Thoughtworks(TWKS) - 2023 Q2 - Quarterly Report

Part I Item 1. Condensed Consolidated Financial Statements (Unaudited) The unaudited condensed consolidated financial statements for Q2 2023 reflect decreased assets and revenues, a significantly narrowed net loss, and positive operating cash flow, reflecting strategic acquisitions and a structural reorganization Condensed Consolidated Balance Sheets The balance sheet as of June 30, 2023, shows a decrease in total assets and liabilities, primarily driven by reduced cash and long-term debt, while stockholders' equity slightly increased Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $88,151 | $194,294 | | Total current assets | $414,710 | $556,690 | | Goodwill | $422,313 | $405,017 | | Total assets | $1,327,227 | $1,461,850 | | Liabilities & Equity | | | | Total current liabilities | $137,630 | $179,570 | | Long-term debt, less current portion | $289,379 | $391,856 | | Total liabilities | $533,499 | $683,628 | | Total stockholders' equity | $793,728 | $778,222 | Condensed Consolidated Statements of Loss and Comprehensive Loss For Q2 2023, revenues decreased, but the company significantly narrowed its net loss due to a sharp reduction in operating expenses, particularly from lower stock-based compensation Financial Performance Summary (in thousands, except per share data) | Metric | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $287,215 | $332,107 | $594,271 | $653,047 | | (Loss) income from operations | $(1,623) | $(21,922) | $4,029 | $(61,358) | | Net loss | $(12,272) | $(39,308) | $(20,379) | $(82,893) | | Diluted loss per common share | $(0.04) | $(0.13) | $(0.06) | $(0.27) | Condensed Consolidated Statements of Cash Flows For the first half of 2023, operating cash flow remained positive but decreased, while significant cash was used in investing activities for an acquisition and in financing activities for debt repayment, leading to an overall decrease in cash Cash Flow Summary for Six Months Ended June 30 (in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $16,247 | $21,477 | | Net cash used in investing activities | $(19,449) | $(77,602) | | Net cash used in financing activities | $(103,039) | $(54,199) | | Net decrease in cash | $(106,063) | $(119,208) | Notes to the Condensed Consolidated Financial Statements (Unaudited) Key notes detail the acquisition of Itoc Pty Ltd, a significant reduction in stock-based compensation, a voluntary debt prepayment, and a subsequent structural reorganization impacting headcount and incurring charges - On February 1, 2023, the Company acquired Itoc Pty Ltd, an Australian AWS consulting partner, for a gross purchase price of $17.8 million[48] - Stock-based compensation expense decreased significantly to $17.6 million for Q2 2023, compared to $68.9 million for Q2 2022[64] - On February 24, 2023, the Company made a voluntary prepayment of $100.0 million on its Term Loan[72] - On August 7, 2023, the Board approved a structural reorganization that will impact approximately 5% to 6% of the employee headcount and is expected to incur total pre-tax charges of $20 million to $25 million[78][79][80] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the Q2 2023 revenue decline to macroeconomic factors and client caution, noting a decrease in net dollar retention rate and adjusted EBITDA margin despite improved gross margin, while maintaining adequate liquidity Key Operational Metrics | Metric | Q2 2023 | Q2 2022 | | :--- | :--- | :--- | | Revenue Growth Rate (as reported) | (13.5)% | 27.5% | | Revenue Growth Rate (constant currency) | (12.5)% | 33.5% | | Adjusted EBITDA Margin | 10.2% | 17.6% | - The decrease in revenue was attributed to the continued impact of the macroeconomic environment, slower pipeline conversion, and client budget caution[86] - Net dollar retention rate decreased to 100% for the trailing twelve months ended June 30, 2023, down from 124% for the same period in 2022[95][96] - Bookings for the trailing twelve months ended June 30, 2023, were stable at $1.5 billion, the same as the prior year period[111] Item 3. Quantitative and Qualitative Disclosure About Market Risk The company states that there were no material changes to its market risk disclosures from its 2022 Annual Report - There were no material changes to the information on market risk disclosure from the 2022 Annual Report[154] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2023, with no material changes in internal control over financial reporting during the quarter - The principal executive officer and principal financial officer concluded that as of June 30, 2023, the company's disclosure controls and procedures are effective[156] - No changes occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[157] Part II. Other Information Item 1. Legal Proceedings The company reports that it is not currently involved in any legal claims or proceedings expected to have a material adverse effect on its business, financial condition, or results of operations - There are currently no claims or proceedings against the company that are believed to have a material adverse effect on its business[160] Item 1A. Risk Factors The company states there have been no material changes to its risk factors since the 2022 Annual Report, with the exception of a newly detailed risk concerning the challenges in implementing its strategy and potential disruptions from restructuring actions - A new risk factor was added concerning the company's ability to implement its strategy, including cost and efficiency initiatives, noting that restructuring actions may not be successful and could be disruptive[161][162][163] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of its equity securities during the second quarter of 2023 - There were no unregistered sales of the Company's equity securities during the second quarter of 2023[164] Item 5. Other Information In connection with its structural reorganization, Christopher Murphy was appointed Chief Revenue and Client Officer, Sudhir Tiwari as Global Head of the Digital Engineering Center, the Chief Commercial Officer role was eliminated, and CTO Emerita Rebecca Parsons adopted a Rule 10b5-1 trading plan - As part of a reorganization, Christopher Murphy was appointed Chief Revenue and Client Officer, and Sudhir Tiwari was appointed Global Head of the Digital Engineering Center[167] - The Chief Commercial Officer role was eliminated, and the incumbent, Sai Mandapaty, will transition out of the company[167] - CTO Emerita Rebecca Parsons adopted a Rule 10b5-1 trading plan on May 17, 2023, to sell up to 17,507 shares[167] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including amendments to credit agreements, certifications by the CEO and CFO, and Inline XBRL data files