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Thoughtworks Reports Third Quarter 2024 Financial Results

  • Third quarter revenues of $261.4 million

Thoughtworks Holding, Inc. (NASDAQ: TWKS) ("Thoughtworks" or the "Company"), a leading global technology consultancy, today reported results for the third quarter of 2024.

Acquisition Update

As announced on August 5, 2024, Thoughtworks has entered into a definitive merger agreement to be acquired by affiliates of certain investment funds advised by Apax Partners LLP for $4.40 per share (the “Merger”). In connection with the Merger, Thoughtworks has filed a definitive Information Statement with the Securities and Exchange Commission on October 21, 2024. A copy of the Information Statement can be found by visiting the Investor Relations section of the Thoughtworks corporate website at thoughtworks.com. In light of the announced transaction, Thoughtworks will not be holding a conference call to discuss its September 30, 2024 financial results.

Update on Restructuring Activities

On August 8, 2023, Thoughtworks initiated several measures to reduce operational costs and better align our business with our customers’ needs in a challenging macroeconomic environment. On May 7, 2024, we increased our restructuring program to capture additional cost savings. On August 2, 2024, the Company’s Board of Directors approved a second increase to its restructuring plan. The restructuring program was completed on October 31, 2024, as expected. The Company expects to record an immaterial amount of expense in the fourth quarter of 2024 due to closing out the program and the finalization of certain restructuring expenses, in addition to expense incurred in October related to restructuring actions taken.

During the third quarter of 2024, Thoughtworks incurred pre-tax cash charges of approximately $22.6 million, which include $21.1 million in wage-related costs and $1.5 million in non-wage related costs. Since the program’s inception in August 2023 through September 30, 2024, we have incurred pre-tax cash charges of approximately $50.9 million, which include $45.6 million in wage-related costs and $5.3 million in non-wage related costs, compared to total expected pre-tax charges of $56.5 million to $68.0 million, of which include $51.0 million to $59.0 million of wage-related expenses, such as employee severance and related benefits, and $5.5 million to $9.0 million of non-wage related expenses, including costs related to reducing leased office space, vendor contract cancellations and professional fees. As of September 30, 2024, we have achieved $180 million of annualized savings compared to expected total restructuring program savings of $185.0 million to $210.0 million.

QTD third quarter 2024 highlights

Revenues for the third quarter were $261.4 million, a year-over-year decline of (6.7)%, or a year-over-year decline of (6.9)% in constant currency.

Net loss margin for the third quarter was (2.3)% compared to (9.2)% for the third quarter of 2023. Adjusted EBITDA Margin for the third quarter was 11.7% compared to 12.0% for the third quarter of 2023.

Diluted loss per share for the third quarter was $(0.02) compared to $(0.08) for the third quarter of 2023. Adjusted Diluted EPS for the third quarter was $0.03 compared to $0.04 for the third quarter of 2023.

YTD third quarter 2024 highlights

Revenues for the nine months ended were $761.7 million, a year-over-year decline of (12.9)%, or a year-over-year decline of (12.6)% in constant currency. Acquisitions completed in the last twelve months had an immaterial contribution to revenue growth for the nine months ended September 30, 2024.

Net loss margin for the nine months ended was (9.6)% compared to (5.3)% for the nine months ended September 30, 2023. Adjusted EBITDA Margin for the nine months ended was 5.7% compared to 11.2% for the nine months ended September 30, 2023.

Diluted loss per share for the nine months ended was $(0.23) compared to $(0.15) for the nine months ended September 30, 2023. Adjusted diluted loss per share for the nine months ended was $(0.02) compared to Adjusted Diluted EPS of $0.10 for the nine months ended September 30, 2023.

 

QTD third quarter 2024 summary

 

 

Three Months Ended

September 30,

 

 

 

 

$ in millions, except per share data

2024

 

2023

 

Change

 

% Change(1)

GAAP Metrics:

 

 

 

 

 

 

 

Revenues(2)

$

261.4

 

 

$

280.2

 

 

$

(18.8

)

 

(6.7

)%

Gross Profit

$

91.9

 

 

$

94.2

 

 

$

(2.3

)

 

(2.4

)%

Gross Margin

 

35.2

%

 

 

33.6

%

 

 

1.6

%

 

 

SG&A

$

69.7

 

 

$

81.8

 

 

$

(12.1

)

 

(14.8

)%

SG&A Margin

 

26.7

%

 

 

29.2

%

 

 

(2.5

)%

 

 

Stock-based compensation(3)

$

6.9

 

 

$

12.8

 

 

$

(5.9

)

 

(46.1

)%

Net loss

$

(6.1

)

 

$

(25.9

)

 

$

19.8

 

 

 

Net loss margin

 

(2.3

)%

 

 

(9.2

)%

 

 

6.9

%

 

 

Diluted loss per share

$

(0.02

)

 

$

(0.08

)

 

$

0.06

 

 

 

Cash flow from operations

$

2.1

 

 

$

6.4

 

 

$

(4.3

)

 

(67.2

)%

Non-GAAP Metrics(4):

 

 

 

 

 

 

 

Revenue Growth Rate at constant currency(5)

 

(6.9

)%

 

 

(16.6

)%

 

 

 

 

Adjusted Gross Profit

$

97.3

 

 

$

104.9

 

 

$

(7.6

)

 

(7.2

)%

Adjusted Gross Margin

 

37.2

%

 

 

37.4

%

 

 

(0.2

)%

 

 

Adjusted SG&A

$

66.9

 

 

$

72.8

 

 

$

(5.9

)

 

(8.1

)%

Adjusted SG&A Margin

 

25.6

%

 

 

26.0

%

 

 

(0.4

)%

 

 

Adjusted Net Income

$

9.7

 

 

$

11.5

 

 

$

(1.8

)

 

(15.7

)%

Adjusted EBITDA

$

30.7

 

 

$

33.6

 

 

$

(2.9

)

 

(8.6

)%

Adjusted EBITDA Margin

 

11.7

%

 

 

12.0

%

 

 

(0.3

)%

 

 

Adjusted Diluted EPS

$

0.03

 

 

$

0.04

 

 

$

(0.01

)

 

(25.0

)%

Free Cash Flow

$

(1.1

)

 

$

3.7

 

 

$

(4.8

)

 

 

 

YTD third quarter 2024 summary

 

 

Nine Months Ended

September 30,

 

 

 

 

$ in millions, except per share data

2024

 

2023

 

Change

 

% Change(1)

GAAP Metrics:

 

 

 

 

 

 

 

Revenues(2)

$

761.7

 

 

$

874.4

 

 

$

(112.7

)

 

(12.9

)%

Gross Profit

$

231.9

 

 

$

282.6

 

 

$

(50.7

)

 

(17.9

)%

Gross Margin

 

30.5

%

 

 

32.3

%

 

 

(1.8

)%

 

 

SG&A

$

225.7

 

 

$

254.8

 

 

$

(29.1

)

 

(11.4

)%

SG&A Margin

 

29.6

%

 

 

29.1

%

 

 

0.5

%

 

 

Stock-based compensation(3)

$

26.9

 

 

$

48.1

 

 

$

(21.2

)

 

(44.1

)%

Net loss

$

(73.4

)

 

$

(46.2

)

 

$

(27.2

)

 

 

Net loss margin

 

(9.6

)%

 

 

(5.3

)%

 

 

(4.3

)%

 

 

Diluted loss per share

$

(0.23

)

 

$

(0.15

)

 

$

(0.08

)

 

 

Cash flow from operations

$

(31.9

)

 

$

36.6

 

 

$

(68.5

)

 

 

Non-GAAP Metrics(4):

 

 

 

 

 

 

 

Revenue Growth Rate at constant currency(5)

 

(12.6

)%

 

 

(10.2

)%

 

 

 

 

Adjusted Gross Profit

$

251.3

 

 

$

321.7

 

 

$

(70.4

)

 

(21.9

)%

Adjusted Gross Margin

 

33.0

%

 

 

36.8

%

 

 

(3.8

)%

 

 

Adjusted SG&A

$

207.9

 

 

$

226.0

 

 

$

(18.1

)

 

(8.0

)%

Adjusted SG&A Margin

 

27.3

%

 

 

25.8

%

 

 

1.5

%

 

 

Adjusted Net (Loss) Income

$

(6.3

)

 

$

31.7

 

 

$

(38.0

)

 

 

Adjusted EBITDA

$

43.2

 

 

$

97.8

 

 

$

(54.6

)

 

(55.8

)%

Adjusted EBITDA Margin

 

5.7

%

 

 

11.2

%

 

 

(5.5

)%

 

 

Adjusted Diluted (Loss) Earnings Per Share

$

(0.02

)

 

$

0.10

 

 

$

(0.12

)

 

 

Free Cash Flow

$

(42.7

)

 

$

30.2

 

 

$

(72.9

)

 

 

 

(1) The percentage change for the following items were excluded as they were determined to be not meaningful due to a loss or negative position in one or both periods. QTD: net loss, diluted loss per share and free cash flow. YTD: net loss, diluted loss per share, cash flow from operations, adjusted net (loss) income, adjusted diluted (loss) earnings per share and free cash flow.

(2) Acquisitions completed in the last twelve months had an immaterial contribution to revenue growth for the quarter and nine months ended September 30, 2024.

(3) The three and nine months ended September 30, 2024 include $0.2 million expense and a net reversal of $0.4 million, respectively, related to the CEO transition.

(4) See “Non-GAAP financial measures” for how we define these measures and the financial tables that accompany this release for reconciliation of these measures to the closest comparable GAAP measures.

(5) Revenue Growth Rate at Constant Currency is calculated by translating the current period revenues into U.S. dollars at the weighted average exchange rates of the prior period of comparison; therefore the weighted average rates used in each respective calculation are not consistent. The change in revenue growth rate at constant currency was excluded, as it was determined to be not meaningful.

Bookings

Our overall bookings for the trailing twelve months ended September 30, 2024 was $1.3 billion, a sequential increase from $1.2 billion and a year-over-year decrease from $1.4 billion. The sequential increase from the second quarter of 2024 to the third quarter of 2024 is a result of continued strong bookings as our industry-based go-to-market strategy is gaining momentum. The 7.1% year-over-year decrease in bookings is primarily a result of reduced client budgets reflecting caution around the macroeconomic environment and smaller contract sizes which reflect a shift to offshore services, where bill rates are lower compared to onshore work, and, in certain cases, discounts or pricing adjustments.

 

Trailing Twelve Months Ended September 30,

 

2024

 

2023

# of clients with bookings greater than $10 million

37

 

37

# of clients with bookings between $5 million and $10 million

30

 

27

 

Revenue by geography(6)

 

 

Three Months Ended

September 30,

 

 

 

Nine Months Ended

September 30,

 

 

$ in thousands

2024

 

2023

 

% Change

 

2024

 

2023

 

% Change

North America

$

92,039

 

$

105,241

 

(12.5

)%

 

$

269,094

 

$

327,871

 

(17.9

)%

APAC

 

91,185

 

 

97,247

 

(6.2

)%

 

 

266,993

 

 

293,411

 

(9.0

)%

Europe

 

66,149

 

 

63,228

 

4.6

%

 

 

191,415

 

 

207,775

 

(7.9

)%

LATAM

 

12,020

 

 

14,443

 

(16.8

)%

 

 

34,155

 

 

45,373

 

(24.7

)%

Total revenues

$

261,393

 

$

280,159

 

(6.7

)%

 

$

761,657

 

$

874,430

 

(12.9

)%

 

(6) Revenues are presented geographically, by customer location. During the first quarter of 2024, in connection with the restructuring, the Company updated the disaggregation of revenue by customer location to reflect the geographical market based on contracting location, consistent with client ownership within our geographical markets, versus billing location, as previously reported. All corresponding disclosures and historical amounts have been recast to reflect the change.

 

Revenue by industry vertical

 

 

Three Months Ended

September 30,

 

 

 

Nine Months Ended

September 30,

 

 

$ in thousands

2024

 

2023

 

% Change

 

2024

 

2023

 

% Change

Technology and business services

$

67,203

 

$

70,612

 

(4.8

)%

 

$

196,692

 

$

214,440

 

(8.3

)%

Energy, public and health services

 

67,059

 

 

71,662

 

(6.4

)%

 

 

193,611

 

 

231,014

 

(16.2

)%

Retail and consumer

 

44,663

 

 

44,663

 

%

 

 

126,281

 

 

137,060

 

(7.9

)%

Financial services and insurance

 

35,603

 

 

46,447

 

(23.3

)%

 

 

111,686

 

 

154,380

 

(27.7

)%

Automotive, travel and transportation

 

46,865

 

 

46,775

 

0.2

%

 

 

133,387

 

 

137,536

 

(3.0

)%

Total revenues

$

261,393

 

$

280,159

 

(6.7

)%

 

$

761,657

 

$

874,430

 

(12.9

)%

Liquidity

We had cash and cash equivalents of $47.0 million as of September 30, 2024, along with $300.0 million of borrowing capacity under our revolving credit line, which was undrawn as of September 30, 2024. Our total debt outstanding, gross of deferred financing fees, was $290.0 million at September 30, 2024.

-###- <TWKS915>

About Thoughtworks

Thoughtworks is a global technology consultancy that integrates strategy, design and engineering to drive digital innovation. We are over 10,000 Thoughtworkers strong across 48 offices in 19 countries. For 30+ years, we've delivered extraordinary impact together with our clients by helping them solve complex business problems with technology as the differentiator.

Thoughtworks uses and intends to continue to use our investor relations website at https://investors.thoughtworks.com and social media, @thoughtworks on Twitter and LinkedIn, as a means of publicly disclosing material information and for complying with our disclosure obligations under Regulation Fair Disclosure. Investors should monitor these channels in addition to following the Company’s press releases, SEC filings, public conference calls and webcasts.

Forward-looking statements

This press release includes "forward-looking statements" within the meaning of the "safe harbor" provisions of the United States Private Securities Litigation Reform Act of 1995. In some cases, you can identify these forward-looking statements by the use of terms such as "expect," "will," "continue," or similar expressions, and variations or negatives of these words, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements represent our management's beliefs and assumptions only as of the date of this press release. You should read this press release with the understanding that our actual future results may be materially different from what we expect. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, which include but are not limited to: the statements under “Update on Acquisition” (including any other materials referenced therein), “Update on Restructuring Activities,” including expectations relating to the size of the restructuring actions, the amount and timing of related cost savings and charges and the potential long-term benefits of the restructuring actions; statements regarding relationships with existing and potential clients and their engagement decisions; and any other statements of expectation or belief. These statements are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from results expressed or implied in this press release. Such risk factors include, but are not limited to, those related to: current and future impact of macro-related factors on Thoughtworks' clients’ engagement decisions, Thoughtworks’ business and industry; the effects of competition on the future business of Thoughtworks; uncertainty regarding the demand for and market utilization of our services; the ability to implement our restructuring actions, including the costs of such actions and the uncertainty of the impact of such actions on financial performance; the ability to maintain or acquire new client relationships; other general business and economic conditions (including such conditions related to inflation and foreign currency exchange rates); the possibility that the Merger does not close when expected or at all because one or more conditions to the closing are not satisfied on a timely basis or at all; that the parties to the merger agreement may modify its terms and conditions; that the anticipated benefits of the Merger are not realized as a result of such things as the weakness of the economy and competitive factors in the technology consultancy industry; the Merger’s effect on the Company’s relationships with its customers and suppliers, whether or not the Merger is completed; the parties’ ability to successfully integrate operations in the Merger; significant or unanticipated transaction and merger-related integration costs; and our ability to successfully execute our strategy and strategic plans. For additional information concerning these and other risks and uncertainties, please see Thoughtworks' latest Annual Report on Form 10-K, latest Quarterly Report on Form 10-Q, and other filings and reports that Thoughtworks may file from time to time. Except as required by law, Thoughtworks assumes no obligation, and does not intend, to update these forward-looking statements, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

Non-GAAP financial measures

Certain financial metrics contained in this press release are considered non-GAAP financial measures. Definitions of and the related reconciliations for these non-GAAP financial measures can be found below. We use these non-GAAP measures in conjunction with traditional GAAP measures to evaluate our financial performance. We believe that these non-GAAP measures provide our management and investors consistency and comparability with our past financial performance and facilitate period-to-period comparisons of operations. However, non-GAAP measures have limitations as analytical tools, and you should not consider these measures in isolation or as substitutes for analysis of our financial results as reported under GAAP. For example, many of the non-GAAP financial measures used herein exclude stock-based compensation expense, which has recently been, and will continue to be for the foreseeable future, a significant recurring non-cash expense for our business and an important part of our compensation strategy.

Revenue Growth Rate and Revenue Growth Rate at constant currency

Certain of our subsidiaries use functional currencies other than the U.S. dollar and the translation of these foreign currency amounts into U.S. dollars can impact the comparability of our revenues between periods. Accordingly, we use Revenue Growth Rate at constant currency as an important indicator of our underlying performance. Revenue Growth Rate at constant currency is calculated by applying the average exchange rates in effect during the earlier comparative fiscal period to the later fiscal period.

Adjusted Gross Profit and Adjusted Gross Margin

We define gross profit as total revenues less cost of revenues. We define Adjusted Gross Profit as gross profit excluding stock-based compensation expense, employer payroll related expense on employee equity incentive plan and depreciation expense. We calculate Adjusted Gross Margin by dividing Adjusted Gross Profit by total revenues. Our management uses Adjusted Gross Profit to assess overall performance and profitability, without regard to the aforementioned adjustments, which are unrelated to our ongoing revenue-generating operations. We also believe this information will be useful for investors to facilitate comparisons of our operating performance and better identify trends in our business.

Adjusted SG&A and Adjusted SG&A Margin

We define Adjusted SG&A as selling, general and administrative expense excluding stock-based compensation expense, acquisition costs, certain professional fees that are considered unrelated to our ongoing revenue-generating operations, employer payroll related expense on employee equity incentive plan and CEO transition costs. We calculate Adjusted SG&A Margin by dividing Adjusted SG&A by total revenues.

Our management uses Adjusted SG&A and Adjusted SG&A Margin to assess our overall performance, without regard to items such as stock-based compensation expense and other items that are considered to be unique or non-recurring in nature or otherwise unrelated to our ongoing revenue-generating operations. We also believe this information will be useful for investors to facilitate comparisons of our operating performance and better identify trends in our business.

Adjusted Net Income (Loss) and Adjusted Diluted Earnings (Loss) Per Share

We define Adjusted Net Income (Loss) as net loss adjusted for unrealized (gain) loss on foreign currency exchange, stock-based compensation expense, amortization of acquisition-related intangibles, acquisition costs, certain professional fees that are considered unrelated to our ongoing revenue-generating operations, employer payroll related expense on employee equity incentive plan, the change in fair value of contingent consideration, restructuring costs, CEO transition costs and income tax effects of adjustments.

We define Adjusted Diluted Earnings (Loss) Per Share as diluted loss per share, with the numerator adjusted for the aforementioned adjustments to Adjusted Net Income (Loss). In other words, the numerator for Adjusted Diluted Earnings (Loss) Per Share utilizes Adjusted Net Income (Loss). We calculate Adjusted Diluted Earnings (Loss) Per Share by dividing Adjusted Net Income (Loss) by diluted weighted average shares outstanding.

Our management uses Adjusted Net Income (Loss) and Adjusted Diluted Earnings (Loss) Per Share to assess our overall performance, without regard to items that are considered to be unique or non-recurring in nature or otherwise unrelated to our ongoing revenue-generating operations, net of the income tax effects of adjustments.

Our management uses Adjusted Net Income (Loss) for planning purposes, including the preparation of our annual operating budget, as a measure of our core operating results and the effectiveness of our business strategy, and in evaluating our financial performance. We also believe this information will be useful for investors to facilitate comparisons of our operating performance and better identify trends in our business.

Adjusted EBITDA and Adjusted EBITDA Margin

We define Adjusted EBITDA as net loss adjusted to exclude income tax expense; interest expense; other (income) expense, net, excluding an unrealized gain/loss related to the mark to market adjustment on shares received in relation to the sale and settlement of trade receivables; unrealized (gain) loss on foreign currency exchange; stock-based compensation expense; depreciation and amortization expense; acquisition costs; certain professional fees that are considered unrelated to our ongoing revenue generating operations; employer payroll related expense on employee equity incentive plan; restructuring charges; and CEO transition costs. We calculate Adjusted EBITDA Margin by dividing Adjusted EBITDA by total revenues.

Adjusted EBITDA and Adjusted EBITDA Margin are widely used by investors and securities analysts to measure a company's operating performance without regard to the aforementioned adjustments that can vary substantially from company to company depending upon their financing, capital structures, and the method by which assets were acquired or costs that are unique or non-recurring in nature or otherwise unrelated to our ongoing revenue-generating operations.

Our management uses Adjusted EBITDA and Adjusted EBITDA Margin for planning purposes, including the preparation of our annual operating budget, as a measure of our core operating results and the effectiveness of our business strategy, and in evaluating our financial performance. We also believe this information will be useful for investors to facilitate comparisons of our operating performance and better identify trends in our business.

Free Cash Flow

We define Free Cash Flow as net cash (used in) provided by operating activities less cash used for purchases of property and equipment. We believe that Free Cash Flow is a useful indicator of liquidity for investors and is used by our management as it measures our ability to generate cash, or our need to access additional sources of cash, to fund operations and investments. There are a number of limitations related to the use of free cash flow as compared to net cash from operating activities, including that Free Cash Flow includes capital expenditures, the benefits of which are realized in periods subsequent to those when expenditures are made.

 

THOUGHTWORKS HOLDING, INC.

CONDENSED CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS

(In thousands, except share and per share data)

(unaudited)

 

 

Three months ended

September 30,

 

Nine months ended

September 30,

 

2024

 

2023

 

2024

 

2023

Revenues

$

261,393

 

 

$

280,159

 

 

$

761,657

 

 

$

874,430

 

Operating expenses:

 

 

 

 

 

 

 

Cost of revenues

 

169,456

 

 

 

185,985

 

 

 

529,713

 

 

 

591,845

 

Selling, general and administrative expenses

 

69,701

 

 

 

81,840

 

 

 

225,747

 

 

 

254,806

 

Depreciation and amortization

 

5,588

 

 

 

5,997

 

 

 

16,885

 

 

 

17,413

 

Restructuring

 

22,604

 

 

 

15,566

 

 

 

31,931

 

 

 

15,566

 

Total operating expenses

 

267,349

 

 

 

289,388

 

 

 

804,276

 

 

 

879,630

 

Loss from operations

 

(5,956

)

 

 

(9,229

)

 

 

(42,619

)

 

 

(5,200

)

Other (expense) income:

 

 

 

 

 

 

 

Interest expense

 

(7,059

)

 

 

(6,649

)

 

 

(20,282

)

 

 

(19,661

)

Net realized and unrealized foreign currency gain (loss)

 

11,062

 

 

 

(8,813

)

 

 

(5,251

)

 

 

(7,658

)

Other (expense) income, net

 

59

 

 

 

43

 

 

 

552

 

 

 

(545

)

Total other expense

 

4,062

 

 

 

(15,419

)

 

 

(24,981

)

 

 

(27,864

)

Loss before income taxes

 

(1,894

)

 

 

(24,648

)

 

 

(67,600

)

 

 

(33,064

)

Income tax expense

 

4,161

 

 

 

1,204

 

 

 

5,827

 

 

 

13,167

 

Net loss

$

(6,055

)

 

$

(25,852

)

 

$

(73,427

)

 

$

(46,231

)

 

 

 

 

 

 

 

 

Other comprehensive (loss) income, net of tax:

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

3,118

 

 

 

(3,820

)

 

 

5,618

 

 

 

(4,229

)

Comprehensive loss

$

(2,937

)

 

$

(29,672

)

 

$

(67,809

)

 

$

(50,460

)

 

 

 

 

 

 

 

 

Net loss per common share:

 

 

 

 

 

 

 

Basic loss per common share

$

(0.02

)

 

$

(0.08

)

 

$

(0.23

)

 

$

(0.15

)

Diluted loss per common share

$

(0.02

)

 

$

(0.08

)

 

$

(0.23

)

 

$

(0.15

)

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

Basic

 

323,452,180

 

 

 

317,805,140

 

 

 

323,031,967

 

 

 

317,204,506

 

Diluted

 

323,452,180

 

 

 

317,805,140

 

 

 

323,031,967

 

 

 

317,204,506

 

 

Stock-based compensation expense included in the condensed consolidated statements of loss and comprehensive loss was as follows:

 

 

Three months ended

September 30,

 

Nine months ended

September 30,

 

2024

 

2023

 

2024

 

2023

Cost of revenues

$

3,719

 

$

7,462

 

$

14,391

 

$

28,688

Selling, general and administrative expenses (1)

 

3,016

 

 

5,344

 

 

12,301

 

 

19,403

Restructuring

 

169

 

 

 

 

169

 

 

Total stock-based compensation expense

$

6,904

 

$

12,806

 

$

26,861

 

$

48,091

 
(1) The three and nine months ended September 30, 2024 include $0.2 million expense and a net reversal of $0.4 million, respectively, related to the CEO transition.
 

THOUGHTWORKS HOLDING, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

 

 

September 30,

2024

 

December 31,

2023

 

(unaudited)

 

 

Assets

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

46,956

 

 

$

100,305

 

Trade receivables, net of allowance of $12,149 and $9,550, respectively

 

159,339

 

 

 

167,942

 

Unbilled receivables

 

121,129

 

 

 

115,150

 

Prepaid expenses

 

15,366

 

 

 

19,692

 

Other current assets

 

35,113

 

 

 

25,269

 

Total current assets

 

377,903

 

 

 

428,358

 

Property and equipment, net

 

26,432

 

 

 

26,046

 

Right-of-use assets

 

39,184

 

 

 

41,771

 

Intangibles and other assets:

 

 

 

Goodwill

 

426,476

 

 

 

424,565

 

Trademark

 

273,000

 

 

 

273,000

 

Other intangible assets, net

 

105,903

 

 

 

114,186

 

Other non-current assets

 

20,712

 

 

 

19,310

 

Total assets

$

1,269,610

 

 

$

1,327,236

 

Liabilities and stockholders' equity

 

 

 

Current liabilities:

 

 

 

Accounts payable

$

3,127

 

 

$

2,767

 

Long-term debt, current

 

7,150

 

 

 

7,150

 

Accrued compensation

 

84,196

 

 

 

88,712

 

Deferred revenue

 

10,328

 

 

 

18,090

 

Accrued expenses and other current liabilities

 

37,066

 

 

 

27,260

 

Lease liabilities, current

 

13,350

 

 

 

15,301

 

Total current liabilities

 

155,217

 

 

 

159,280

 

Lease liabilities, non-current

 

29,037

 

 

 

29,791

 

Long-term debt, less current portion

 

281,026

 

 

 

286,035

 

Deferred tax liabilities

 

44,048

 

 

 

54,907

 

Other long-term liabilities

 

25,439

 

 

 

24,093

 

Total liabilities

 

534,767

 

 

 

554,106

 

Commitments and contingencies

 

 

 

Stockholders’ equity:

 

 

 

Convertible preferred stock, $0.001 par value; 100,000,000 shares authorized, zero issued and outstanding at September 30, 2024 and December 31, 2023, respectively

 

 

 

 

 

Common stock, $0.001 par value; 1,000,000,000 shares authorized, 374,237,846 and 372,876,082 issued, 323,802,308 and 322,407,385 outstanding at September 30, 2024 and December 31, 2023, respectively

 

374

 

 

 

373

 

Treasury stock, 50,435,538 and 50,468,697 shares at September 30, 2024 and December 31, 2023, respectively

 

(622,576

)

 

 

(622,988

)

Additional paid-in capital

 

1,656,937

 

 

 

1,627,491

 

Accumulated other comprehensive loss

 

(32,548

)

 

 

(38,166

)

Retained deficit

 

(267,344

)

 

 

(193,580

)

Total stockholders' equity

 

734,843

 

 

 

773,130

 

Total liabilities and stockholders' equity

$

1,269,610

 

 

$

1,327,236

 

 

THOUGHTWORKS HOLDING, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(In thousands)

 

 

Nine months ended September 30,

 

2024

 

2023

Cash flows from operating activities:

 

 

 

Net loss

$

(73,427

)

 

$

(46,231

)

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

 

 

 

Depreciation and amortization expense

 

21,508

 

 

 

27,367

 

Bad debt expense

 

4,167

 

 

 

4,145

 

Deferred income tax benefit

 

(12,972

)

 

 

(21,759

)

Stock-based compensation expense

 

26,861

 

 

 

48,091

 

Unrealized foreign currency exchange loss

 

4,814

 

 

 

9,488

 

Non-cash lease expense on right-of-use assets

 

11,616

 

 

 

13,935

 

Other operating activities, net

 

1,036

 

 

 

2,599

 

Changes in operating assets and liabilities:

 

 

 

Trade receivables

 

4,658

 

 

 

43,827

 

Unbilled receivables

 

(5,485

)

 

 

(22,305

)

Prepaid expenses

 

4,322

 

 

 

3,505

 

Other assets

 

(330

)

 

 

2,546

 

Lease liabilities

 

(11,280

)

 

 

(14,219

)

Accounts payable

 

63

 

 

 

(1,183

)

Accrued expenses and other liabilities

 

(7,440

)

 

 

(13,208

)

Net cash (used in) provided by operating activities

 

(31,889

)

 

 

36,598

 

Cash flows from investing activities:

 

 

 

Purchase of property and equipment

 

(10,839

)

 

 

(6,351

)

Proceeds from disposal of fixed assets

 

527

 

 

 

327

 

Acquisitions, net of cash acquired

 

(1,399

)

 

 

(15,989

)

Net cash used in investing activities

 

(11,711

)

 

 

(22,013

)

Cash flows from financing activities:

 

 

 

Payments of obligations of long-term debt

 

(5,363

)

 

 

(105,363

)

Payments of debt issuance costs

 

 

 

 

(99

)

Proceeds from issuance of common stock on exercise of options

 

2,818

 

 

 

4,880

 

Withholding taxes paid related to net share settlement of equity awards

 

(4,166

)

 

 

(3,501

)

Payment of contingent consideration

 

 

 

 

(13,996

)

Other financing activities, net

 

(534

)

 

 

71

 

Net cash used in financing activities

 

(7,245

)

 

 

(118,008

)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

(2,149

)

 

 

(3,395

)

Net decrease in cash, cash equivalents and restricted cash

 

(52,994

)

 

 

(106,818

)

Cash, cash equivalents and restricted cash at beginning of the period

 

101,660

 

 

 

195,564

 

Cash, cash equivalents and restricted cash at end of the period

$

48,666

 

 

$

88,746

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

Interest paid

$

18,673

 

 

$

18,669

 

Income taxes paid

$

13,947

 

 

$

38,590

 

 

 

 

 

Supplemental disclosure of non-cash activities:

 

 

 

ROU assets obtained in exchange for new operating lease liabilities

$

8,740

 

 

$

12,518

 

 

 

 

 

Reconciliation of cash, cash equivalents and restricted cash:

 

 

 

Cash and cash equivalents

$

46,956

 

 

$

87,405

 

Restricted cash included in other non-current assets

 

1,710

 

 

 

1,341

 

Total cash, cash equivalents and restricted cash

$

48,666

 

 

$

88,746

 

 

THOUGHTWORKS HOLDING, INC.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(In thousands, except percentages, share and per share data)

(unaudited)

 

 

Three months ended

September 30,

 

Nine months ended

September 30,

 

2024

 

2023

 

2024

 

2023

Net loss

$

(6,055

)

 

$

(25,852

)

 

$

(73,427

)

 

$

(46,231

)

Unrealized foreign exchange (gain) loss

 

(10,691

)

 

 

10,223

 

 

 

4,814

 

 

 

9,488

 

Stock-based compensation (a)

 

6,503

 

 

 

12,806

 

 

 

27,109

 

 

 

48,091

 

Amortization of acquisition-related intangibles

 

3,829

 

 

 

3,656

 

 

 

11,268

 

 

 

10,916

 

Acquisition costs (b)

 

656

 

 

 

1,533

 

 

 

2,365

 

 

 

5,339

 

Certain professional fees (c)

 

(911

)

 

 

2,051

 

 

 

1,392

 

 

 

3,801

 

Employer payroll related expense on employee equity incentive plan (d)

 

89

 

 

 

264

 

 

 

353

 

 

 

755

 

Change in fair value of contingent consideration (e)

 

 

 

 

 

 

 

 

 

 

129

 

Restructuring (f)

 

22,604

 

 

 

15,566

 

 

 

31,931

 

 

 

15,566

 

CEO transition costs (g)

 

232

 

 

 

 

 

 

1,334

 

 

 

 

Income tax effects of adjustments (h)

 

(6,587

)

 

 

(8,722

)

 

 

(13,423

)

 

 

(16,157

)

Adjusted Net Income (Loss)

$

9,669

 

 

$

11,525

 

 

$

(6,284

)

 

$

31,697

 

 

 

 

 

 

 

 

 

GAAP diluted weighted average common shares outstanding

 

323,452,180

 

 

 

317,805,140

 

 

 

323,031,967

 

 

 

317,204,506

 

Employee stock options, RSUs and PSUs

 

7,393,680

 

 

 

10,521,029

 

 

 

 

 

 

12,434,247

 

Adjusted diluted weighted average common shares outstanding

 

330,845,860

 

 

 

328,326,169

 

 

 

323,031,967

 

 

 

329,638,753

 

GAAP diluted loss per share

$

(0.02

)

 

$

(0.08

)

 

$

(0.23

)

 

$

(0.15

)

Adjusted Diluted Earnings (Loss) Per Share

$

0.03

 

 

$

0.04

 

 

$

(0.02

)

 

$

0.10

 

 

THOUGHTWORKS HOLDING, INC.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(In thousands, except percentages, share and per share data)

(unaudited)

 

 

Three months ended

September 30,

 

Nine months ended

September 30,

 

2024

 

2023

 

2024

 

2023

Net loss

$

(6,055

)

 

$

(25,852

)

 

$

(73,427

)

 

$

(46,231

)

Income tax expense

 

4,161

 

 

 

1,204

 

 

 

5,827

 

 

 

13,167

 

Interest expense

 

7,059

 

 

 

6,649

 

 

 

20,282

 

 

 

19,661

 

Other (income) expense, net (i)

 

(119

)

 

 

(28

)

 

 

(334

)

 

 

759

 

Unrealized foreign exchange (gain) loss

 

(10,691

)

 

 

10,223

 

 

 

4,814

 

 

 

9,488

 

Stock-based compensation (a)

 

6,503

 

 

 

12,806

 

 

 

27,109

 

 

 

48,091

 

Depreciation and amortization

 

7,131

 

 

 

9,147

 

 

 

21,508

 

 

 

27,367

 

Acquisition costs (b)

 

656

 

 

 

1,533

 

 

 

2,365

 

 

 

5,339

 

Certain professional fees (c)

 

(911

)

 

 

2,051

 

 

 

1,392

 

 

 

3,801

 

Employer payroll related expense on employee equity incentive plan (d)

 

89

 

 

 

264

 

 

 

353

 

 

 

755

 

Restructuring (f)

 

22,604

 

 

 

15,566

 

 

 

31,931

 

 

 

15,566

 

CEO transition costs (g)

 

232

 

 

 

 

 

 

1,334

 

 

 

 

Adjusted EBITDA

$

30,659

 

 

$

33,563

 

 

$

43,154

 

 

$

97,763

 

Net loss margin

 

(2.3

)%

 

 

(9.2

)%

 

 

(9.6

)%

 

 

(5.3

)%

Adjusted EBITDA Margin

 

11.7

%

 

 

12.0

%

 

 

5.7

%

 

 

11.2

%

 

Three months ended

September 30,

 

Nine months ended

September 30,

 

2024

 

2023

 

2024

 

2023

Gross profit, GAAP

$

91,937

 

 

$

94,174

 

 

$

231,944

 

 

$

282,585

 

Stock-based compensation

 

3,719

 

 

 

7,462

 

 

 

14,391

 

 

 

28,688

 

Employer payroll related expense on employee equity incentive plan (d)

 

88

 

 

 

107

 

 

 

343

 

 

 

452

 

Depreciation expense

 

1,543

 

 

 

3,150

 

 

 

4,623

 

 

 

9,954

 

Adjusted Gross Profit

$

97,287

 

 

$

104,893

 

 

$

251,301

 

 

$

321,679

 

Gross margin, GAAP

 

35.2

%

 

 

33.6

%

 

 

30.5

%

 

 

32.3

%

Adjusted Gross Margin

 

37.2

%

 

 

37.4

%

 

 

33.0

%

 

 

36.8

%

 

Three months ended

September 30,

 

Nine months ended

September 30,

 

2024

 

2023

 

2024

 

2023

SG&A, GAAP

$

69,701

 

 

$

81,840

 

 

$

225,747

 

 

$

254,806

 

Stock-based compensation (j)

 

(2,784

)

 

 

(5,344

)

 

 

(12,718

)

 

 

(19,403

)

Acquisition costs (b)

 

(656

)

 

 

(1,533

)

 

 

(2,365

)

 

 

(5,339

)

Certain professional fees (c)

 

911

 

 

 

(2,051

)

 

 

(1,392

)

 

 

(3,801

)

Employer payroll related expense on employee equity incentive plan (d)

 

(1

)

 

 

(157

)

 

 

(10

)

 

 

(303

)

CEO transition costs (g)

 

(232

)

 

 

 

 

 

(1,334

)

 

 

 

Adjusted SG&A

$

66,939

 

 

$

72,755

 

 

$

207,928

 

 

$

225,960

 

SG&A margin, GAAP

 

26.7

%

 

 

29.2

%

 

 

29.6

%

 

 

29.1

%

Adjusted SG&A Margin

 

25.6

%

 

 

26.0

%

 

 

27.3

%

 

 

25.8

%

   

THOUGHTWORKS HOLDING, INC.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(In thousands, except percentages, share and per share data)

(unaudited)

   

(a) 

The three and nine months ended September 30, 2024 exclude $0.2 million expense and a net reversal of $0.4 million, respectively, related to the CEO transition which is included in the CEO transition costs line. The three and nine months ended September 30, 2024 also exclude $0.2 million related to the restructuring which is included in the restructuring line.

(b)

Adjusts for certain professional fees and retention wage expenses related to certain acquisitions.

(c)

Adjusts for certain one-time professional fees. During the third quarter of 2024, the Company capitalized $1.3 million in costs related to the proposed take-private transaction.

(d)

Adjusts for employer payroll related expense on employee equity incentive plan as these expenses are tied to the exercise or vesting of underlying equity awards and the price of our common stock at the time of vesting or exercise. As a result, these expenses may vary in any particular period independent of the financial and operating performance of our business.

(e)

Adjusts for the non-cash adjustment to the fair value of contingent consideration.

(f)

Adjusts for restructuring costs which include wage-related expenses, such as employee severance and related benefits, and non-wage related expenses, including costs related to reducing leased office space, vendor contract cancellations, professional fees, and other reorganization costs.

(g)

Adjusts for CEO transition costs which consists solely of stock compensation expense for the three months ended September 30, 2024 and includes $1.0 million of severance, $0.5 million target bonus and $0.2 million salary paid during the transition period, partially offset by a $0.4 million net reversal of stock compensation expense for the nine months ended September 30, 2024.

(h)

Adjusts for the income tax effects of the foregoing adjusted items, determined under the discrete method consistent with our non-GAAP measures of profitability.

(i)

Excludes an unrealized gain/loss related to the mark to market adjustment on shares received in relation to the sale and settlement of trade receivables which was included within other income (expense), net in the condensed consolidated statements of loss and comprehensive loss.

(j)

The three and nine months ended September 30, 2024 exclude $0.2 million expense and a net reversal of $0.4 million, respectively, related to the CEO transition which is included in the CEO transition costs line.

 

Three months ended

September 30,

 

Nine months ended

September 30,

 

2024

 

2023

 

2024

 

2023

Net cash provided by (used in) operating activities

$

2,062

 

 

$

6,355

 

 

$

(31,889

)

 

$

36,598

 

Purchase of property and equipment

 

(3,126

)

 

 

(2,670

)

 

 

(10,839

)

 

 

(6,351

)

Free Cash Flow

$

(1,064

)

 

$

3,685

 

 

$

(42,728

)

 

$

30,247

 

 

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