Thoughtworks(TWKS) - 2023 Q1 - Quarterly Report

Forward-Looking Statements This section identifies forward-looking statements, highlighting risks and uncertainties that could cause actual results to differ materially Summary of Forward-Looking Statements This section identifies forward-looking statements, highlighting risks and uncertainties that could cause actual results to differ materially - Forward-looking statements are identified by terms such as 'anticipate,' 'believe,' 'expect,' and relate to future operations, client demand, business strategies, and the macroeconomic environment[9] - Actual results may differ materially due to known and unknown risks, uncertainties, and other factors, including volatile economic conditions, foreign currency fluctuations, and increased compensation expenses[10][11] - The company does not undertake to update or revise any forward-looking statement unless required by law[14] Part I. Financial Information This part presents unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition Item 1. Condensed Consolidated Financial Statements (Unaudited) This section presents unaudited condensed consolidated financial statements, including Balance Sheets, Statements of Loss, and Cash Flows Condensed Consolidated Balance Sheets This section provides a snapshot of the company's financial position as of March 31, 2023, and December 31, 2022 Balance Sheet Highlights | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------------- | :----------------------------- | :------------------------------ | | Cash and cash equivalents | $109,268 | $194,294 | | Total current assets | $439,300 | $556,690 | | Total assets | $1,360,697 | $1,461,850 | | Total current liabilities | $165,124 | $179,570 | | Long-term debt, less current portion | $291,053 | $391,856 | | Total liabilities | $572,840 | $683,628 | | Total stockholders' equity | $787,857 | $778,222 | Condensed Consolidated Statements of Loss and Comprehensive Loss This section details the company's financial performance, including revenues, operating expenses, and net loss for the period Statements of Loss and Comprehensive Loss Highlights | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | | :-------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Revenues | $307,056 | $320,940 | | Total operating expenses | $301,404 | $360,376 | | Income (loss) from operations | $5,652 | $(39,436) | | Total other (expense) income | $(6,400) | $179 | | Loss before income taxes | $(748) | $(39,257) | | Income tax expense | $7,359 | $4,328 | | Net loss | $(8,107) | $(43,585) | | Basic loss per common share | $(0.03) | $(0.14) | | Diluted loss per common share | $(0.03) | $(0.14) | Condensed Consolidated Statements of Changes in Stockholders' Equity This section outlines changes in stockholders' equity, including common stock, additional paid-in capital, and retained deficit Stockholders' Equity Changes | Metric | December 31, 2022 (in thousands) | March 31, 2023 (in thousands) | | :-------------------------------- | :------------------------------- | :------------------------------ | | Common Stock Amount | $366 | $367 | | Treasury Stock Amount | $(624,934) | $(624,775) | | Additional Paid-In Capital | $1,565,514 | $1,582,854 | | Accumulated Other Comprehensive Loss | $(39,210) | $(38,968) | | Retained Deficit | $(123,514) | $(131,621) | | Total Stockholders' Equity | $778,222 | $787,857 | - Net loss for the three months ended March 31, 2023, was $(8,107) thousand[21] - Stock-based compensation expense for the period was $17,679 thousand[21] Condensed Consolidated Statements of Cash Flows This section presents cash flows from operating, investing, and financing activities for the three months ended March 31, 2023 Cash Flow Summary | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | | :-------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Net cash provided by (used in) operating activities | $33,047 | $(6,095) | | Net cash used in investing activities | $(17,555) | $(4,998) | | Net cash used in financing activities | $(102,041) | $(29,792) | | Net decrease in cash, cash equivalents and restricted cash | $(85,001) | $(40,703) | | Cash, cash equivalents and restricted cash at end of period | $110,563 | $354,239 | - Interest paid increased to $6,645 thousand in Q1 2023 from $4,355 thousand in Q1 2022[23] - Income taxes paid increased to $6,856 thousand in Q1 2023 from $2,383 thousand in Q1 2022[23] Notes to the Condensed Consolidated Financial Statements (Unaudited) This section provides detailed explanations supporting the financial statements, covering business, accounting policies, revenue, and acquisitions Note 1 – Business and Summary of Significant Accounting Policies This note describes Thoughtworks' global technology consultancy business and outlines significant accounting policies, including a policy change - Thoughtworks Holding, Inc. is a global technology consultancy providing enterprise application software development, implementation, and business technology consulting across 18 countries[27] - The company retrospectively changed its stock-based compensation policy for graded vesting awards from accelerated to straight-line attribution, decreasing net loss by $16.3 million and basic/diluted loss per share by $0.06 for Q1 2022[38] - Revenue from operations outside the United States accounted for 66% and 63% for the three months ended March 31, 2023 and 2022, respectively[36] Note 2 – Revenue Recognition This note details revenue recognition policies, disaggregating revenues by geographic location, industry vertical, and contract type - The company disaggregates revenues from contracts with customers by geographic customer location, industry vertical, and contract type (predominantly time-and-materials)[39] Revenue by Geographic Location | Geographic Location | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------ | :-------------------------------- | :-------------------------------- | | North America | $112,314 | $121,949 | | APAC | $100,162 | $102,206 | | Europe | $83,050 | $82,926 | | LATAM | $11,530 | $13,859 | | Total revenues | $307,056 | $320,940 | Revenue by Industry Vertical | Industry Vertical | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------------------ | :-------------------------------- | :-------------------------------- | | Technology and business services | $74,133 | $85,349 | | Energy, public and health services | $84,039 | $77,110 | | Retail and consumer | $47,912 | $62,435 | | Financial services and insurance | $55,155 | $58,464 | | Automotive, travel and transportation | $45,817 | $37,582 | | Total revenues | $307,056 | $320,940 | Revenue by Contract Type | Contract Type | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------ | :-------------------------------- | :-------------------------------- | | Time-and-material | $257,250 | $271,363 | | Fixed-price | $49,806 | $49,577 | | Total revenues | $307,056 | $320,940 | Note 3 – Acquisitions This note details recent acquisitions, including ITOC Pty Ltd, and associated goodwill, intangible assets, and contingent consideration - On February 1, 2023, Thoughtworks acquired ITOC Pty Ltd ('Itoc') for $17.8 million (gross purchase price), expanding its cloud modernization capabilities in Australia[51] - The acquisition resulted in $13.8 million in goodwill and $3.5 million in customer relationships, net[53] - Acquisition-related costs for Itoc totaled $1.1 million for Q1 2023, included in SG&A expenses[53] - A contingent consideration liability of $14.3 million related to the Connected Lab Inc. acquisition (Q2 2022) was paid on May 4, 2023[57] Note 4 – Goodwill and Other Intangible Assets This note details changes in goodwill and other intangible assets, including additions from acquisitions and amortization expense Goodwill Movement | Metric | Amount | | :-------------------------- | :------- | | Balance as of Dec 31, 2022 | $405,017 | | Additions due to acquisitions | $13,766 | | Changes due to exchange rates | $1,611 | | Balance as of Mar 31, 2023 | $420,394 | - Amortization expense for finite-lived intangible assets was $3.6 million for Q1 2023, up from $3.0 million in Q1 2022[59] - The weighted average remaining useful life of finite-lived intangible assets was 8.8 years as of March 31, 2023[61] Note 5 – Income Taxes This note explains income tax expense and effective tax rate, highlighting factors like U.S. state taxation and valuation allowances - The effective tax rate for Q1 2023 was (983.8)% compared to (11.0)% for Q1 2022, primarily due to U.S. corporate state income taxation, foreign operations' tax rates, valuation allowances, non-deductibility of China SAFE RSUs, and capitalized R&E costs under IRC §174[63] - The company computes the effective tax rate using actual results for interim periods due to high sensitivity of forecasted pre-tax income to minor changes[62] Note 6 – Loss Per Share This note presents basic and diluted loss per common share calculations, including net loss and weighted average shares outstanding Loss Per Share Details | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Net loss – Basic and diluted | $(8,107) | $(43,585) | | Weighted average shares outstanding – Basic and diluted | 316,451,601 | 306,189,816 | | Basic and diluted loss per share | $(0.03) | $(0.14) | - Potentially dilutive securities (stock options, RSUs, PSUs) totaling 20,285,106 for Q1 2023 were excluded from diluted EPS calculation as they were anti-dilutive[64] Note 7 – Stock-Based Compensation This note details stock-based compensation expense and unrecognized compensation costs for various equity awards Stock-Based Compensation Expense | Category | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Cost of revenues | $10,530 | $69,909 | | Selling, general and administrative expenses | $7,149 | $30,274 | | Total stock-based compensation expense | $17,679 | $100,183 | - Unrecognized compensation cost for time vesting options was $6.1 million, to be recognized over a weighted-average period of 1.8 years[66] - Unrecognized compensation cost for RSUs was $131.6 million, with $30.1 million non-recurring (IPO-related) and $101.5 million recurring (annual grant), to be recognized over a weighted-average period of 2.5 years[69] - Unrecognized compensation cost for PSUs was $9.6 million, to be recognized over a weighted-average period of 2.5 years[71] Note 8 – Credit Agreements This note outlines senior secured credit facilities, including the Term Loan and Revolver, and details a voluntary prepayment - The company has a senior secured Term Loan of $715.0 million and a Revolver of $300.0 million[72] - On February 24, 2023, a voluntary prepayment of $100.0 million was made on the Term Loan, resulting in a $0.9 million write-off of deferred financing fees[73][74] Credit Facilities Summary | Metric | March 31, 2023 | December 31, 2022 | | :------------------------------------ | :------------- | :---------------- | | Availability under Revolver | $300,000 | $300,000 | | Borrowings under Revolver | $0 | $0 | | Long-term debt (incl. current portion) | $298,203 | $399,006 | | Interest rate | 7.3% | 6.9% | Note 9 – Accrued Expenses This note provides a breakdown of accrued expenses, including compensation, professional fees, and contingent consideration Accrued Expenses Breakdown | Accrued Expense Category | March 31, 2023 | December 31, 2022 | | :----------------------- | :------------- | :---------------- | | Accrued compensation | $73,536 | $85,477 | | Professional fees | $5,528 | $6,321 | | Contingent consideration | $14,267 | $14,255 | | Total Accrued Expenses | $27,848 | $30,227 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on financial condition and results, discussing key metrics, revenue trends, and liquidity Overview This section describes Thoughtworks as a global technology consultancy, its employee base, geographic presence, and professional services - Thoughtworks is a global technology consultancy with 11,840 employees across 51 offices in 18 countries, specializing in digital innovation through strategy, design, and engineering[79] - Revenues are generated from professional services, including enterprise modernization, customer experience, data & AI, digital application management, and digital transformation[80] Key Operational and Business Metrics This section presents key financial and operational metrics, including revenues, net loss, and Adjusted EBITDA, with year-over-year changes Operational and Business Metrics | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Change (YoY) | | :-------------------------------- | :-------------------------------- | :-------------------------------- | :----------- | | Revenues | $307,056 | $320,940 | (4.3)% | | Revenue Growth Rate as reported | (4.3)% | 35.0% | -39.3 pp | | Revenue Growth Rate at constant currency | (0.9)% | 38.2% | -39.1 pp | | Net loss | $(8,107) | $(43,585) | +$35,478 | | Net loss margin | (2.6)% | (13.6)% | +11.0 pp | | Adjusted Net Income | $10,067 | $43,992 | -$33,925 | | Adjusted EBITDA | $34,900 | $72,872 | -$37,972 | | Adjusted EBITDA Margin | 11.4% | 22.7% | -11.3 pp | - The decrease in reported revenue (4.3%) and constant currency revenue (0.9%) was negatively impacted by the appreciation of the U.S. dollar against certain principal functional currencies of subsidiaries[83] - The decrease in net loss and improvement in net loss margin were driven by a significant decrease in stock-based compensation expense ($82.5 million), partially offset by increased payroll expense and decreased revenue[84] - Adjusted EBITDA decreased by 52.1% due to higher operating expenses (increased payroll, severance) and decreased revenue, leading to a lower Adjusted EBITDA Margin[86] Results of Operations This section analyzes the company's financial performance, examining revenue trends, cost of revenues, gross profit, and operating expenses Revenues This section analyzes revenue performance, including total revenue changes, client growth, net dollar retention, and disaggregation by industry and region - Total revenues decreased by 4.3% to $307.1 million in Q1 2023 from $320.9 million in Q1 2022[88] - The number of clients increased to 442 (from 384), and clients generating over $10 million in revenue increased to 39 (from 31) for the trailing twelve months ended March 31, 2023[91] - Net dollar retention rate decreased to 106% in Q1 2023 from 132% in Q1 2022, primarily due to project pauses and slower engagement growth from client budgetary pressures, particularly in the APAC region and retail and consumer and technology and business services verticals[92] - Existing clients accounted for 97.2% of revenues in Q1 2023 (vs. 95.4% in Q1 2022), while new clients contributed 2.8% (vs. 4.6%)[93] - 47 new logos were contracted in Q1 2023, with a higher concentration within the energy, public and health services and financial services and insurance industry verticals[94] Revenue by Industry Vertical | Industry Vertical | Q1 2023 Revenue | Q1 2023 % of Total | Q1 2022 Revenue | Q1 2022 % of Total | YoY Change | | :------------------------------ | :---------------- | :----------------- | :---------------- | :----------------- | :--------- | | Technology and business services | $74,133 | 24.1% | $85,349 | 26.6% | (13.1)% | | Energy, public and health services | $84,039 | 27.4% | $77,110 | 24.0% | 9.0% | | Retail and consumer | $47,912 | 15.6% | $62,435 | 19.5% | (23.3)% | | Financial services and insurance | $55,155 | 18.0% | $58,464 | 18.2% | (5.7)% | | Automotive, travel and transportation | $45,817 | 14.9% | $37,582 | 11.7% | 21.9% | - Decreases in retail & consumer, technology & business services, and financial services & insurance were due to client budgetary pressures[95] - Growth in automotive, travel & transportation was driven by customer experience, product & design, while energy, public & health services grew due to enterprise modernization, platforms & cloud[95][96] Revenue by Geographic Location | Geographic Location | Q1 2023 Revenue | Q1 2023 % of Total | Q1 2022 Revenue | Q1 2022 % of Total | YoY Change | | :------------------ | :---------------- | :----------------- | :---------------- | :----------------- | :--------- | | North America | $112,314 | 36.6% | $121,949 | 38.0% | (7.9)% | | APAC | $100,162 | 32.6% | $102,206 | 31.9% | (2.0)% | | Europe | $83,050 | 27.0% | $82,926 | 25.8% | 0.1% | | LATAM | $11,530 | 3.8% | $13,859 | 4.3% | (16.8)% | - North America revenue decreased by 7.9%, with the United States contributing $108.4 million[98] - APAC revenue decreased by 2.0%, with Australia contributing $29.0 million, impacted by USD strengthening against the Australian Dollar[99] - Europe revenue grew by 0.1%, with the United Kingdom contributing $35.1 million, negatively impacted by USD strengthening against the Euro and Great British Pound[100] - LATAM revenue decreased by 16.8%, with Brazil being the largest customer location[101] Revenue by Client Group | Client Group | Q1 2023 Revenue | Q1 2023 % of Total | Q1 2022 Revenue | Q1 2022 % of Total | | :------------- | :---------------- | :----------------- | :---------------- | :----------------- | | Top five clients | $52,590 | 17.1% | $48,120 | 15.0% | | Top ten clients | $82,558 | 26.9% | $83,031 | 25.9% | | Top fifty clients | $206,577 | 67.3% | $212,012 | 66.1% | People Metrics This section presents key human capital metrics, including employee count, average revenue per employee, and voluntary attrition rates Employee and Revenue Metrics | Metric | March 31, 2023 | March 31, 2022 | | :------------------------------------ | :------------- | :------------- | | Number of employees | 11,840 | 11,278 | | Average revenue per employee (Q1) | $25,000 | $29,000 | | Annualized average revenue per employee | $100,000 | $116,000 | | Trailing Twelve Months Voluntary Attrition | 13.1% | 14.1% | - The decrease in average revenue per employee was driven by the negative impact from foreign currency translation, geographic mix, and decreased utilization[105] - Voluntary attrition decreased, indicating higher retention, attributed to technology industry hiring trends, company culture, career development, and work opportunities[105] Bookings This section defines bookings as a forward-looking metric for new contract value, renewals, and extensions, noting stable bookings - Bookings were $1.5 billion for both the trailing twelve months ended March 31, 2023, and March 31, 2022, indicating stable new contract value[106] - Bookings measure the value of new contracts, renewals, extensions, and changes to existing contracts, serving as a forward-looking metric for business volume trends[106] Cost of Revenues This section analyzes changes in cost of revenues, primarily driven by fluctuations in stock-based compensation and payroll expenses Cost of Revenues Summary | Metric | Q1 2023 | Q1 2022 | % Change | | :-------------- | :-------- | :-------- | :------- | | Cost of revenues | $209,522 | $249,765 | (16.1)% | - The 16.1% decrease in cost of revenues was primarily driven by a $59.4 million decrease in stock-based compensation expense, partially offset by an $18.1 million increase in payroll expense (excluding stock-based compensation) due to higher headcount and severance expense[107] Gross Profit and Gross Margin This section discusses gross profit and gross margin, highlighting the impact of stock-based compensation and payroll expenses on profitability Gross Profit and Margin | Metric | Q1 2023 | Q1 2022 | % Change | | :---------- | :-------- | :-------- | :------- | | Gross profit | $97,534 | $71,175 | 37.0% | | Gross margin | 31.8% | 22.2% | +9.6 pp | - Gross margin increased by 9.6 percentage points, mainly due to a $59.4 million decrease in stock-based compensation, partially offset by increased payroll expense and decreased utilization[108] SG&A Expenses and SG&A Margin This section details changes in selling, general, and administrative expenses and their impact on the SG&A margin SG&A Expenses and Margin | Metric | Q1 2023 | Q1 2022 | % Change | | :------------ | :-------- | :-------- | :------- | | SG&A expenses | $86,340 | $104,765 | (17.6)% | | SG&A margin | 28.1% | 32.6% | -4.5 pp | - SG&A expenses decreased by 17.6%, primarily due to a $23.1 million decrease in stock-based compensation expense[109] Depreciation and Amortization This section reports on depreciation and amortization expenses, noting no material changes for the periods presented Depreciation and Amortization Expense | Metric | Q1 2023 | Q1 2022 | % Change | | :-------------------------- | :-------- | :-------- | :------- | | Depreciation and amortization | $5,542 | $5,846 | (5.2)% | - There was not a material change in depreciation and amortization for the three months ended March 31, 2023 as compared to the three months ended March 31, 2022[110] Income (Loss) from Operations and Income (Loss) from Operations Margin This section analyzes operating income or loss and its margin, attributing changes to stock-based compensation, payroll, and revenue Operating Income (Loss) and Margin | Metric | Q1 2023 | Q1 2022 | % Change | | :-------------------------------- | :-------- | :-------- | :------- | | Income (loss) from operations | $5,652 | $(39,436) | (114.3)% | | Income (loss) from operations margin | 1.8% | (12.3)% | +14.1 pp | - The increase in income from operations was primarily driven by an $82.5 million decrease in stock-based compensation expense (including $46.7 million related to the approval of China SAFE during the first quarter of 2022), partially offset by a $19.2 million increase in payroll expense (including severance) and a $13.9 million decrease in revenues due to lower utilization[111] Interest Expense This section discusses the increase in interest expense, primarily due to higher interest rates on borrowings, partially offset by prepayments Interest Expense Summary | Metric | Q1 2023 | Q1 2022 | % Change | | :--------------- | :-------- | :-------- | :------- | | Interest expense | $6,862 | $4,647 | 47.7% | - Interest expense increased by 47.7% due to higher interest rates on borrowings, partially offset by decreased borrowings from prepayments[112] Income Tax Expense and Effective Tax Rate This section explains changes in income tax expense and the effective tax rate, influenced by tax deficiencies and valuation allowances Income Tax Expense and Rate | Metric | Q1 2023 | Q1 2022 | % Change | | :------------------ | :-------- | :-------- | :------- | | Income tax expense | $7,359 | $4,328 | 70.0% | | Effective tax rate | NM | (11.0)% | | - Income tax expense increased by $3.0 million due to the unfavorable impact of excess tax deficiencies on stock-based compensation and provision for uncertain income tax positions, offset by valuation allowances on deferred tax assets of select foreign operations and net GILTI inclusion[114] - The effective tax rate was not meaningful (NM) for Q1 2023 and negative (11.0)% for Q1 2022, primarily due to U.S. state income taxation, foreign operations' tax rates, valuation allowances, non-deductibility of China SAFE RSUs, and capitalized R&E costs[115] Foreign Currency Exchange Gains and Losses This section refers to other report parts for detailed disclosures on foreign currency rate fluctuations and their impact - The report refers to 'Item 3. Quantitative and Qualitative Disclosures About Market Risk' and 'Item 1A. Risk Factors' for details on foreign currency rate fluctuations[116] Non-GAAP Financial Measures This section defines and reconciles non-GAAP financial measures like Adjusted Net Income and Adjusted EBITDA, explaining their utility - Adjusted Net Income is defined as net loss adjusted for unrealized gain on foreign currency exchange, stock-based compensation expense, amortization of acquisition-related intangibles, acquisition costs, certain professional fees, employer payroll related expense on employee equity incentive plan, and income tax effects of adjustments[117] - Adjusted EBITDA is defined as net loss adjusted for income tax expense, interest expense, other expense (income), net, unrealized gain on foreign currency exchange, stock-based compensation expense, depreciation and amortization expense, acquisition costs, certain professional fees, and employer payroll related expense on employee equity incentive plan[118][119] - These non-GAAP measures are used by management and investors to assess operating performance, leverage, and for planning, budgeting, and comparison purposes, but have limitations as analytical tools[120][121] Non-GAAP Financial Measures Reconciliation | Metric | Q1 2023 | Q1 2022 | | :------------------------------------ | :-------- | :-------- | | Net loss | $(8,107) | $(43,585) | | Unrealized foreign exchange gain | $(948) | $(5,640) | | Stock-based compensation | $17,679 | $100,183 | | Amortization of acquisition-related intangibles | $3,591 | $2,992 | | Acquisition costs | $1,706 | $20 | | Certain professional fees | $225 | $803 | | Employer payroll related expense on employee equity incentive plan | $242 | $3,622 | | Income tax effects of adjustments | $(4,321) | $(14,403) | | Adjusted Net Income | $10,067 | $43,992 | | Income tax expense | $7,359 | $4,328 | | Interest expense | $6,862 | $4,647 | | Other expense (income), net | $793 | $(88) | | Depreciation and amortization | $9,089 | $8,582 | | Adjusted EBITDA | $34,900 | $72,872 | | Net loss margin | (2.6)% | (13.6)% | | Adjusted EBITDA Margin | 11.4% | 22.7% | Liquidity and Capital Resources This section discusses the company's liquidity position, including cash, credit facilities, cash flow activities, and future capital requirements Liquidity and Debt Overview | Metric | March 31, 2023 | December 31, 2022 | | :------------------------------------ | :------------- | :---------------- | | Cash and cash equivalents | $109,268 | $194,294 | | Availability under Revolver | $300,000 | $300,000 | | Borrowings under Revolver | $0 | $0 | | Long-term debt, including current portion | $298,203 | $399,006 | - Primary liquidity sources are cash generated from operations and financing activities, used for technology solutions, corporate infrastructure, and strategic acquisitions[125] - The company believes existing cash and expected operating cash flow will be sufficient for at least the next twelve months, with financial flexibility for acquisitions and strategic investments[137] Our Credit Facilities This section details outstanding debt under the Term Loan and Revolver, confirming compliance with debt covenants - As of March 31, 2023, the company had $300.7 million outstanding under its Term Loan at a 7.30% interest rate and no borrowings outstanding under the Revolver[128] - The company was in compliance with all debt covenants as of March 31, 2023[129] Cash Flows This section analyzes net cash provided by or used in operating, investing, and financing activities, highlighting key drivers Cash Flow Activities Summary | Activity | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Operating activities | $33,047 | $(6,095) | | Investing activities | $(17,555) | $(4,998) | | Financing activities | $(102,041) | $(29,792) | | Effect of exchange rate changes | $1,548 | $182 | | Net decrease in cash and cash equivalents | $(85,001) | $(40,703) | - Net cash provided by operating activities increased to $33.0 million (from cash used of $6.1 million in Q1 2022), primarily due to decreased trade receivables and lower accruals from IPO-related expense payments in Q1 2022[131] - Net cash used in investing activities increased to $17.6 million (from $5.0 million in Q1 2022), mainly due to the Itoc acquisition in Q1 2023[132] - Net cash used in financing activities was $102.0 million, driven by $101.8 million in long-term debt repayment. In Q1 2022, it was $29.8 million, driven by withholding taxes for equity awards, tender offer, and dividends[133] Contractual Obligations and Future Capital Requirements This section addresses contractual obligations, including contingent consideration, and discusses potential needs for additional funding - A $14.3 million contingent consideration liability for the Connected acquisition was paid on May 4, 2023[134] - No other material changes to contractual obligations since the 2022 Annual Report[135] - The company may need to raise additional funds through equity or debt financing if existing liquidity is insufficient, which could dilute stockholders or restrict operations[137] Commitments and Contingencies This section outlines policies for recording loss contingencies and confirms no current claims are expected to have a material adverse effect - The company records liabilities for loss contingencies when probable and estimable, and legal costs are expensed as incurred[139] - Currently, there are no claims or proceedings expected to have a material adverse effect on the business[153] Off-Balance Sheet Arrangements This section confirms the absence of off-balance sheet financing arrangements or relationships with unconsolidated entities - The company had no off-balance sheet financing arrangements or relationships with unconsolidated entities during the periods presented[140] Recent Accounting Pronouncements This section discusses the impact of recent accounting pronouncements, including ASU 2021-08 and ASU 2020-04 - The adoption of ASU 2021-08 (business combinations) did not materially impact the financial statements[34] - The company is currently assessing the impact of ASU 2020-04 (Reference Rate Reform) on its consolidated financial statements[35] Critical Accounting Policies and Estimates This section states no material changes to critical accounting policies and estimates since the previous annual report - No material changes to critical accounting policies and estimates compared to those described in the 2022 Annual Report[143] Item 3. Quantitative and Qualitative Disclosure About Market Risk This section addresses market risks, including credit concentration, interest rates, and foreign currency, noting no material changes - The company is exposed to market risks from changes in credit concentration, interest rates, and foreign currency exchange rates, as well as risks from international operations[144] - No material changes to market risk disclosure from the 2022 Annual Report[145] Item 4. Controls and Procedures This section details management's evaluation of disclosure controls and internal control over financial reporting, noting no material changes Evaluation of Disclosure Controls and Procedures This section confirms management's conclusion that disclosure controls and procedures were effective as of March 31, 2023 - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of March 31, 2023, providing reasonable assurance that required information is recorded, processed, summarized, and reported timely[148] Changes in Internal Control Over Financial Reporting This section states no material changes occurred in internal control over financial reporting during the period - There were no changes in internal control over financial reporting during the period that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[149] Limitations on the Effectiveness of Controls and Procedures This section acknowledges inherent limitations of control systems, providing reasonable, not absolute, assurance of achieving objectives - Management acknowledges that any control system, no matter how well designed, can only provide reasonable, not absolute, assurance of achieving control objectives due to inherent limitations like resource constraints and the need for judgment[150] Part II. Other Information This part contains additional information not covered in Part I, including legal proceedings, risk factors, equity sales, and exhibits Item 1. Legal Proceedings This section states the company is involved in litigation but expects no material adverse effect on its business or financial condition - The company is involved in various litigations (intellectual property, data privacy, contract, employment, etc.) but currently has no claims expected to materially adversely affect its business, financial condition, results of operations, or cash flows[153] Item 1A. Risk Factors This section refers to risk factors in the 2022 Annual Report, noting no material changes affecting the company's business - No material changes to the company's risk factors since those set forth in the 2022 Annual Report[154] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section confirms no unregistered sales of the company's equity securities occurred during the first quarter of 2023 - No unregistered sales of the Company's equity securities occurred during the first quarter of 2023[155] Item 3. Defaults Upon Senior Securities This section states that there were no defaults upon senior securities - No defaults upon senior securities[156] Item 4. Mine Safety Disclosures This section indicates that mine safety disclosures are not applicable to the company - Mine Safety Disclosures are not applicable[157] Item 5. Other Information This section states that there is no other information to report - No other information to report[158] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including various agreements and certifications - The report includes exhibits such as Performance Share Unit Agreement, Employment Agreements, and certifications from the CEO and CFO[160] Signatures This section contains required signatures from the CEO and CFO, certifying the report's submission - The report is signed by Guo Xiao, Chief Executive Officer and Director, and Erin Cummins, Chief Financial Officer, on May 9, 2023[163]