Thoughtworks Q2 2022 © 2022 Thoughtworks Investor Presentation Delivering extraordinary impact together | --- ...

Financial Data and Key Metrics Changes - Revenue for Q2 2022 was USD 332 million, reflecting year-on-year growth of 27.5% and 33.5% in constant currency [8][27] - Adjusted EBITDA for the quarter was USD 58.5 million, representing year-on-year growth of 14.2% [8][28] - Adjusted EBITDA margin was 17.6%, a decrease of 210 basis points compared to the prior year [35] Business Line Data and Key Metrics Changes - Strong demand was noted across all services, particularly in digital transformation, cloud, platforms, data and AI, customer experience, product, and design [11][12] - The company had 35 clients with bookings greater than USD 10 million over the trailing 12 months, an increase of 25% year-on-year [31] - Adjusted gross margin was 40.6%, down from 43.5% in the prior year period [35] Market Data and Key Metrics Changes - North America and LATAM both grew by 35%, Europe by 21.9%, and APAC by 22.4% [31] - Financial services grew at 46.1%, technology and business services at 36.2%, and retail and consumer at 31% [33] - The company reported that 62.7% of year-to-date revenues were contracted in non-U.S. dollar currencies [32] Company Strategy and Development Direction - The company focuses on deepening relationships with existing clients and winning new logos, supplemented by M&A and geographic expansion [14] - The acquisition of Handmade, a strategic design consultancy, was announced to enhance customer experience and digital products [15] - The company aims to maintain its premium position and pricing, with a high average revenue per employee of USD 116,000 [30] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the demand environment despite macroeconomic uncertainties, expecting Q3 revenues in the range of USD 327 million to USD 329 million [50] - The company anticipates year-on-year revenue growth of 15.1% at the midpoint for Q3, with adjusted EBITDA margin expected between 17% to 18% [51] - Management noted that client-specific delays are expected to be limited to Q3, with a strong pipeline for Q4 [69][70] Other Important Information - The company reported a cash balance of USD 275 million as of June 30, 2022, compared to USD 216 million in the prior year [36] - The attrition rate at the end of June 2022 was 12.9%, significantly better than industry norms [38] - Thoughtworks was recognized as a Great Place to Work in multiple countries, reflecting its strong employer brand [41] Q&A Session Summary Question: Thoughts on Q3 revenue guidance - Management indicated that the flat Q3 revenue guidance is due to three factors, with funding constraints on tech clients being a significant concern [61][62] Question: Visibility on client-specific outcomes - Management believes the onetime factors impacting Q3 are mostly limited to that quarter, with a strong pipeline for Q4 [68][70] Question: Changes in work focus - Management noted that while there are discussions about shifting focus to cost-related projects, they have not seen significant changes in their work yet [72] Question: Talent management and utilization - Management emphasized the importance of balancing supply and demand, with a focus on adjusting hiring targets based on utilization trends [75][78] Question: Pricing increases due to inflation - Management stated that pricing increases are primarily driven by adding premium service offerings rather than general price hikes [84][86] Question: Areas of weakness - Management reported that North America is performing well, while Europe faces inflation and supply chain concerns, but overall growth is expected across all verticals [92][94]

[Forward-Looking Statements](index=3&type=section&id=FORWARD-LOOKING%20STATEMENTS) This section highlights inherent risks and uncertainties that may cause actual results to differ from forward-looking statements - This report contains forward-looking statements, primarily in the 'Management's Discussion and Analysis' section, involving known and unknown risks and uncertainties that could cause actual results to differ materially from expectations[9](index=9&type=chunk)[10](index=10&type=chunk)[13](index=13&type=chunk) - Key factors include inability to implement growth strategy, dependence on reputation, challenges in attracting and retaining skilled professionals, increased compensation, global business risks, failure to innovate, competition, and intellectual property protection[11](index=11&type=chunk) [Part I. Financial Information](index=5&type=section&id=Part%20I.%20Financial%20Information) This part presents the company's unaudited condensed consolidated financial statements and management's analysis of financial condition and operations [Item 1. Condensed Consolidated Financial Statements (Unaudited)](index=5&type=section&id=Item%201%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) This section presents unaudited condensed consolidated financial statements, including balance sheets, income, equity, and cash flows, with detailed notes [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets%20as%20of%20June%2030%2C%202022%20(Unaudited)%20and%20December%2031%2C%202021) This section provides a snapshot of the company's financial position, detailing assets, liabilities, and equity at specific dates | (In thousands) | June 30, 2022 | December 31, 2021 | | :--------------------------------------- | :-------------- | :---------------- | | **Assets** | | | | Cash and cash equivalents | $274,527 | $368,209 | | Trade receivables, net | $160,490 | $145,874 | | Unbilled receivables | $149,554 | $104,057 | | Total current assets | $618,511 | $678,939 | | Goodwill | $401,810 | $346,719 | | Total assets | $1,538,406 | $1,484,150 | | **Liabilities and Stockholders' Equity** | | | | Accounts payable | $6,643 | $4,773 | | Total current liabilities | $182,556 | $180,530 | | Long-term debt, less current portion | $494,193 | $497,380 | | Total liabilities | $794,560 | $775,659 | | Total stockholders' equity | $743,846 | $708,491 | | Total liabilities and stockholders' equity | $1,538,406 | $1,484,150 | - Total assets increased by **$54.256 million** from December 31, 2021, to June 30, 2022, driven by goodwill and customer relationships, net, partially offset by decreased cash[17](index=17&type=chunk) - Total liabilities increased by **$18.901 million**, while total stockholders' equity increased by **$35.355 million** during the same period[17](index=17&type=chunk) [Condensed Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20(Loss)%20Income%20and%20Comprehensive%20(Loss)%20Income%20for%20the%20three%20and%20six%20months%20ended%20June%2030%2C%202022%20and%202021%20(Unaudited)) This section details the company's financial performance, including revenues, expenses, and net (loss) income for specified periods | (In thousands, except share and per share data) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :---------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenues | $332,107 | $260,432 | $653,047 | $498,094 | | Total operating expenses | $340,250 | $225,630 | $721,179 | $431,283 | | (Loss) income from operations | $(8,143) | $34,802 | $(68,132) | $66,811 | | 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 | | Basic loss per common share | $(0.10) | $(0.18) | $(0.29) | $(0.10) | | Diluted loss per common share | $(0.10) | $(0.18) | $(0.29) | $(0.10) | - Revenues increased by **27.5%** for the three months and **31.1%** for the six months ended June 30, 2022, compared to prior periods[19](index=19&type=chunk) - The company reported a net loss of **$(29.992) million** for the three months and **$(89.896) million** for the six months ended June 30, 2022, a significant decline from prior year net income[19](index=19&type=chunk) [Condensed Consolidated Statements of Changes in Redeemable Convertible Preferred Stock and Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Redeemable%20Convertible%20Preferred%20Stock%20and%20Stockholders'%20Equity%20for%20the%20three%20and%20six%20months%20ended%20June%2030%2C%202022%20and%202021%20(Unaudited)) This section outlines changes in the company's equity structure, including preferred stock and common stockholders' equity, over specified periods - Total stockholders' equity increased from **$708.491 million** as of December 31, 2021, to **$743.846 million** as of June 30, 2022[23](index=23&type=chunk) - The increase in stockholders' equity was primarily driven by **$175.685 million** in stock-based compensation, partially offset by a net loss of **$(89.896) million** and accumulated other comprehensive loss[23](index=23&type=chunk)[24](index=24&type=chunk) - The company had **310,964,304** common shares outstanding as of June 30, 2022, compared to **305,132,181** shares as of December 31, 2021[17](index=17&type=chunk)[23](index=23&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20for%20the%20six%20months%20ended%20June%2030%2C%202022%20and%202021%20(Unaudited)) This section presents the company's cash inflows and outflows from operating, investing, and financing activities for specified periods | (In thousands) | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $21,477 | $60,296 | | Net cash used in investing activities | $(77,602) | $(58,390) | | Net cash used in financing activities | $(54,199) | $(250,693) | | Effect of exchange rate changes on cash | $(8,884) | $(662) | | Net decrease in cash, cash equivalents and restricted cash | $(119,208) | $(249,449) | | Cash, cash equivalents and restricted cash at end of period | $275,734 | $242,750 | - Net cash provided by operating activities decreased significantly to **$21.477 million** for the six months ended June 30, 2022, from **$60.296 million** in the prior year, due to increased receivables and decreased accrued expenses[24](index=24&type=chunk)[176](index=176&type=chunk) - Net cash used in investing activities increased to **$(77.602) million**, mainly due to the acquisition of Connected Lab Inc. in Q2 2022[24](index=24&type=chunk)[177](index=177&type=chunk) - Net cash used in financing activities decreased to **$(54.199) million**, driven by withholding taxes on equity awards, tender offers, and dividends, compared to prior year share repurchases and dividend payments[24](index=24&type=chunk)[178](index=178&type=chunk)[179](index=179&type=chunk) [Notes to the Condensed Consolidated Financial Statements (Unaudited)](index=14&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) This section provides detailed explanations and additional information supporting the condensed consolidated financial statements [Note 1 – Business and Summary of Significant Accounting Policies](index=14&type=section&id=Note%201%20%E2%80%93%20Business%20and%20Summary%20of%20Significant%20Accounting%20Policies) This note describes the company's business operations and outlines its significant accounting policies and recent accounting standard adoptions - Thoughtworks Holding, Inc. is a global technology consultancy providing enterprise application software development, implementation, and business technology consulting across **17 countries**[29](index=29&type=chunk) - The company early adopted ASU 2016-02 (Leases) effective January 1, 2022, recognizing **$40.9 million** of right-of-use assets and **$43.7 million** of lease liabilities, and ASU 2016-13 (Credit Losses) with no material impact[39](index=39&type=chunk)[40](index=40&type=chunk)[42](index=42&type=chunk) Allowance for Credit Losses (Six Months Ended June 30, 2022): | Item | Amount (in thousands) | | :-------------------------------- | :-------------------- | | Beginning balance | $(8,916) | | Impact of accounting standard adoption | $(841) | | Current provision for expected credit losses | $(2,038) | | Write-offs charged against allowance | $42 | | Changes due to exchange rates | $(21) | | Ending balance | $(11,774) | [Note 2 – Revenue Recognition](index=17&type=section&id=Note%202%20%E2%80%93%20Revenue%20Recognition) This note details the company's policies for recognizing revenue, disaggregated by geographic location, industry vertical, and contract type - Revenues are disaggregated by geographic customer location, industry vertical, and revenue contract types, predominantly time-and-materials[48](index=48&type=chunk) Revenues by Customer Location (in thousands): | Geographic Location | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | North America | $131,486 | $97,391 | $253,435 | $187,185 | | APAC | $109,674 | $89,581 | $211,880 | $162,171 | | Europe | $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** | Revenues by Industry Vertical (in thousands): | Industry Vertical | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 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** | Revenues by Contract Type (in thousands): | Contract Type | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 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** | [Note 3 – Acquisitions](index=19&type=section&id=Note%203%20%E2%80%93%20Acquisitions) This note provides details on recent acquisitions, including the purchase of Connected Lab Inc. and the preliminary allocation of assets and liabilities - On April 26, 2022, Thoughtworks acquired Connected Lab Inc. for approximately **$83.8 million** (gross purchase price), including a **$14.0 million** contingent consideration liability[56](index=56&type=chunk) - The acquisition aims to advance the company's capabilities in product-led design processes and enhance its customer experience, product, and design service line in North America[56](index=56&type=chunk) Preliminary Allocation of Acquired Assets and Liabilities (Connected Lab Inc. acquisition, in thousands): | Item | Total | | :-------------------------- | :------ | | Cash and cash equivalents | $4,394 | | Trade receivables, net | $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** | [Note 4 – Goodwill and Other Intangible Assets](index=20&type=section&id=Note%204%20%E2%80%93%20Goodwill%20and%20Other%20Intangible%20Assets) This note details the changes in the carrying value of goodwill and other intangible assets, including amortization expense Changes in Carrying Value of Goodwill (in thousands): | Item | Total | | :-------------------------- | :------ | | 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** | Other Intangible Assets (in thousands): | Item | June 30, 2022 | December 31, 2021 | | :-------------------------- | :-------------- | :---------------- | | 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** | - Amortization expense for finite-lived intangible assets was **$3.3 million** and **$6.3 million** for the three and six months ended June 30, 2022, respectively[63](index=63&type=chunk) [Note 5 – Income Taxes](index=21&type=section&id=Note%205%20%E2%80%93%20Income%20Taxes) This note explains the company's income tax expense and the factors contributing to its effective tax rate for the reporting periods Effective Tax Rate: | Period | 2022 | 2021 | | :-------------------------- | :----- | :----- | | Three Months Ended June 30, | (11.2)% | 36.3% | | Six Months Ended June 30, | (3.8)% | 28.9% | - The negative effective tax rates for the three and six months ended June 30, 2022, were primarily due to non-deductibility of China SAFE RSUs, unfavorable valuation allowances, and non-deductibility of executive compensation, compared to the pre-tax loss[66](index=66&type=chunk)[67](index=67&type=chunk) [Note 6 – Loss Per Common Share](index=22&type=section&id=Note%206%20%E2%80%93%20Loss%20Per%20Common%20Share) This note details the calculation of basic and diluted loss per common share, including factors affecting dilutive securities Net Loss Per Common Share: | (In thousands, except share and per share data) | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :---------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net (loss) income | $(29,992) | $18,152 | $(89,896) | $36,737 | | Preferred stock dividends | — | $(59,642) | — | $(59,642) | | Net loss allocated to common shareholders – Basic | $(29,992) | $(41,490) | $(89,896) | $(22,905) | | Weighted average common shares outstanding – Basic and diluted | 310,575,050 | 228,078,205 | 308,394,443 | 234,995,786 | | **Basic and diluted loss per common share** | **$(0.10)** | **$(0.18)** | **$(0.29)** | **$(0.10)** | - Basic and diluted loss per common share were **$(0.10)** for the three months and **$(0.29)** for the six months ended June 30, 2022[70](index=70&type=chunk) - Potentially dilutive securities (employee stock options and RSUs) were excluded from diluted EPS calculations as their inclusion would have been anti-dilutive[69](index=69&type=chunk)[70](index=70&type=chunk) [Note 7 – Leases](index=22&type=section&id=Note%207%20%E2%80%93%20Leases) This note describes the company's lease arrangements, including recognized right-of-use assets, lease liabilities, and future payment obligations - The company leases facilities and equipment under non-cancelable operating leases expiring through December 2031[71](index=71&type=chunk) - Upon adoption of Topic 842, the company recognized **$40.9 million** in Right-of-Use (ROU) assets and **$43.7 million** in lease liabilities[75](index=75&type=chunk) Future Operating Lease Payments (as of June 30, 2022, in thousands): | Period | Operating Lease Payments | | :---------------- | :----------------------- | | Remainder of 2022 | $9,755 | | 2023 | $15,514 | | 2024 | $9,811 | | 2025 | $6,077 | | 2026 | $4,624 | | Thereafter | $6,507 | | **Total lease payments** | **$52,288** | | Less: imputed interest | $5,835 | | **Present value of lease liabilities** | **$46,453** | [Note 8 – Stock-Based Compensation](index=24&type=section&id=Note%208%20%E2%80%93%20Stock-Based%20Compensation) This note details the company's stock-based compensation expense and unrecognized compensation costs for various equity awards Stock-Based Compensation Expense (in thousands): | Item | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Cost of revenues | $38,852 | $2,534 | $122,345 | $3,316 | | Selling, general and administrative expenses | $16,334 | $5,828 | $53,577 | $6,920 | | **Total stock-based compensation expense** | **$55,186** | **$8,362** | **$175,922** | **$10,236** | - Total stock-based compensation expense significantly increased to **$55.186 million** for the three months and **$175.922 million** for the six months ended June 30, 2022, compared to prior year periods[78](index=78&type=chunk) - As of June 30, 2022, total unrecognized compensation cost for RSUs was **$169.1 million** (including **$103.5 million** IPO-related/one-time) and **$5.3 million** for PSUs, to be recognized over 1.5 and 2.8 years, respectively[81](index=81&type=chunk)[85](index=85&type=chunk) [Note 9 – Credit Agreements](index=26&type=section&id=Note%209%20%E2%80%93%20Credit%20Agreements) This note outlines the company's credit agreements, including term loans, revolving credit facilities, and outstanding debt balances - The company has a Credit Agreement providing for a **$715.0 million** Term Loan and a **$165.0 million** Revolver[86](index=86&type=chunk) Outstanding Debt and Borrowing Capacity (in thousands): | Item | June 30, 2022 | December 31, 2021 | | :------------------------------------------ | :-------------- | :---------------- | | Availability under Revolver (due March 26, 2026) | $165,000 | $165,000 | | Borrowings under Revolver | $— | $— | | Long-term debt (due March 24, 2028), including current portion | $501,343 | $504,530 | | Interest rate | 4.42% | 3.50% | - The interest rate on the long-term debt increased from **3.50%** to **4.42%** as of June 30, 2022[87](index=87&type=chunk) [Note 10 – Accrued Expenses](index=27&type=section&id=Note%2010%20%E2%80%93%20Accrued%20Expenses) This note details the composition of accrued expenses, including changes in interest, professional fees, and withholding taxes Accrued Expenses (in thousands): | Item | June 30, 2022 | December 31, 2021 | | :-------------------------- | :-------------- | :---------------- | | Accrued interest expense | $113 | $76 | | Professional fees | $6,684 | $5,188 | | Withholding taxes payable | $10 | $26,077 | | Contingent consideration | $14,382 | $— | | **Total Accrued expenses** | **$37,324** | **$51,693** | - Total accrued expenses decreased from **$51.693 million** at December 31, 2021, to **$37.324 million** at June 30, 2022, primarily due to decreased withholding taxes payable, partially offset by contingent consideration[90](index=90&type=chunk) [Note 11 – Subsequent Events](index=27&type=section&id=Note%2011%20%E2%80%93%20Subsequent%20Events) This note discloses significant events that occurred after the reporting period but before the financial statements were issued - On July 21, 2022, the company made a voluntary prepayment of **$100.0 million** on its outstanding Term Loan[91](index=91&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=Item%202%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section analyzes the company's financial condition and results of operations, covering key metrics, performance factors, and liquidity [Overview](index=28&type=section&id=Overview) This overview introduces Thoughtworks as a global technology consultancy and its primary revenue generation activities - Thoughtworks is a global technology consultancy with over **12,000 employees** across **50 offices** in **17 countries**, specializing in integrating strategy, design, and engineering for digital innovation[94](index=94&type=chunk) - Revenues are generated from professional services, primarily time-and-materials, across service lines including enterprise modernization, customer experience, data & AI, and digital transformation[95](index=95&type=chunk) [Key Operational and Business Metrics](index=28&type=section&id=Key%20Operational%20and%20Business%20Metrics) This section presents key financial and operational metrics, including revenue growth, net income, and Adjusted EBITDA, for performance evaluation Key Operational and Business Metrics (in thousands, except percentages): | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenues | $332,107 | $260,432 | $653,047 | $498,094 | | Revenue Growth Rate as reported | 27.5% | 40.3% | 31.1% | 24.4% | | Revenue Growth Rate at constant currency | 33.5% | 32.1% | 35.7% | 18.2% | | Net (loss) income | $(29,992) | $18,152 | $(89,896) | $36,737 | | Net (loss) income margin | (9.0)% | 7.0% | (13.8)% | 7.4% | | Adjusted Net Income | $37,008 | $24,346 | $81,000 | $59,425 | | Adjusted EBITDA | $58,517 | $51,219 | $131,389 | $105,055 | | Adjusted EBITDA Margin | 17.6% | 19.7% | 20.1% | 21.1% | - Revenue growth at constant currency was **33.5%** for Q2 2022 and **35.7%** for H1 2022, indicating strong underlying performance despite negative foreign currency impacts[98](index=98&type=chunk) - Net income decreased significantly due to increased stock-based compensation expense (**$46.8 million** for Q2, **$165.7 million** for H1) and payroll expenses, partially offset by revenue growth[99](index=99&type=chunk)[101](index=101&type=chunk) - Adjusted EBITDA increased by **14.2%** for Q2 2022 and **25.1%** for H1 2022, driven by higher revenues, but Adjusted EBITDA Margin decreased due to seasonality, decreased utilization, and public company costs[104](index=104&type=chunk)[105](index=105&type=chunk) [Key Factors Affecting Our Performance](index=30&type=section&id=Key%20Factors%20Affecting%20Our%20Performance) This section identifies the primary drivers of the company's performance, including organic growth, client retention, and talent management - The company's performance is driven by strong organic growth, client retention, and margin optimization through global delivery centers[106](index=106&type=chunk) - Net dollar retention rate increased to approximately **124%** for the trailing twelve months ended June 30, 2022, from **107%** in the prior year, reflecting strong growth from existing clients and sector diversification[111](index=111&type=chunk) - The total number of clients increased to **395** as of June 30, 2022, from **374** as of June 30, 2021, indicating successful new client acquisition[112](index=112&type=chunk) - Voluntary attrition rate decreased to **12.9%** for the trailing twelve months through June 30, 2022, from **14.1%** in the prior year, attributed to unique culture, career development, and training programs[114](index=114&type=chunk) [Components of Our Operating Results](index=32&type=section&id=Components%20of%20Our%20Operating%20Results) This section describes the structure of the company's operating results, including revenue recognition and cost of revenues - The company operates as one reportable segment, with service offerings delivered and supported globally[116](index=116&type=chunk) - Revenues are primarily generated from time-and-materials contracts, recognized as services are rendered, with a smaller portion from fixed-price contracts measured by input methods[117](index=117&type=chunk)[118](index=118&type=chunk) - Cost of revenues includes personnel costs, benefits, stock-based compensation, travel, third-party vendors, and depreciation related to service delivery[120](index=120&type=chunk) [Results of Operations](index=33&type=section&id=Results%20of%20Operations) This section provides a detailed analysis of the company's financial performance across various income statement line items [Summary Comparison of Three Months Ended June 30, 2022 with the Three Months Ended June 30, 2021](index=33&type=section&id=Summary%20Comparison%20of%20Three%20Months%20Ended%20June%2030%2C%202022%20with%20the%20Three%20Months%20Ended%20June%2030%2C%202021) This section compares the company's financial performance for the three months ended June 30, 2022, against the prior year period - Revenues increased by **27.5%** to **$332.1 million**, driven by higher demand, increased headcount, and higher bill rates, partially offset by decreased utilization[127](index=127&type=chunk) - Income from operations decreased by **123.4%** to a loss of **$8.1 million**, primarily due to a **$46.8 million** increase in stock-based compensation[129](index=129&type=chunk) - Net income decreased by **$48.1 million** to a loss of **$30.0 million**, mainly due to the increase in stock-based compensation[131](index=131&type=chunk) [Summary Comparison of Six Months Ended June 30, 2022 with the Six Months Ended June 30, 2021](index=34&type=section&id=Summary%20Comparison%20of%20Six%20Months%20Ended%20June%2030%2C%202022%20with%20the%20Six%20Months%20Ended%20June%2030%2C%202021) This section compares the company's financial performance for the six months ended June 30, 2022, against the prior year period - Revenues increased by **31.1%** to **$653.0 million**, driven by strong demand for digital transformation services and **92.1%** growth from existing clients[132](index=132&type=chunk) - Income from operations decreased by **202.0%** to a loss of **$(68.1) million**, primarily due to a **$165.7 million** increase in stock-based compensation[133](index=133&type=chunk) - Net income decreased by **$126.6 million** to a net loss of **$(89.9) million**, largely due to the **$165.7 million** increase in stock-based compensation, including **$47.7 million** related to China SAFE RSUs[135](index=135&type=chunk) [Revenues by Industry Vertical](index=35&type=section&id=Revenues%20by%20Industry%20Vertical) This section analyzes the company's revenue performance across different industry verticals for the reporting periods - Strong revenue growth was observed in Financial Services and Insurance (**46.1%** Q2, **57.3%** H1), Technology and Business Services (**36.2%** Q2, **32.7%** H1), and Retail and Consumer (**31.0%** Q2, **40.6%** H1) verticals[137](index=137&type=chunk)[138](index=138&type=chunk) [Revenues by Customer Location](index=35&type=section&id=Revenues%20by%20Customer%20Location) This section breaks down the company's revenue performance by geographic customer location for the reporting periods - North America experienced revenue growth of **35.0%** (Q2) and **35.4%** (H1), with the US contributing **$123.5 million** (Q2) and **$238.6 million** (H1)[141](index=141&type=chunk) - APAC revenue grew by **22.4%** (Q2) and **30.7%** (H1), with Australia being the top contributor[142](index=142&type=chunk) - Europe saw revenue growth of **21.9%** (Q2) and **25.7%** (H1), with Germany (Q2) and the UK (H1) as top contributing countries[143](index=143&type=chunk) - LATAM revenue grew by **35.1%** (Q2) and **29.5%** (H1), with Brazil as the largest customer location[144](index=144&type=chunk) [Revenues by Client Concentration](index=36&type=section&id=Revenues%20by%20Client%20Concentration) This section examines the distribution of the company's revenues across different client groups and new versus existing clients Revenues by Client Concentration (as % of total revenues): | Client Group | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Top five clients | 15.3% | 17.9% | 15.1% | 18.2% | | Top ten clients | 25.2% | 29.0% | 25.5% | 29.2% | | Top fifty clients | 66.1% | 72.7% | 65.6% | 72.7% | - Client concentration decreased across top five, ten, and fifty clients, indicating business diversification[146](index=146&type=chunk)[147](index=147&type=chunk) - Revenues from new clients increased by **39.9%** (Q2) and **8.3%** (H1), while existing client revenues increased by **26.1%** (Q2) and **33.6%** (H1)[147](index=147&type=chunk) [Bookings](index=37&type=section&id=Bookings) This section reports the company's bookings, a forward-looking metric for new contracts, renewals, and extensions - Bookings, a forward-looking metric for new contracts, renewals, and extensions, were **$1,454 million** for the trailing twelve months ended June 30, 2022, up from **$1,112 million** in the prior year[148](index=148&type=chunk) [Cost of Revenues](index=37&type=section&id=Cost%20of%20Revenues) This section analyzes the changes in the company's cost of revenues and the primary factors contributing to these changes - Cost of revenues increased by **57.4%** (Q2) and **75.2%** (H1), primarily due to higher stock-based compensation (**$36.3 million** Q2, **$119.0 million** H1) and increased payroll and benefit expenses from higher headcount and pay raises[149](index=149&type=chunk) [Gross Profit and Gross Margin](index=37&type=section&id=Gross%20Profit%20and%20Gross%20Margin) This section details the company's gross profit and gross margin, highlighting factors influencing their changes Gross Profit and Gross Margin: | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :----------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Gross profit | $92,366 | $108,121 | $149,957 | $210,992 | | Gross margin | 27.8% | 41.5% | 23.0% | 42.4% | - Gross margin decreased significantly by **13.7 percentage points** (Q2) and **19.4 percentage points** (H1), mainly due to increased stock-based compensation and decreased utilization[150](index=150&type=chunk) [Selling, General and Administrative Expenses](index=38&type=section&id=Selling%2C%20General%20and%20Administrative%20Expenses) This section analyzes the changes in selling, general, and administrative expenses and their contributing factors - SG&A expenses increased by **39.9%** (Q2) and **53.7%** (H1), driven by higher stock-based compensation (**$10.5 million** Q2, **$46.7 million** H1), payroll expenses, and bad debt expense[151](index=151&type=chunk)[152](index=152&type=chunk) [Depreciation and Amortization](index=38&type=section&id=Depreciation%20and%20Amortization) This section discusses the company's depreciation and amortization expenses, noting their stability across reporting periods - Depreciation and amortization remained relatively stable, with no material changes for the three and six months ended June 30, 2022, compared to prior year periods[153](index=153&type=chunk) [Interest Expense](index=38&type=section&id=Interest%20Expense) This section analyzes the company's interest expense, primarily attributing changes to fluctuations in borrowings under credit agreements - Interest expense decreased by **32.5%** (Q2) and **29.1%** (H1), primarily due to decreased borrowings under the Credit Agreement[154](index=154&type=chunk) [Income Tax Expense](index=38&type=section&id=Income%20Tax%20Expense) This section discusses the company's income tax expense and the factors influencing its changes, including pre-tax loss and non-deductible items - Income tax expense decreased by **$7.3 million** (Q2) and **$11.6 million** (H1), mainly due to the pre-tax loss, excess tax benefits on stock-based compensation, offset by non-deductibility of China SAFE RSUs, executive compensation, and valuation allowances[155](index=155&type=chunk)[156](index=156&type=chunk) [Non-GAAP Financial Measures](index=39&type=section&id=Non-GAAP%20Financial%20Measures) This section defines and explains the company's non-GAAP financial measures, including Adjusted Net Income and Adjusted EBITDA, and their analytical uses - Adjusted Net Income is defined as net (loss) income adjusted for unrealized foreign currency (gain) loss, stock-based compensation, employer payroll expense on equity plans, amortization of acquisition-related intangibles, acquisition costs, professional fees, tender offer compensation, IPO-related costs, contingent consideration changes, tax assessments, and income tax effects of adjustments[158](index=158&type=chunk) - Adjusted EBITDA is defined as net (loss) income adjusted to exclude income tax expense, interest expense, other expense (income), net, unrealized foreign currency (gain) loss, stock-based compensation, employer payroll expense on equity plans, depreciation and amortization, acquisition costs, professional fees, tender offer compensation, IPO-related costs, and final tax assessment for closed operations[159](index=159&type=chunk) - These non-GAAP measures are used to assess operating performance, operating leverage, and for planning, providing consistency and comparability, but have limitations as analytical tools[160](index=160&type=chunk)[163](index=163&type=chunk) [Item 3. Quantitative and Qualitative Disclosure About Market Risk](index=41&type=section&id=Item%203%20Quantitative%20and%20Qualitative%20Disclosure%20About%20Market%20Risk) This section discusses the company's exposure to market risks from credit concentration, interest rates, and foreign currency, with no material changes from the prior annual report - The company is exposed to market risks from changes in concentration of credit, interest rates, and foreign currency exchange rates[190](index=190&type=chunk) - International operations are subject to risks related to differing economic conditions, geopolitical instability, tax structures, and regulations[190](index=190&type=chunk) - There were no material changes to the market risk disclosure from the 2021 Annual Report[191](index=191&type=chunk) [Item 4. Controls and Procedures](index=41&type=section&id=Item%204%20Controls%20and%20Procedures) This section confirms the effectiveness of disclosure controls and procedures as of June 30, 2022, with no material changes in internal control over financial reporting - Management, with CEO and CFO participation, concluded that disclosure controls and procedures were effective as of June 30, 2022, providing reasonable assurance of timely information recording, processing, summarizing, and reporting[192](index=192&type=chunk)[194](index=194&type=chunk) - No material changes in internal control over financial reporting occurred during the period covered by this report[195](index=195&type=chunk) - Management acknowledges that any control system provides only reasonable, not absolute, assurance due to inherent limitations and resource constraints[196](index=196&type=chunk) [Part II. Other Information](index=43&type=section&id=Part%20II.%20Other%20Information) This part includes disclosures on legal proceedings, risk factors, equity sales, defaults, mine safety, and other relevant information [Item 1. Legal Proceedings](index=43&type=section&id=Item%201%20Legal%20Proceedings) This section confirms the company is involved in ordinary course legal proceedings, with no material adverse effects expected on financial condition or operations - The company may be involved in litigation related to intellectual property, data privacy, contracts, employment, personal injury, product liability, and warranty claims[199](index=199&type=chunk) - Currently, there are no legal claims or proceedings against the company believed to have a material adverse effect on its business, financial condition, results of operations, or cash flows[199](index=199&type=chunk) [Item 1A. Risk Factors](index=43&type=section&id=Item%201A%20Risk%20Factors) This section refers to risk factors detailed in the 2021 Annual Report, confirming no material changes since that filing - The company's business, financial condition, and operating results can be affected by factors described in the 2021 Annual Report's 'Risk Factors' section[200](index=200&type=chunk) - No material changes to the company's risk factors have occurred since the 2021 Annual Report[200](index=200&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=43&type=section&id=Item%202%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section reports no unregistered sales of the company's equity securities during the second quarter of 2022 - No unregistered sales of the company's equity securities occurred during the second quarter of 2022[201](index=201&type=chunk) [Item 3. Defaults Upon Senior Securities](index=43&type=section&id=Item%203%20Defaults%20Upon%20Senior%20Securities) This section indicates no defaults upon senior securities during the reporting period - There were no defaults upon senior securities[202](index=202&type=chunk) [Item 4. Mine Safety Disclosures](index=43&type=section&id=Item%204%20Mine%20Safety%20Disclosures) This section states that mine safety disclosures are not applicable to the company - Mine Safety Disclosures are not applicable to the company[203](index=203&type=chunk) [Item 5. Other Information](index=43&type=section&id=Item%205%20Other%20Information) This section reports that there is no other information to disclose - No other information to disclose[204](index=204&type=chunk) [Item 6. Exhibits](index=44&type=section&id=Item%206%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including certifications, XBRL documents, and a Performance Share Unit Agreement form - The exhibits include certifications from the CEO and CFO (31.1, 31.2, 32.1, 32.2), Inline XBRL documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE), and a Form of Performance Share Unit Agreement (10.1)[206](index=206&type=chunk)

Financial Data and Key Metrics Changes - The company reported revenue of $321 million for Q1 2022, reflecting a year-on-year growth of 35% and 38.2% in constant currency [3][11] - Adjusted EBITDA for the quarter was $73 million, representing a growth of 35.4% compared to Q1 2021 [11][14] - The adjusted EBITDA margin was 22.7%, consistent with the previous year [14] - Negative free cash flow for the quarter was $11.2 million, compared to positive free cash flow of $24.2 million in the prior year quarter [15] Business Line Data and Key Metrics Changes - The strongest growth was seen in financial services, which grew by 70.7%, followed by retail and consumer at 51.8% [13] - Technology and business services grew at 28.9%, while energy, public, and health grew at 21.1% [13] - The company contracted with 52 new clients in Q1 2022, indicating a positive momentum in client acquisition [8][64] Market Data and Key Metrics Changes - Revenue growth in the Asia Pacific region was 40.8%, North America 35.8%, Europe 29.3%, and LATAM 24.2% [12] - The company has established a strong pipeline with $1.5 billion in bookings over the trailing 12 months, a 39.6% increase year-on-year [12][64] Company Strategy and Development Direction - The company is focused on deepening relationships with existing clients and winning new logos, supplemented by strategies around partnerships, M&A, and geographic expansion [5][6] - The acquisition of Connected aims to enhance capabilities in customer experience, design, and product development [6][34] - The company plans to expand into Vietnam to tap into the local technology talent market [6] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in sustaining growth due to strong demand for digital transformation services, with expectations for revenue growth in Q2 2022 to be in the range of $328 million to $329 million [25] - The company anticipates revenue growth for the full year 2022 to be in the range of 29.5% to 30.5% year-on-year on a constant currency basis [26] - Management noted that the competitive environment for talent remains strong, with a trailing 12-month attrition rate of around 14% [44] Other Important Information - The company has a strong focus on diversity and inclusion, with 40.8% of Thought Workers being women and underrepresented gender minorities [17] - The company is committed to reducing its greenhouse gas emissions and has set ambitious targets for sustainability [23] Q&A Session Summary Question: About gross margin outlook - Management noted that Q1 had a strong gross margin due to rapid ramp-up of engagements and lower-than-expected attrition [30][31] Question: On the Connected acquisition - The Connected acquisition is expected to enhance product development services and has strong synergy with the company's existing US footprint [34] Question: Revenue outlook and seasonality - Management acknowledged that Q2 revenue guidance is impacted by seasonality and COVID-related utilization drops, but overall, the full year outlook remains strong [39][40] Question: Wage inflation and pricing offsets - Management indicated that the company can command premium pricing due to its value proposition, which helps offset wage inflation [41] Question: Attrition by geography - Attrition trends have improved, with a current rate of around 14%, reflecting a competitive talent environment [44] Question: Impact of public company status on pipeline - The company has seen steady growth in its pipeline, with brand recognition benefiting from its public status, although the core strength comes from its technical innovations [51][52]

Financial Performance - Thoughtworks Q1 2022 revenues reached $321 million, a 35% increase compared to Q1 2021's $238 million[22] - Revenue growth in constant currency was 38.2% [22] - Adjusted Gross Margin increased to 45.6%, up from 44.7% in Q1 2021[22] - Adjusted EBITDA was $73 million, flat at 22.7% margin compared to Q1 2021[22] - Adjusted Diluted EPS decreased slightly to $0.13, down from $0.14 in Q1 2021[22] Market and Growth - The digital transformation services market is experiencing rapid growth, expected to more than double from $1.3 trillion in 2020 to $2.8 trillion in 2025[31] - Thoughtworks is expanding geographically, including plans to open an office in Vietnam[8, 81] - The company is pursuing strategic acquisitions, such as Connected in Canada, to enhance its capabilities[8, 81] Customer and Talent - Thoughtworks has a diverse customer portfolio across various industries, including Technology and Business Services (26.6%), Energy, Public and Health Services (24.0%), and Retail and Consumer (19.5%)[37] - The company has a global workforce of over 11,000 employees across 17 countries[11, 26] - Women and Underrepresented Gender Minorities (WUGM) make up 40.8% of the global workforce[11]

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 THOUGHTWORKS HOLDING, INC. (Exact name of registrant as specified in its charter) (State or other jurisdiction of incorporatio ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2021 (State or other jurisdiction of incorporation or organization) Delaware 82-2668392 (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 ...

Thoughtworks Holding, Inc. (NASDAQ:TWKS) Q4 2021 Earnings Conference Call March 1, 2022 8:00 AM ET Company Participants | --- | --- | |---------------------------------------------------------------------------|-------| | | | | | | | Guo Xiao – Chief Executive Officer Erin Cummins – Chief Financial Officer | | | Conference Call Participants | | | Tien-Tsin Huang – JP Morgan | | | Ashwin Shirvaikar – Citi | | | Maggie Nolan – William Blair | | | Brian Essex – Goldman Sachs | | | Matthew Roswell – RBC Capital ...

Thoughtworks Q3 2021 © 2021 Thoughtworks Investor Presentation Delivering extraordinary impact together | --- | --- | |------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ ...

Financial Data and Key Metrics Changes - Revenue for Q3 2021 was $285 million, representing a 45% year-over-year increase and a 42% increase on a constant currency basis [6][18] - Adjusted EBITDA margin was 23%, an increase of 110 basis points compared to the same quarter last year [19][24] - Free cash flow for the quarter was $20 million, with a cash balance of $453 million as of September 30, 2021 [26][27] - GAAP diluted loss per share was $0.10, primarily due to non-cash stock compensation charges related to the IPO [25] Business Line Data and Key Metrics Changes - Financial services grew by 61%, with retail and consumer also showing a strong rebound at 61% growth [21] - North America grew at 35%, APAC at 53%, Europe at 49%, and LATAM at 47% [21] - Approximately 90% of revenue came from existing clients, with 29 clients generating over $10 million in trailing 12-month revenues, an increase of 38% from the previous year [22][10] Market Data and Key Metrics Changes - The digital transformation services market is expected to grow from $470 billion in 2020 to around $1 trillion by 2025 [9] - Strong demand for services across all geographies and verticals was noted, with significant growth in financial services and public sector [18][55] Company Strategy and Development Direction - The company aims to deepen relationships with existing clients, establish new client relationships, and develop new technical capabilities [9] - Focus on strategic partnerships and targeted acquisitions to enhance service offerings and market presence [9][44] - Emphasis on maintaining a premium brand and diversified business across industry verticals and geographies [8] Management's Comments on Operating Environment and Future Outlook - Management expects continued strong demand for services and increased IT spending across all verticals and geographies [54] - The company is confident in its ability to hire top talent and maintain a healthy utilization rate despite competitive market conditions [68][69] - Future growth is anticipated to be supported by robust bookings and an increase in average client contract sizes [49] Other Important Information - The company has a strong employer brand, attracting over 192,000 applicants and hiring a record 1,336 new employees in Q3 [29] - The company has been awarded Great Place to Work certification in 11 out of 17 countries, reflecting a strong workplace culture [32] Q&A Session Summary Question: What is the scope and nature of the work coming in this quarter? - Management noted that clients are accelerating their digital transformation plans, leading to increased IT spending across all sectors [54] Question: Can you elaborate on the investments planned for Q4? - Investments will focus on talent development, client portfolio expansion, and partnership programs to support growth [56][58] Question: Can you provide details on the 44 new clients? - New client relationships typically start with one service offering, with expectations to expand into additional services over time [64] Question: How is utilization and attrition trending? - Utilization is within a healthy range, and while attrition is slightly elevated, it is expected to normalize [68] Question: How is demand for onshore services compared to offshore? - There is a stable trend with a slight increase in offshore work due to remote working becoming the norm [74] Question: What are the hiring plans for 2022? - The company plans to continue hiring across all regions, expecting strong growth in 2022 [97] Question: How do you view the balance between organic growth and M&A? - The company plans to use cash flow for M&A, focusing on small tuck-in acquisitions to enhance capabilities [110]