Thoughtworks(TWKS) - 2022 Q2 - Quarterly Report

Forward-Looking Statements 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][10][13] - 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] Part I. Financial Information 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) This section presents unaudited condensed consolidated financial statements, including balance sheets, income, equity, and cash flows, with detailed notes Condensed Consolidated Balance Sheets 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] - Total liabilities increased by $18.901 million, while total stockholders' equity increased by $35.355 million during the same period[17] Condensed Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income 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] - 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] Condensed Consolidated Statements of Changes in Redeemable Convertible Preferred Stock and Stockholders' Equity 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] - 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][24] - 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][23] Condensed Consolidated Statements of Cash Flows 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][176] - Net cash used in investing activities increased to $(77.602) million, mainly due to the acquisition of Connected Lab Inc. in Q2 2022[24][177] - 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][178][179] Notes to the Condensed Consolidated Financial Statements (Unaudited) This section provides detailed explanations and additional information supporting the condensed consolidated financial statements Note 1 – Business and Summary of Significant Accounting Policies 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] - 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][40][42] 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 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] 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 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] - 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] 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 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] Note 5 – Income Taxes 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][67] Note 6 – Loss Per Common Share 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] - Potentially dilutive securities (employee stock options and RSUs) were excluded from diluted EPS calculations as their inclusion would have been anti-dilutive[69][70] Note 7 – Leases 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] - 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] 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 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] - 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][85] Note 9 – Credit Agreements 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] 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] Note 10 – Accrued Expenses 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] Note 11 – Subsequent Events 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] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes the company's financial condition and results of operations, covering key metrics, performance factors, and liquidity 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] - Revenues are generated from professional services, primarily time-and-materials, across service lines including enterprise modernization, customer experience, data & AI, and digital transformation[95] Key Operational and Business Metrics 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] - 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][101] - 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][105] Key Factors Affecting Our Performance 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] - 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] - 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] - 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] Components of Our Operating Results 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] - 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][118] - Cost of revenues includes personnel costs, benefits, stock-based compensation, travel, third-party vendors, and depreciation related to service delivery[120] Results of Operations 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 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] - 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] - Net income decreased by $48.1 million to a loss of $30.0 million, mainly due to the increase in stock-based compensation[131] Summary Comparison of Six Months Ended June 30, 2022 with the Six Months Ended June 30, 2021 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] - 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] - 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] Revenues by Industry Vertical 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][138] Revenues by Customer Location 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] - APAC revenue grew by 22.4% (Q2) and 30.7% (H1), with Australia being the top contributor[142] - Europe saw revenue growth of 21.9% (Q2) and 25.7% (H1), with Germany (Q2) and the UK (H1) as top contributing countries[143] - LATAM revenue grew by 35.1% (Q2) and 29.5% (H1), with Brazil as the largest customer location[144] Revenues by Client Concentration 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][147] - 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] 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] Cost of Revenues 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] Gross Profit and Gross Margin 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] Selling, General and Administrative Expenses 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][152] Depreciation and Amortization 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] Interest Expense 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] Income Tax Expense 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][156] Non-GAAP Financial Measures 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] - 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] - 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][163] Item 3. Quantitative and Qualitative Disclosure About Market Risk 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] - International operations are subject to risks related to differing economic conditions, geopolitical instability, tax structures, and regulations[190] - There were no material changes to the market risk disclosure from the 2021 Annual Report[191] Item 4. Controls and Procedures 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][194] - No material changes in internal control over financial reporting occurred during the period covered by this report[195] - Management acknowledges that any control system provides only reasonable, not absolute, assurance due to inherent limitations and resource constraints[196] Part II. Other Information This part includes disclosures on legal proceedings, risk factors, equity sales, defaults, mine safety, and other relevant information Item 1. Legal Proceedings 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] - 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] Item 1A. Risk Factors 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] - No material changes to the company's risk factors have occurred since the 2021 Annual Report[200] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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] Item 3. Defaults Upon Senior Securities This section indicates no defaults upon senior securities during the reporting period - There were no defaults upon senior securities[202] Item 4. Mine Safety Disclosures This section states that mine safety disclosures are not applicable to the company - Mine Safety Disclosures are not applicable to the company[203] Item 5. Other Information This section reports that there is no other information to disclose - No other information to disclose[204] Item 6. Exhibits 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]