounted for the acquisition under ASC 805, Business Combinations. The goodwill recognized in connection with the acquisition reflects the benefits expected to be derived from certain operational

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synergies. The fair value of the net assets acquired for the business was determined using Level 3 inputs, for which little or no market data exists, requiring the Company to develop assumptions regarding future cash flow projections. The results of operations of the acquired business have been included in the condensed consolidated statements of (loss) income and comprehensive (loss) income from the acquisition date. Pro forma results of operations for the acquisition are not presented because the pro forma effects were not material to the Company's consolidated results of operations.

Aggregate acquisition-related costs of $1.3 million for the three and six months ended June 30, 2022, respectively, were included within SG&A expenses within the condensed consolidated statements of (loss) income and comprehensive (loss) income.

The Company's preliminary allocation of the fair value of underlying assets acquired and liabilities assumed as of the acquisition date is as follows (in thousands):


	Total
Cash and cash equivalents	$	4,394
Trade receivables, net of allowance	3,678
Unbilled receivables	2,594
Customer relationships, net	15,800
Goodwill	66,032
Accrued compensation	(1,364)
Accrued expenses	(3,733)
Other assets/liabilities, net	(3,600)
Total gross purchase price	$	83,801

Cash consideration paid	$	69,805
Fair value of contingent consideration	13,996
Total gross purchase price	$	83,801

Goodwill represents the excess of the purchase price over the fair values of assets acquired and liabilities assumed. The changes in fair value allocated to goodwill, tangible and intangible assets are not deductible for tax purposes.

As additional information is obtained about the assets and liabilities of the acquisition during the measurement period (not to exceed one year from the date of acquisition), including the completion or finalization of asset appraisals, the Company will refine its estimates of fair value to allocate the purchase price including finalizing the impact on taxes.

Note 4 – Goodwill and Other Intangible Assets

The following is a summary of the changes in the carrying value of goodwill (in thousands):


	Total
Balance as of December 31, 2020	$	318,151
Additions due to acquisitions	32,615
Changes due to exchange rates	(4,047)
Balance as of December 31, 2021	346,719
Additions due to acquisitions	66,032
Changes due to exchange rates	(10,941)
Balance as of June 30, 2022	$	401,810

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The following is a summary of other intangible assets (in thousands):


	June 30, 2022		December 31, 2021
Customer relationships	$	192,900	$	177,100
Less accumulated amortization	52,498		46,184
Customer relationships, net	140,402		130,916
Trademark	273,000		273,000
Total intangible assets, after amortization	413,402		403,916
Changes due to exchange rates	(8,965)		(5,049)
Intangible assets, net	$	404,437	$	398,867

Other than indefinite-lived trademarks, the Company’s intangible assets have finite lives and, as such, are subject to amortization. Amortization expense related to these intangible assets was $3.3 million and $6.3 million for the three and six months ended June 30, 2022, respectively, and $3.0 million and $6.0 million for the three and six months ended June 30, 2021, respectively.

As of June 30, 2022, estimated amortization expense for the next five years and thereafter is as follows (in thousands):



Remainder of 2022	$	7,279
2023	14,557
2024	14,557
2025	14,557
2026	14,557
Thereafter	74,895
	$	140,402

The weighted average remaining useful life of the Company’s finite-lived intangible assets was 9.7 years as of June 30, 2022 and 10.6 years as of December 31, 2021.

Note 5 – Income Taxes

Prior to the IPO, the Company calculated the provision for income taxes during interim reporting periods by applying an estimate of the effective tax rate for the full year to the pre-tax income or loss for the interim period, adjusting the provision for discrete tax items recorded in the period. Upon the IPO, due to the magnitude of transaction related stock-based compensation costs, the Company's forecasted pre-tax income for the year is causing the tax rate to be highly sensitive, whereby minor changes in forecasted pre-tax income generate significant variability in the estimated annual effective tax rate. This is impacting the customary relationship between income tax expense and pre-tax income in interim periods. Beginning in the third quarter of 2021, the Company concluded that it could not calculate a reliable estimate of the annual effective tax rate due to the range of potential impacts for the aforementioned forecast changes. Accordingly, the Company computed the effective tax rate for the six month period ended June 30, 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 June 30, 2022 and June 30, 2021 was (11.2)% and 36.3%, respectively and (3.8)% and 28.9% for the six months ended June 30, 2022 and June 30, 2021, 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 change in the effective tax rate for the three and six months ended June 30, 2022, as compared to the prior periods, 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 and six months ended June 30, 2022 is a

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result of the aforementioned unique net unfavorable items when compared to the pre-tax loss recorded for the respective periods.

Note 6 – Loss Per Common Share

Basic loss per common share is computed by dividing the net loss 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, unvested RSUs, and unvested PSUs, to the extent the shares are dilutive. PSU shares are not included in dilution during the performance period. Once the performance period is completed, the PSU shares will be included in dilution during the remaining service period, to the extent they are dilutive. Basic and diluted loss per common share are the same for all periods presented, as the inclusion of all potential shares of common stock outstanding would have been anti-dilutive. 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 per common share are as follows (in thousands, except share and per share data):


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Basic loss per common share:
Net (loss) income	$	(29,992)	$	18,152	$	(