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Filed Pursuant to Rule 424(b)(4)
Registration No. 333-258985

36,842,106 Shares

 

 

LOGO

Common Stock

 

 

This is an initial public offering of shares of common stock of Thoughtworks Holding, Inc. We are offering 16,429,964 shares of our common stock to be sold in this offering. The selling stockholders are offering 20,412,142 shares of common stock to be sold in this offering. We will not receive any proceeds from the sale of shares of our common stock by the selling stockholders.

Prior to this offering, there has been no public market for our common stock. The initial public offering price per share will be $21.00. Our common stock has been approved for listing on the Nasdaq Global Select Market (“Nasdaq”) under the symbol “TWKS.”

One or more entities or accounts affiliated with or advised by an investor in our Series A preferred stock, Neuberger Berman Investment Advisers LLC (“Neuberger”), have indicated a non-binding interest in purchasing up to an aggregate of $70 million of shares of our common stock being offered in this offering at the initial public offering price. Because Neuberger’s indication of interest is not an agreement or commitment by such entities or accounts to purchase shares, one or more of these entities or accounts may ultimately choose to purchase more, less or no shares in this offering. The underwriters will receive the same discount with respect to any of our shares of common stock purchased by one or more entities or accounts affiliated with or advised by Neuberger as they will from any other shares of common stock sold to the public in this offering.

We are an “emerging growth company” as defined under the U.S. federal securities laws, and, as such, we have elected to comply with certain reduced reporting requirements for this prospectus and may elect to do so in future filings. See “Prospectus Summary—Implications of Being an Emerging Growth Company.”

 

 

See “Risk Factors” beginning on page 20 to read about factors you should consider before investing in shares of our common stock.

Immediately after this offering, assuming an offering size as set forth above, funds advised by Apax Partners L.L.P. (the “Apax Funds”) will indirectly own approximately 67% of our outstanding common stock (or 65% of our outstanding common stock if the underwriters’ option to purchase additional shares is exercised in full). As a result, we expect to be a “controlled company” within the meaning of the corporate governance standards of Nasdaq. See “Management—Corporate Governance—Controlled Company Status.”

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 

 

 

     Per
Share
     Total  

Initial public offering price

   $ 21.000      $ 773,684,226  

Underwriting discount(1)

   $ 1.155      $ 42,552,632  

Proceeds to Thoughtworks Holding, Inc., before expenses

   $ 19.845      $ 326,052,636  

Proceeds to the selling stockholders, before expenses

   $ 19.845      $ 405,078,958  

 

(1)

See “Underwriting” for a description of the compensation payable to the underwriters.

The selling stockholders have granted the underwriters an option for a period of 30 days after the date of this prospectus to purchase up to an additional 5,526,315 shares of common stock from the selling stockholders at the initial public offering price less the underwriting discount.

 

 

The underwriters expect to deliver the shares against payment in New York, New York, on or about September 17, 2021 through the book-entry facilities of the Depositary Trust Company.

 

 

 

(Lead bookrunners listed in alphabetical order)

 

Goldman Sachs & Co. LLC   J.P. Morgan
Credit Suisse
BofA Securities   Citigroup   RBC Capital Markets     HSBC  
Baird   Cowen   Nomura   Piper Sandler   Wedbush Securities     William Blair  
CastleOak Securities, L.P.   Mischler Financial Group, Inc.     Siebert Williams Shank  

Prospectus dated September 14, 2021.


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LOGO

Thoughtworks A global technology consultancy that integrates strategy, design and software engineering to drive digital innovation


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LOGO

Key facts and figures $803M 20% >$100K 2020 2017 - 2019 2019 and 2020 Revenues Revenue CAGR1 Average Annual Revenue per employee2 41% 10% $79M 19% Gross profit Net income 2020 Net Adjusted margin margin income EBITDA Margin3 9,000+ 17 1993 Employees4 Countries Founded Note: Metrics for fiscal year ended December 31, 2020, unless otherwise noted. 1 From 2017 through 2020, we grew revenues at a compound annual growth rate (“CAGR”) of 14.4%. Our CAGR for years 2017-2020 reflects the adverse impact of COVID-19 on 2020 revenues. Further, our CAGR calculations include 2017 and 2018 revenues, as applicable, in accordance with prior accounting standard (ASC 605) and may not be directly comparable to 2019 and 2020 (which are presented according to ASC 606). Please see “Basis of Presentation” and “Prospectus Summary— Overview” for more information. 2 Using the average number of employees for 2019 and 2020. 3 Adjusted EBITDA Margin is a Non-GAAP financial measure. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Measures” for how we define these measures and the accompanying financial tables for a reconciliation of this measure to the closest comparable GAAP measure. 4 As of June 30, 2021.


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LOGO

Thought leader connecting strategy and execution, helping our clients strengthen their core technology, scale with flexibility and create seamless digital experiences rapidly Enterprise platforms modernization, and cloud Customer product and experience, design Create platforms adaptable that move technology with evolve Rapidly exceptional design, deliver products and business strategies and experiences Data and AI Digital and transformation operations to Leverage unlock new data sources assets Improve organizational of value ability to change to respond Note: Please see “Business” herein for more information about our offerings and services.


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LOGO

    

Premium brand with market leadership across geographies and industry verticals Revenues by customer location Revenues by industry vertical 5% 14% LATAM 40% North America 28% 15% 24% Europe 31% 18% 25% APAC Technology and Business Services Energy, Health Public Services and Consumer Retail and Financial and Insurance Services and Automotive, Transportation Travel Note: Percentages are rounded and denote revenue as a percentage of total revenue for 2020. Please see “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” herein for more information about our client relationships and services. 1. As of December 31, 2020.


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LOGO

Over 9,000 Thoughtworkers in 17 countries with an award-winning, cultivating culture and a commitment to diversity ~1,390 ~2,690 ~820 ~2,160 ~260 ~1,380 ~340 Glassdoor ratings 4 Overall .4 company rating 4.8 4.5 Diversity and Inclusion Culture Note: Employee population and Glassdoor ratings as of June 30, 2021. 37% Women Technologists Note: As of December 31, 2020


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LOGO

We assess technology’s impact on society to ensure it contributes to an equitable future to support the United Nations Sustainable Development Goals Thoughtworks’ and community support Objectives and (through financial organizational contributions): Development UN Sustainable Goals: Healthcare as a human right Beyond diversity: striving for equity in tech Responsible tech and innovation Inclusivity, social justice and equity Climate action and sustainability Select Thoughtworks Awards, Partnerships and Initiatives:1 1 Please see “Business” herein for more information about our sustainability initiatives.


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Table of Contents

 

     Page  

Prospectus Summary

     1  

Risk Factors

     20  

Special Note Regarding Forward-Looking Statements

     43  

Use of Proceeds

     45  

Dividend Policy

     46  

Capitalization

     47  

Dilution

     49  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     51  

Letter from Our CEO

     85  

Business

     89  

Management

     113  

Executive Compensation

     121  

Principal and Selling Stockholders

     130  

Certain Relationships and Related Party Transactions

     133  

Description of Capital Stock

     135  

Shares Available for Future Sale

     142  

Material U.S. Federal Income Tax Considerations for Non-U.S. Holders of Common Stock

     145  

Underwriting

     149  

Legal Matters

     159  

Experts

     159  

Where You Can Find Additional Information

     159  

Index to Financial Statements

     F-1  

 

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ABOUT THIS PROSPECTUS

Neither we, the selling stockholders nor the underwriters have authorized anyone to provide you with information or make any representations other than those contained in this prospectus or in any free writing prospectuses prepared by or on behalf of us or to which we have referred you. We, the selling stockholders and the underwriters take no responsibility for, and provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares offered hereby, and only under circumstances and in jurisdictions where it is lawful to do so. You should assume that the information appearing in this prospectus is accurate as of the date on the front cover of this prospectus only. Our business, financial condition, results of operations and prospects may have changed since that date.

For investors outside the United States: we, the selling stockholders and the underwriters have not done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about and observe any restrictions relating to, the offering of the shares of common stock and the distribution of this prospectus outside the United States.

TRADEMARKS

We own or have rights to use various trademarks, service marks, and trade names that we use in connection with the operation of our business. We use our “Thoughtworks” trademark and related design marks in this prospectus. This prospectus may also contain trademarks, service marks, and trade names of third parties, which are the property of their respective owners. Our use or display of third parties’ trademarks, service marks, trade names, or products in this prospectus is not intended to, and does not imply a relationship with, or endorsement or sponsorship by us. Solely for convenience, the trademarks, service marks, and trade names referred to in this prospectus may appear without the ®, TM, or SM symbols, but the omission of such references is not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable owner of these trademarks, service marks, and trade names.

MARKET AND INDUSTRY DATA

We use market data and industry forecasts and projections throughout this prospectus, and in particular in the sections captioned “Prospectus Summary” and “Business.” We have obtained the market data from certain third-party sources of information, including publicly available industry publications and subscription-based publications, including MarketsandMarkets, IDC, iCIMS and Korn Ferry. Industry forecasts are based on industry surveys and the preparer’s expertise in the industry, and there can be no assurance that any of the industry forecasts will be achieved. We believe these data are reliable, but we have not independently verified the accuracy of this information. Any industry forecasts are based on data (including third-party data), models and experience of various professionals and are based on various assumptions, all of which are subject to change without notice. While we are not aware of any misstatements regarding the market data presented herein, industry forecasts and projections involve risks and uncertainties and are subject to change based on various factors, including those discussed under the heading “Risk Factors.”

BASIS OF PRESENTATION

In connection with the completion of this offering, all shares of our Class A common stock, Class B common stock, Class C common stock, Series A Convertible Preferred Stock (the “Series A Convertible Preferred Stock”) and Series B Convertible Preferred Stock (“Series B Convertible Preferred Stock”) will automatically convert into shares of our common stock on a 1-for-1 basis and we will effect an approximately 43.6-for-1 stock split with respect to our common stock. We refer to the stock conversion and stock split as the “Offering Reorganization Transactions.”

 

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We have included certain revenue data in this prospectus for our fiscal years ended December 31, 2018 and 2017. As discussed elsewhere in this prospectus, we are an emerging growth company and have elected to include audited financial statements for the last two fiscal years, and the financial information contained herein for our fiscal years ended December 31, 2018 and 2017 has not been audited. In addition, such financial information was prepared in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) No. 605, Revenue Recognition, and as a result, such financial information may not be directly comparable to the financial information contained herein for our fiscal years ended December 31, 2019 and 2020, which were prepared in accordance with ASC No. 606, Revenue from Contracts with Customers. We consider the differences resulting from the adoption of ASC No. 606 to be immaterial.

Additionally, revenue data for 2017 are based on the predecessor and successor periods in that year, which reflect the periods before and after, respectively, our acquisition by the Apax Funds on October 12, 2017. While our income statement data for the 2017 predecessor period are not comparable to our income statement data for the 2017 successor period due to the new basis in our assets and liabilities resulting from purchase accounting, this had no impact on our revenue. Accordingly, our revenue data for 2017 are presented on a comparable basis to other periods, except for the aforementioned adoption of ASC No. 606.

Certain amounts, percentages, and other figures presented in this prospectus have been subject to rounding adjustments. Accordingly, figures shown as totals, dollars or percentage amounts of changes may not represent the arithmetic summation or calculation of the figures that precede them.

 

 

Through and including October 9, 2021 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

 

 

 

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PROSPECTUS SUMMARY

This summary highlights selected information contained elsewhere in this prospectus. It does not contain all of the information that may be important to you and your investment decision. Before investing in our common stock, you should carefully read this entire prospectus, including the matters set forth under the sections of this prospectus captioned “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus.

Unless the context otherwise requires, the terms “Thoughtworks,” the “Company,” “our company,” “we,” “us” and “our” in this prospectus refer to Thoughtworks Holding, Inc. and, where appropriate, its consolidated subsidiaries. The term “Apax Funds” refers to funds advised by Apax Partners L.L.P., a global private equity firm.

Overview

We are a leading premium global technology consultancy that integrates strategy, design and software engineering to enable enterprises and technology disruptors across the globe to thrive as modern digital businesses. This is reflected in our average annual revenue per employee of over $100,000 in each of 2019 and 2020, which is higher than our public pure-play competitors and which we believe is meaningfully higher than all our pure-play competitors. See “Business—Competition.” With companies facing ongoing digital disruption, many lack the capabilities and talent necessary to keep pace with the accelerating rate of technological change. Thoughtworks is a digital native service provider that has been a thought leader at the forefront of technology innovation for the past 28 years. We leverage our vast experience to improve our clients’ ability to respond to change; utilize data assets to unlock new sources of value; create resilient technology platforms that move with business strategies; and rapidly design, deliver and evolve exceptional digital products and experiences at scale. We are a globally diversified business, with clients across all major verticals and geographies. Our global distributed agile delivery model operates where our clients are, with over 9,000 employees working across 17 countries on five continents. Further, our unique, diverse and cultivating culture, with a reputation for technology excellence and thought leadership, enables us to attract and retain what we believe is the best talent in the industry. That is why our clients trust Thoughtworks as their premium digital transformation partner.

Consumer expectations and next-generation technologies are constantly evolving, requiring companies to reevaluate their business models and undergo end-to-end digital transformations. This trend has only accelerated due to the COVID-19 pandemic. Yet most companies do not have access to the expertise they need to keep pace. This is why digital transformation services spending is expected to more than double to $1 trillion by 2025, according to MarketsandMarkets. At the same time, many other service providers lack the deep expertise, premium capabilities, proximity to clients and global presence required to innovate and deliver cutting-edge technology solutions rapidly and at scale.

Founded in 1993, Thoughtworks provides premium, end-to-end digital strategy, design and engineering services to enable companies across the globe to successfully and rapidly navigate their digital transformation journeys. We connect strategy to execution, using cross-functional teams of strategists, designers, software engineers, data scientists and other specialists to deliver value to our clients at scale. Our four global service lines provide specialized capabilities and thought leadership to drive digital transformation:

 

   

Enterprise Modernization, Platforms & Cloud. We modernize complex operations, platforms, development and delivery practices to rapidly unleash business value.

 

   

Customer Experience, Product & Design. We accelerate value creation through extraordinary digital products and customer experiences powered by integrated technology and design.


 

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Data & AI. We enable data-driven intelligent products and business insights with pragmatic data strategies, governance, engineering, predictive artificial intelligence (“AI”), automation and machine learning (“ML”) capabilities.

 

   

Digital Transformation & Operations. We augment our other services by providing organizations with executable digital strategies, frictionless operating models and transformation services that increase our clients’ agility, resilience and ability to compete for business and retain talent.

Since our inception, we have been pioneers in trends, such as agile software development, continuous integration, continuous delivery, microservices, evolutionary architecture and data mesh, that now underpin many modern digital businesses. As an example, Thoughtworks was among the first to develop Agile for complex software projects. Further, in 2001, we developed CruiseControl, one of the first continuous integration open-source tools, which was widely adopted by the agile software development community, and in 2004, we developed Selenium, which we believe is one of the most well-known platforms in the industry for test automation of web applications. As an early visionary helping shape and define many of the leading digital trends today, we have established ourselves as a thought leader and are continually advancing the state-of-the-art of the technology industry with our innovations. This is reflected by our range of open source contributions and publications, including approximately 100 books authored by our employees, reinforcing our premium brand positioning. We believe our approach enables us to deliver cutting-edge innovation for our clients before new technologies reach mass adoption, allowing them to compete and become disruptors themselves.

With over 9,000 employees working across 17 countries on five continents, including North America, South America, Europe, Asia and Australia, we utilize a distributed agile delivery model, leveraging a broad base of high-quality global talent consistently trained as poly-skilled technologists. This enables us to quickly mobilize talent across a broad set of capabilities to respond to clients’ needs. Rather than solely relying on offshore talent for delivery or centers of excellence for expertise, our professionals seamlessly work with clients both where they are located and nearshore/offshore. Our local presence allows us to develop deeper client intimacy and assimilate market context and knowledge. Blended with our nearshore/offshore capabilities, this allows us to innovate rapidly at scale. Our differentiated delivery model and thought leadership enabled us to generate an average annual revenue per employee of over $100,000 in each of 2019 and 2020 (based on the average number of employees for the relevant year). For more information regarding our average annual revenue per employee in historical periods, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Factors Affecting Our Performance—Expanding our technical capabilities and client solutions.”

Our differentiated approach is rooted in a unique culture that is championed by our executive leadership team, which has an average tenure of 15 years. Our reputation for technology excellence, thought leadership and advocacy for social change enables us to attract what we believe is the best talent in the industry. In addition, Thoughtworks is widely recognized for leading the technology industry for our efforts on diversity and inclusion. For example, 50% of our top management are women. Our people, known as “Thoughtworkers,” are incredibly engaged and loyal, as evidenced by our employee engagement-eNPS score of 8.4 and relatively low voluntary attrition rate of 11.5% in 2020.

Our unique service offerings, differentiated delivery, global talent and culture have enabled us to attract over 300 current clients, including global enterprises and technology disruptors. Our clients are highly diversified across both industry verticals—including technology and business services; energy, public and health services; retail and consumer; financial services and insurance; and automotive, travel and transportation—and geographies, including North America, Asia Pacific, Europe and Latin America. We have relatively low client concentration, with only 32% of our revenues coming from our top ten clients in 2020. Our deep client integration and senior executive relationships have enabled us to drive long-standing partnerships with our clients, as demonstrated by an average tenure of seven years across our top ten clients by revenue in 2020. As a result, 92% of our revenues in 2020 were generated from recurring clients, which we define as clients for whom we have done work and generated revenues in excess of $25,000 within the preceding fiscal year.


 

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We believe the Thoughtworks value proposition is sustainable and difficult to replicate. The core elements form a virtuous cycle: clients know they can trust us to deliver on their most complex and business-critical projects; those experiences allow us to explore cutting edge technologies and expand our thought leadership; this enables us to continuously attract, develop and retain the very best global talent; which gives us the ability to meet and exceed our clients’ needs.

Our approach has enabled us to consistently grow our revenues and profits. From 2017 through 2020, we grew revenues at a compound annual growth rate, or CAGR, of 14.4%. Starting in the second quarter of 2020, we experienced a slowdown in new business generation, pauses in ongoing engagements and select project cancellations as certain of our clients focused on the immediate challenges linked to the COVID-19 pandemic. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Business Update Regarding COVID-19.” We returned to pre-COVID activity levels by the fourth quarter of 2020 and have continued to experience positive growth trends in 2021, as reflected in our growth in the six months ended June 30, 2021, with revenues increasing 24.4%, or 18.2% on a constant currency basis, compared to the six months ended June 30, 2020. We believe that our pre-pandemic revenue growth, which amounted to a CAGR of 20.0% between 2017 and 2019, reflects the long-term success of our business model, though it is not necessarily indicative of our results for fiscal year 2021 or any future period. For important information about the comparability of financial information for periods preceding January 1, 2019, see “—Basis of Presentation.”

For the six months ended June 30, 2021, we generated net income of $36.7 million compared to $37.8 million for the six months ended June 30, 2020, representing net income margins of 7.4% and 9.4%, respectively. We generated net income of $79.3 million in 2020 compared to $28.4 million in 2019. For the six months ended June 30, 2021, we also generated Adjusted Net Income of $59.4 million compared to $43.7 million for the six months ended June 30, 2020. We generated Adjusted Net Income of $86.4 million in 2020 compared to $40.5 million in 2019. For the six months ended June 30, 2021, we generated Adjusted EBITDA of $105.1 million compared to $74.0 million for the six months ended June 30, 2020, representing an Adjusted EBITDA Margin of 21.1% and 18.5%, respectively. We generated Adjusted EBITDA of $153.2 million in 2020 compared to $107.1 million in 2019, representing an Adjusted EBITDA Margin of 19.1% and 13.9%, respectively.

For more information, see the sections captioned “—Summary Consolidated Financial and Other Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” as well as the consolidated financial statements and related notes thereto included elsewhere in this prospectus.

Our Industry

Modern, next generation technologies have spawned a digital revolution, advancing the global economy towards a digital age driven by seamless connectivity, efficient cloud computing and advanced data analytics. Marc Andreessen noted in his Wall Street Journal op-ed in 2011: “software is eating the world.” The advancements in software and technology have redefined business models, disrupted the competitive landscape and increased consumer expectations. To survive and enable growth, companies across all industries and geographies need to adapt to the accelerated pace of technological change by undergoing holistic and continuous digital transformations.

Key Technology Industry Trends Driving Digital Transformation

A number of key industry trends are driving spending for digital transformation:

 

   

Expansion of computing boundaries. Rapid development of platforms, cloud and internet of things are pushing the technology industry to new heights. This is made possible by the expanding boundaries of computing, pushing the edges of what is possible for enterprises.


 

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Rapid advancement of AI- and ML-based tools. As artificial intelligence and machine learning gain more industry adoption, they enhance productivity and drive digital transformation by making predictions to assist humans in making decisions, and in some cases, by automating decision-making and tasks completely. The benefits of rapid advancement in AI- and ML-based tools can be applied across the entire value chain of business processes, from manufacturing and maintenance to marketing and customer service.

 

   

Enhanced consumer experiences. The pervasiveness of technology has enhanced modern consumer experiences with the integration of digital and physical worlds, such as augmented reality, virtual reality and mixed reality. Consumers are not just demanding availability and accessibility — they expect experiences to be personalized and interactions to be seamless and rich. Enterprises are moving quickly to deliver an omni-channel experience across platforms with evolving interfaces that blend speech, touch and visuals.

 

   

Accelerating towards sustainability. Consumers increasingly factor sustainability into their decision-making when choosing a brand or supplier. This requires businesses to examine the environmental impact of their products and operations, including their carbon footprint, and to adopt more sustainable strategies and technologies, such as green cloud optimization.

 

   

Growing impact of hostile tech and increased focus on information privacy. The increased complexity of technology presents a heightened risk of cyberattacks, computer malware, viruses, social engineering, employee misuse as well as data and security breaches. Privacy is also a key priority for consumers, with increased focus on data sharing and growing awareness of the impact of AI and algorithmic bias.

Key Challenges Our Clients are Facing

As much as digital transformation is considered an imperative, companies face several key challenges in their digital transformation journeys, including the ability to:

 

   

Keep up with the latest technological innovations. Most companies are aware of the importance of digital transformation. However, as the rate of change accelerates, they often lack the ability to synthesize and prioritize the latest technology to drive value and to compete.

 

   

Embrace digital to drive sustainable change across the enterprise. Undergoing digital transformation requires change management and stakeholder buy-in from multiple constituents, including finance, operations and business leaders. Often, companies are unable to align on competing priorities between business and technology.

 

   

Deliver digital products and experiences rapidly and at scale. The fast pace of competitive innovation has forced companies to rethink their business models, leverage next-generation digital products and continuously innovate. As a result, they lack the ability to respond to shrinking product life cycles and rising consumer expectations.

 

   

Adopt platform thinking. Companies strive to bring solutions to their customers faster but also need to build strategic, scalable and long-term digital platforms. Successful delivery requires significant investments in modern architecture approaches, technology strategy and governance, a product-centric operating model and engineering culture.

 

   

Recruit and retain high-quality talent. While companies recognize the need to drive digital transformation, they struggle to find and train the talent they need to drive this change. According to a 2019 iCIMS study, it took an average of 66 days to fill a technology role, 50% longer than other roles. We believe the majority of firms are understaffed in terms of technology human capital due in part to the intense competition for technologists. Meanwhile, Korn Ferry estimates that there will be approximately $450 billion worth of unrealized output by 2030 due to the massive shortage of skilled digital workers.


 

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Our Market Opportunity

As companies struggle to keep pace with this accelerating rate of technological innovation, they need to rely on service providers to drive digital transformation, creating a massive market opportunity. In fact, according to MarketsandMarkets, global spending on digital transformation is expected to grow from $470 billion in 2020 to more than $1 trillion by 2025.

The COVID-19 pandemic not only accelerated the need for digital transformation but also confirmed its criticality. IDC predicts that by 2022, 70% of all organizations will have accelerated use of digital technologies, and by 2023, 75% of organizations will have comprehensive digital transformation implementation roadmaps, up from 27% today, resulting in true transformation across all facets of business and society.

Limitations of Other Digital Service Providers

While the market for digital transformation services is large and growing rapidly with a range of quality providers, many face some key limitations, including:

 

   

Inability to deliver new technological innovations ahead of mass adoption. Many service providers offer expertise around digital innovations only after such innovations reach mass adoption. As a result, they struggle to innovate and adopt newer technologies earlier to differentiate their clients’ digital products and experiences.

 

   

Lack of expertise to provide early stage strategy for complex digital transformations. Many service providers are optimized to execute once a template for scaling is designed, but often lack early stage strategy expertise. If technology expertise is absent from strategic decision-making, then the resulting solution may be ineffective or undifferentiated.

 

   

Employees focused on narrower specialties. Many service providers train their employees in narrower specialties, resulting in both siloed development and solutions. By taking this approach, employees often lack the full context needed to identify potential problems and opportunities, limiting the speed and depth of innovation.

 

   

Limited onshore talent. Many service providers have a high concentration of employees offshore, but offer limited onshore talent. As a result, they may lack important local market context, client intimacy to drive innovation and the ability to influence culture, transfer knowledge and enable sustained organizational change.

 

   

Concentration of talent in fewer offshore geographies. Many service providers rely on a limited number of international geographies to recruit their offshore talent. As a result, they may miss out on broader pools of high-quality talent to support demand and are unable to consistently provide talent in the client’s preferred location.

Thoughtworks’ Differentiation

Thoughtworks was founded in Chicago in 1993 by a small team with a unified purpose. At that time, information technology functions were largely regarded as ineffective cost centers. As a digital native business, Thoughtworks aspired to change this through experimenting and learning to drive continuous improvement, and the pursuit of excellence in the craft of software development.

Today, we believe our clients benefit from our differentiation, including our:

 

   

Ability to digitally transform global enterprises at scale by applying strategic consulting and cutting edge technologies. Digital transformation requires alignment across the entire organization.


 

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Thoughtworks has a unique and consistent global approach and end-to-end capabilities spanning strategy, design, software engineering and organizational transformation that we believe allow clients to react and realize value swiftly. That is why our clients rely on Thoughtworks to solve their most complex problems. We influence our clients’ strategy at an early-stage, co-creating strategic frameworks, developing digital platforms, exploiting leading technologies and delivering solutions, enabling them to thrive in a next-generation digital world.

 

   

Deep agile and technical expertise coupled with a history of thought leadership. Thoughtworks was an early visionary behind some of today’s leading technologies, as reflected by our range of publications, including approximately 100 software engineering and technology books Thoughtworkers have collectively authored. We are known for many technological advancements, especially our leadership in distributed agile software development and contributions to open source. We have been delivering software, and subsequently digital transformation, in an agile manner for over 20 years, long before it was a mainstream practice. Building on our past accomplishments, we continue to learn and develop new strategies and practices, such as our digital strategy frameworks, microservices-based platforms, evolutionary architecture, continuous delivery for machine learning and data mesh.

 

   

Poly-skilled, transformational and global talent. Digital transformation is a culture and mindset shift. We believe we deliver transformational change to our clients through our differentiated and diversified talent base of over 9,000 Thoughtworkers across five continents. We have built our exceptional and talented team by seeking out not only those with top-notch technical skills, but also those individuals with high aptitude and the ability to learn new skills quickly. What all Thoughtworkers have in common is a deep desire to learn, grow and share that knowledge with our clients. Our seven-week Thoughtworks University training program nurtures that mindset and develops a deep cultural immersion, a strong foundation in Thoughtworks’ methodologies and technical skill sets. In turn, our people bring that mentality and technical know-how to our clients to evolve their organizations and help them drive change.

 

   

Global and distributed agile delivery with a strong local presence. We believe we have pioneered and championed the use of highly skilled, distributed teams to deliver bespoke software projects more effectively and to give our over 300 clients access to the diverse talent they need across five continents. Our collaborative culture enables us to leverage best practices and industry expertise from Thoughtworkers around the world. Our global delivery ensures our ability to meet our clients’ global demands, while our local presence provides us with specialized knowledge of the local market and culture, enabling us to work side-by-side with our clients in their time zones and languages on innovative and effective solutions.

 

   

Award-winning and cultivating culture. Since our founding, we have relentlessly focused on evolving our culture, creating a differentiated brand that Thoughtworkers are proud to be a part of. In June 2021, we had a cumulative Glassdoor rating of 4.4 and a Diversity and Inclusion rating of 4.8. We have been recognized by AnitaB.org as a winner of the Top Companies for Women Technologists program in each of the past five years. We believe our culture not only drives higher quality work but also enables us to efficiently recruit and retain Thoughtworkers to drive growth. In 2020, over 316,000 candidates applied for approximately 3,700 roles and our voluntary attrition rate was 11.5%.

 

   

Experienced management team with a long history of working together. Our management team has an average tenure of 15 years at Thoughtworks and the majority have been working together as a team for over a decade. Most of the team members have worked across multiple functions and geographies, giving the group a diverse and well-rounded experience-base on all facets of our business. We have built a strong foundation of trust and collaboration across both our clients and our employees. This enables us to make well-informed decisions in an expedient manner.


 

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As a result of our competitive advantages, we have created a virtuous cycle that is difficult to replicate. We earn our clients’ trust to deliver on their most complex and business-critical projects. Our demonstrated track record of success encourages us to further develop cutting edge technology solutions and expand our thought leadership. As a result, we continuously attract, develop and retain what we believe is the very best talent across the globe, enabling us to meet and exceed our clients’ needs. The reputation we have built as the go-to partner for digital transformation allows us to command premium bill rates as evidenced by our average annual revenue per employee of over $100,000 in each of 2019 and 2020 (based on the average number of employees for the year).

Our Growth Strategies

We are focused on continuing to differentiate ourselves as a leading global technology consultancy that drives digital innovation by leveraging the following key growth strategies:

 

   

Deepen our relationships with existing clients. We have a successful track record of expanding our deeply-embedded relationships with our existing clients. This is reflected in our total percentage of revenues from recurring clients, which represented 92% in 2020. In addition, in 2020, we had 24 clients generating between $5.0 million and $10.0 million in revenues and 23 clients generating over $10.0 million. We will continue to focus on larger, higher value projects leveraging our market proximity to our clients, service line strategy and credibility with critical decision-makers through our thought leadership and client context. Major client relationships are managed by a senior cross-functional team, enabling us to drive client satisfaction and identify opportunities to grow the business. We believe we have a substantial opportunity to cross-sell additional services to our existing clients. For example, in 2020, a majority of our revenues earned from 20 of our top 25 clients (by revenue) came from one Thoughtworks service line.

 

   

Establish new client relationships. Establishing new client relationships is a critical component of our growth strategy, and we believe there are significant untapped opportunities to win new clients across current and adjacent industry verticals as well as geographies. Our dedicated new business teams work with marketing using targeted campaigns to increase brand recall, backed by data-driven approaches, including lead scoring and client lifecycle management, to focus our client acquisition efforts. As a result, we increased the total number of clients to 320 in 2020 from 289 in 2019. Adding new clients has also enabled us to maintain relatively low client concentration with only 20% and 32% of our revenues coming from our top five and ten clients, respectively, in 2020. We will continue to grow our network of key decision makers to attract new clients and drive growth.

 

   

Develop new technical capabilities and client solutions. For 28 years, we have been at the forefront of innovation, pioneering numerous innovative trends such as agile development, continuous integration, continuous delivery, microservices, evolutionary architecture and data mesh. As a result, we have built a thought leadership engine that we believe is consistently pioneering technology-driven business change. We accomplish this by giving our teams, who work in close proximity to our clients, autonomy to experiment with new technologies while solving complex client problems. When they discover new innovations, we give them resources to develop and harvest them, then scale them through our global delivery model. This is reflected in the numerous awards we have won from our own clients, such as the 2020 STAR Award for our technology from Pizza Hut and the Daimler Supplier of the Year for Innovation award in 2017. We believe this will allow us to continue to expand our service offerings and grow our addressable market.

 

   

Develop and grow our strategic partnerships. While we remain technologically agnostic and able to work with the appropriate technologies for our clients, we have expanded our relationships with hyperscale cloud providers, including Amazon, Google, Microsoft and Alibaba, among others. This enables us to deepen our capabilities, target new clients and drive meaningful growth as a preferred partner for enterprise modernization. We partner with other third-party product and service companies


 

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to expand our delivery capabilities as well as identify additional client opportunities. We will continue to engage and expand our network of partners where we can build mutually beneficial relationships, collaborating on high-value, digital transformation projects for clients.

 

   

Pursue strategic, targeted acquisitions. Our historical growth has been predominantly organic and we expect this to continue. Going forward, we believe there is opportunity to augment this growth by selectively pursuing acquisitions that broaden our service offerings, add leading talent, expand our client base and addressable market and enhance the depth of our capabilities in all of our verticals and geographies. For example, in the first quarter of 2021, we made two strategic acquisitions: (i) Gemini Solutions, LLC (“Gemini”), which operates in Romania, to increase our nearshore European presence and (ii) Fourkind Global Oy (“Fourkind”) in Finland and the Netherlands to enhance our advisory, digital transformation and AI consulting capabilities.

Summary Risk Factors

Our business and our ability to execute our strategy are subject to many risks. Before making a decision to invest in our common stock, you should carefully consider all of the risks and uncertainties described in the section of this prospectus captioned “Risk Factors” immediately following this Prospectus Summary and all of the other information in this prospectus. These risks include, but are not limited to, the following:

 

   

the COVID-19 pandemic has impacted our business and operations, and future business and operational challenges posed by the COVID-19 pandemic could materially adversely affect us;

 

   

we may be unable to implement our growth strategy;

 

   

our ability to generate and retain business depends on our reputation in the marketplace;

 

   

we must successfully attract, hire, train and retain skilled professionals to service our clients’ projects and we must productively deploy our professionals to remain profitable;

 

   

increases in wages and other compensation expenses could prevent us from sustaining our competitive advantage and could increase our costs;

 

   

our business and operations may be harmed if we cannot positively evolve and preserve our Thoughtworks culture;

 

   

our global business exposes us to operational, geopolitical, regulatory, legal and economic risks;

 

   

our business, financial condition and results of operations may be adversely affected by fluctuations in foreign currency exchange rates or changes in our effective tax rates;

 

   

if we fail to adequately innovate, adapt and/or remain at the forefront of emerging technologies and related client demands, we could be materially adversely affected;

 

   

we may not be successful at attracting new clients or retaining and expanding our relationships with our existing clients;

 

   

we face intense competition and operate in a rapidly evolving industry, which makes it difficult to evaluate our future prospects;

 

   

we generally do not have long-term commitments or contracts with our clients;

 

   

we face risks associated with having a long selling and implementation cycle for our services that require us to make significant resource commitments prior to realizing revenues for those services;

 

   

our profitability could suffer if we cannot accurately price our solutions and services, maintain favorable pricing for our solutions and services, are unable to collect on receivables from clients or fail to meet our contractual and other obligations to clients;


 

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we face risks associated with security breaches as well as privacy and data protection regulations, and we may incur significant liabilities if we fail to manage those risks;

 

   

we may not be able to prevent unauthorized use of our intellectual property, and our intellectual property rights may not be adequate to protect our business and competitive position;

 

   

the Apax Funds control us, and such control may give rise to actual or perceived conflicts of interests; and

 

   

after the completion of this offering, our status as a “controlled company” will grant us exemptions from certain corporate governance requirements, and our status as an “emerging growth company” will allow us to comply with reduced public company reporting requirements.

Implications of Being an Emerging Growth Company

We qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). An emerging growth company may take advantage of relief from certain reporting requirements and other burdens that are otherwise applicable generally to public companies. These provisions include:

 

   

presenting only two years of audited financial statements;

 

   

an exemption from compliance with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”);

 

   

reduced disclosure about our executive compensation arrangements in our periodic reports, proxy statements and registration statements; and

 

   

exemptions from the requirements of holding non-binding advisory votes on executive compensation or golden parachute arrangements.

In addition, under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected to avail ourselves of this exemption from new or revised accounting standards, and, therefore, we will not be subject to the same new or revised accounting standards at the same time as other public companies that are not emerging growth companies or those that have opted out of using such extended transition period, which may make comparison of our financial statements with such other public companies more difficult. We may take advantage of these reporting exemptions until we no longer qualify as an emerging growth company, or, with respect to adoption of certain new or revised accounting standards, until we irrevocably elect to opt out of using the extended transition period.

We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of the completion of this offering; (iii) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under SEC rules (i.e., the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the end of the second quarter of that fiscal year).

We have elected to take advantage of certain of the reduced disclosure obligations regarding financial statements (such as not being required to provide audited financial statements for the fiscal year ended December 31, 2018) in this prospectus and executive compensation in this prospectus and expect to elect to take advantage of other reduced disclosure obligations and burdens in future filings. As a result, the information that we provide to our stockholders may be different than you might receive from other public reporting companies in which you hold equity interests.


 

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Our Principal Stockholder

We have a valuable relationship with our principal equityholders, which are the funds advised by Apax Partners L.L.P. (“Apax Partners”). Apax Partners is a leading global private equity advisory firm. For more than four decades, Apax Partners has built specialist expertise across four industry sectors: Tech, Services, Healthcare and eConsumer. To date, Apax Partners has raised and advised funds with aggregate commitments of more than $60 billion. The funds advised by Apax Partners have a strong track record of investing in the technology and telecommunications sector, having committed €8.4 billion of equity across multiple geographies, including the U.S., Europe, and Asia. Funds advised by Apax Partners provide long-term equity financing to build and strengthen world-class companies.

In April 2021, the Company declared and paid a pro rata dividend of $325.0 million to the Company’s shareholders, including our then-principal shareholder, Turing EquityCo. L.P., an affiliate of Turing EquityCo. II L.P., the investment vehicle through which the Apax Funds now hold their investment in the Company and the principal selling shareholder in this offering.

Substantially concurrently with this offering, we will enter into a Director Nomination Agreement with the Apax Funds. See “Certain Relationships and Related Party Transactions—Director Nomination Agreement” for more details with respect to the Director Nomination Agreement.

Corporate Information

We were incorporated in Delaware in 2017 as Turing Holding Corp. to serve as the indirect holding company of Thoughtworks, Inc. and its direct and indirect subsidiaries. In connection with this offering, we expect to change our name from Turing Holding Corp. to Thoughtworks Holding, Inc. Our principal executive offices are located at 200 East Randolph Street, 25th Floor, Chicago, Illinois 60601. Our telephone number is (312) 373-1000. Our website address is www.thoughtworks.com. The information contained on, or that can be accessed through, our website is not incorporated by reference into this prospectus, and you should not consider any information contained on, or that can be accessed through, our website as part of this prospectus or in deciding whether to purchase our common stock. We are a holding company, and all of our business operations are conducted through our subsidiaries.


 

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The Offering

 

Common stock we are offering

16,429,964 shares.

 

Common stock offered by the selling stockholders

20,412,142 shares.

 

Option to purchase additional shares

The selling stockholders have granted the underwriters a 30-day option to purchase up to 5,526,315 additional shares of common stock from the selling stockholders at the initial public offering price less the underwriting discount.

 

Common stock to be outstanding after this offering

305,083,908 shares.

 

Indications of Interest

One or more entities or accounts affiliated with or advised by an investor in our Series A preferred stock, Neuberger, have indicated a non-binding interest in purchasing up to an aggregate of $70 million of shares of our common stock being offered in this offering at the initial public offering price. Because Neuberger’s indication of interest is not an agreement or commitment by such entities or accounts to purchase shares, one or more of these entities or accounts may ultimately choose to purchase more, less or no shares in this offering. The underwriters will receive the same discount with respect to any of our shares of common stock purchased by one or more entities or accounts affiliated with or advised by Neuberger as they will from any other shares of common stock sold to the public in this offering.

 

Use of proceeds

We expect to receive net proceeds of approximately $315.3 million after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We intend to use the net proceeds we receive for general corporate purposes. See “Use of Proceeds.”

 

  We will not receive any proceeds from the sale of shares by the selling stockholders in this offering. We will pay the expenses of this offering, other than the underwriters’ discounts and commissions with respect to the shares being sold by the selling stockholders.

 

Controlled company

After this offering, the Apax Funds will beneficially own approximately 67% of our common stock (or 65% of our common stock if the underwriters’ option to purchase additional shares is exercised in full). As a result, we expect to be a controlled company within the meaning of the corporate governance standards of Nasdaq. See “Management—Corporate Governance—Controlled Company Status.”

 

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Dividend policy

We do not currently anticipate paying dividends on our common stock. Any declaration and payment of future dividends to holders of our common stock will be at the sole discretion of our board of directors (the “Board”) and will depend on many factors, including our financial condition, earnings, capital requirements, level of indebtedness, statutory and contractual restrictions applicable to the payment of dividends, and other considerations that our Board deems relevant. Because we are a holding company and have no direct operations, we will only be able to pay dividends from our available cash on hand and any funds we receive from our subsidiaries. Certain of our debt agreements limit the ability of certain of our subsidiaries to pay dividends. In addition, Delaware law may impose requirements that may restrict our ability to pay dividends. See “Dividend Policy.”

 

Listing

Our common stock has been approved for listing on Nasdaq under the symbol “TWKS.”

 

Risk factors

See “Risk Factors” and other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in shares of our common stock.

Unless we specifically state otherwise or the context otherwise requires, the share information in this prospectus is based on an aggregate of 6,598,603 shares of Series A Convertible Preferred Stock, Series B Convertible Preferred Stock, Class A common stock, Class B common stock, and Class C common stock, outstanding as of June 30, 2021, and:

 

   

gives effect to the conversion of all shares of our Class A common stock, Class B common stock, Class C common stock, Series A Convertible Preferred Stock and Series B Convertible Preferred Stock into shares of our common stock on a 1-for-1 basis before the closing of this offering;

 

   

gives effect to an approximately 43.6-for-1 stock split of our common stock, which will occur before the closing of this offering;

 

   

gives effect to the issuance and sale by us of 16,429,964 shares of common stock and the sale by selling stockholders of 20,412,142 shares of common stock;

 

   

assumes no exercise of the underwriters’ option to purchase up to an additional 5,526,315 shares of common stock from the selling stockholders in this offering;

 

   

does not reflect 24,193,897 shares of common stock issuable upon the exercise of outstanding options;

 

   

does not reflect 8,918,969 shares of common stock underlying Restricted Stock Units (“RSUs”) that will be issued in connection with the conversion of Stock Appreciation Rights (“SARs”) upon completion of this offering;

 

   

does not reflect 48,694,611 shares of common stock that are reserved for future grants or sale under our new omnibus equity incentive plan (the “2021 Omnibus Incentive Plan”), inclusive of the 8,918,969 shares of common stock underlying the RSUs that will be issued upon the conversion of SARs upon completion of this offering; and

 

   

assumes the filing of our Fourth Amended and Restated Certificate of Incorporation and the adoption of our Third Amended and Restated Bylaws, each in connection with the closing of this offering.


 

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Summary Consolidated Financial and Other Data

The following tables summarize our consolidated financial and other data. We have derived the summary consolidated statements of operations and cash flows data for 2020 and 2019 from our audited consolidated financial statements included elsewhere in this prospectus. We have derived the summary statement of operations and cash flow data for the six months ended June 30, 2021 and 2020 and the historical balance sheet data as of June 30, 2021 from our unaudited condensed consolidated financial statements included elsewhere in this prospectus.

The unaudited condensed consolidated financial statements include all normal recurring adjustments necessary, in the opinion of management, to summarize the financial positions and results for the period presented. Our historical results are not necessarily indicative of our results to be expected in any future period, and the historical results for the six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the full year. The summary of our consolidated financial data set forth below should be read together with our consolidated financial statements and our condensed consolidated interim financial statements and the related notes, as well as the sections captioned “Capitalization” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this prospectus.

The following tables also include certain non-GAAP financial measures, including Revenue Growth Rate at Constant Currency, Adjusted Net Income, Adjusted EBITDA and Adjusted EBITDA Margin. These non-GAAP financial measures are supplemental measures of operating performance monitored by management and should not be considered as alternatives to GAAP measures. Please see additional information following the tables below regarding the use and reconciliation of these non-GAAP measures to their most closely comparable GAAP measures.

 

     Six Months Ended
June 30,
    Year Ended
December 31,
 
(in thousands, except share and per share data)    2021     2020     2020     2019  

Consolidated Statements of Operations Data:

        

Revenues

   $ 498,094     $ 400,533     $ 803,375     $ 772,191  

Operating expenses:

        

Cost of revenues

     287,102       236,901       475,560       476,631  

Selling, general and administrative

     135,347       97,425       189,497       203,886  

Depreciation and amortization

     8,834       8,244       17,479       15,776  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     431,283       342,570       682,536       696,293  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

     66,811       57,963       120,839       75,898  

Other (expense) income:

        

Interest expense

     (13,582     (13,817     (25,767     (26,428

Net realized and unrealized foreign currency (loss) gain

     (1,674     1,431       7,190       (1,750

Other income, net

     144       127       185       117  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense

     (15,112     (12,259     (18,392     (28,061
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     51,699       45,704       102,447       47,837  

Income tax expense

     14,962       7,907       (23,164     (19,417
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 36,737     $ 37,797     $ 79,283     $ 28,420  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income per common share, basic

   $ (4.25   $ 5.92     $ 11.45     $ 4.46  

Net (loss) income per common share, diluted

   $ (4.25   $ 5.80     $ 11.20     $ 4.40  

Weighted-average shares used to compute net (loss) income per common share, basic

     5,392,220       6,383,449       6,384,159       6,373,541  

Weighted-average shares used to compute net (loss) income per common share, diluted

     5,392,220       6,517,660       6,530,039       6,459,207  

 

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     Six Months Ended
June 30,
     Year Ended
December 31,
 
(in thousands, except share and per share data)    2021      2020      2020      2019  

Pro forma net income per common share, basic(1, 2) (unaudited)

   $ 0.12                              $ 0.11                          

Pro forma net income per common share, diluted(1, 2) (unaudited)

   $ 0.11         $ 0.10     

Weighted-average shares used to compute pro forma net income per common share, basic(1)(2)

     306,237,601           349,466,824     

Weighted-average shares used to compute pro forma net income per common share, diluted(1)(2)

     335,207,367           378,860,544     

 

(1)

Gives effect to the Offering Reorganization Transactions, as if each occurred on January 1, 2020.

(2)

In April 2021, the Company declared and paid a pro rata dividend of $325.0 million to the Company’s shareholders, including our then-principal stockholder Turing EquityCo. L.P., an affiliate of Turing EquityCo. II L.P., the investment vehicle through which the Apax Funds now hold their investment in the Company. Pro forma net income per common share, basic and diluted, assumes that an additional 11,751,869 shares of our common stock were outstanding in 2020 and the first half of 2021, which represents the number of shares of common stock that we would have been required to issue to fund the dividend in excess of our current year’s earnings. The number of shares of common stock that we would have been required to issue to fund the dividend was calculated by dividing the portion of the total $325.0 million dividend in excess of our current year’s earnings by the initial public offering price of $21.00 per share. Furthermore, we will accelerate vesting of all outstanding, unvested performance vesting options and convert all outstanding SARs to RSUs upon the completion of this offering. Accordingly, our calculations of pro forma net income per common share, basic and diluted, assume that (i) such acceleration and conversion occurred on January 1, 2020 and resulted in additional expense, reflected in our calculation of net income for the year ended December 31, 2020, of approximately $54.0 million based on a fair value of $21.00 per share, the initial public offering price and (ii) an additional 8,918,969 shares of our common stock were outstanding in 2020 and the first half of 2021, reflecting the replacement of SARs with RSUs and the vesting of our unvested performance vesting options.

The following is a reconciliation of both the numerator and denominator used in the pro forma per share calculations above (in thousands, except share and per share data).

 

     Six Months Ended June 30,     Year Ended
December 31,
 
     2021     2020  

Pro forma adjustments to the numerator, basic

    

Net income, as reported

   $ 36,737     $ 79,283  

Adjustments:

    

Stock-based compensation expense, net of tax benefit

     —   (1)      41,789 (1) 
  

 

 

   

 

 

 

Pro forma net income, basic

     36,737       37,494  

Pro forma adjustments to the denominator, basic

    

Weighted average common shares outstanding, as reported

     5,392,220       6,384,159  

Adjustments:

    

Preferred stock conversion to common shares

     1,365,058 (2)      1,365,058 (2) 

Dividend adjustment, shares to cover capital in excess of current year’s earnings

     269,659 (4)      269,659 (4) 

Stock split adjustment

     299,210,664       341,447,949  

Weighted-average shares used to compute pro forma net income per common share, basic

     306,237,601       349,466,824  

Pro forma net income per common share, basic

   $ 0.12     $ 0.11  

 

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     Six Months Ended
June 30,
    Year Ended
December 31,
 
     2021     2020  

Pro forma net income, diluted

     36,737       37,494  

Pro forma adjustments to the denominator, diluted

    

Weighted-average shares used to compute pro forma net income per common share, basic

     306,237,601       349,466,824  

Adjustments:

    

Employee stock options

     20,050,797 (5)      20,474,750 (5) 

SARs to RSUs conversion

     8,918,969       8,918,969 (6) 

Weighted-average shares used to compute pro forma net income per common share, diluted

     335,207,367       378,860,544  

Pro forma net income per common share, diluted

   $ 0.11     $ 0.10  

 

(1)

Reflects additional stock-based compensation expense of $54.0 million related to the accelerated vesting of all outstanding, unvested performance vesting options, consisting of (a) $47.8 million related to the accelerated vesting of a number of unvested performance vesting options due to an achievement of sponsor return hurdles that are met upon completion of the initial public offering (calculated using the grant date fair value of such awards) and (b) $6.2 million related to the accelerated vesting of all remaining unvested performance vesting options upon completion of the initial public offering (calculated using a fair value of the initial public offering price of $21.00 per share), in each case, net of tax benefit. With respect to (a) above, a sponsor return of 2.8x sponsor investment is used in the disclosures and pro forma calculation above.

The additional stock-based compensation expense includes income tax effects for each applicable period, using an effective tax rate of 28.9% and 22.6% for June 30, 2021 and December 31, 2020, respectively.

 

(2)

Reflects conversion of preferred stock to common stock on a 1-to-1 basis upon the occurrence of the initial public offering.

(3)

Effects a preliminary stock split of approximately 43.6-for-1 upon the occurrence of the initial public offering.

(4)

Reflects the number of common shares that would have been required to cover the capital in excess of current year’s earnings.

(5)

Reflects the dilutive effects of applying the treasury stock method to the employee stock options, after effects of the approximately 43.6-for-1 stock split noted above. Dilutive options include time and performance vesting options. Performance vesting options represent the accelerated vesting of all performance vesting options upon the occurrence of the initial public offering, and are only reflected in the denominator of pro forma earnings per share, diluted, as the performance vesting options will be fully vested at the date of the initial public offering, and are not assumed to be exercised.

(6)

Reflects the dilutive effects of applying the treasury stock method to the conversion of all outstanding SARs to RSUs upon the occurrence of the initial public offering, after effects of the approximately 43.6-for-1 stock split noted above. Upon the completion of the initial public offering, RSUs granted in connection with the SARs conversion will vest after six months and twelve months at 50% at each vesting date, such that 100% of RSUs related to the SARs conversion are fully vested twelve months after the completion of the initial public offering.


 

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In addition to the pro forma figures presented above and in recognition of our employees’ efforts, the Company expects to grant RSUs upon completion of the initial public offering, a portion of which will cliff vest twenty-six months after the completion of the initial public offering, and the remainder of which will vest after six months and twelve months at 50% at each vesting date, such that 100% are fully vested twelve months after the completion of the initial public offering, subject to approval by our Board of Directors.

 

     As of June 30, 2021  
(in thousands)    Actual      As
Adjusted(1)
     As Further
Adjusted(2)
 

Consolidated Balance Sheet Data:

        

Cash and cash equivalents(3)

   $ 215,950        215,950        540,428  

Total assets

     1,298,766        1,298,766        1,616,563  

Working capital(4)

     321,276        321,276        651,126  

Total stockholders’ (deficit) equity

     (510,690      315,332        645,182  

 

(1)

The as adjusted column gives effect to the Offering Reorganization Transactions, each of which has occurred or will occur substantially concurrently with the completion of this offering.

(2)

The as further adjusted column gives effect to the adjustments set forth in note (1) above as well as the issuance and sale by us of 16,429,964 shares of common stock in this offering based on a fair value of $21.00 per share, the initial public offering price and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us (a portion of which offering expenses were paid prior to June 30, 2021). In addition, this column gives effect to receipt of cash by us in connection with the exercise of options underlying shares of common stock to be sold by certain of the selling stockholders in this offering.

(3)

In April 2021, the Company declared and paid a pro rata dividend of $325.0 million to the Company’s shareholders, including our then-principal shareholder, Turing EquityCo. L.P., an affiliate of Turing EquityCo. II L.P., the investment vehicle through which the Apax Funds now hold their investment in the Company.

(4)

We define working capital as current assets less current liabilities.

 

     Six Months Ended
June 30,
    Year Ended
December 31,
 
(in thousands)    2021     2020     2020     2019  

Statement of Cash Flows Data:

        

Net cash provided by operating activities

   $   60,296     $   72,016     $   125,296     $   29,271  

Net cash used in investing activities

     (58,390     (5,799     (14,993     (18,597

Net cash (used in) provided by financing activities

     (250,693     26,696       318,197       (6,564
     Six Months Ended
June 30,
    Year Ended
December 31,
 
(in thousands, except percentages)    2021     2020     2020     2019  

Other Financial Information (unaudited):

        

Net income

   $ 36,737     $ 37,797     $     79,283     $   28,420  

Net income margin

     7.4     9.4     9.9     3.7

Revenue Growth Rate as reported

     24.4     8.9     4.0     19.3 %(2) 

Revenue Growth Rate at Constant Currency(1)

     18.2     12.3     5.1     22.7 %(2) 

Adjusted Net Income(3)

   $ 59,425     $ 43,685     $ 86,383     $ 40,507  

Adjusted EBITDA(3)

   $   105,055     $   74,021     $ 153,193     $ 107,129  

Adjusted EBITDA Margin(3)

     21.1     18.5     19.1     13.9

 

(1)

Management regularly reviews our operating results on a “constant currency” basis, a non-GAAP financial measure. This measure excludes the effect of foreign currency exchange rate fluctuations by translating the fiscal period revenues into U.S. dollars at the weighted average exchange rates of the prior period of comparison.


 

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(2)

Growth rates based on increase over 2018 revenue, which was prepared according to ASC 605. Our adoption of ASC 606 as of January 1, 2019 did not materially impact our revenues.

(3)

Adjusted Net Income, Adjusted EBITDA and Adjusted EBITDA Margin are supplemental measures of operating performance monitored by management that are not defined under GAAP and that do not represent, and should not be considered as, alternatives to GAAP measures.

We calculate Adjusted Net Income as net income adjusted for unrealized gain (loss) on foreign currency exchange, stock-based compensation expense, amortization of acquisition-related intangibles, acquisition costs, executive compensation expenses considered one-time in nature, certain professional fees that are considered unrelated to our ongoing revenue-generating operations, tender offer compensation expense that is considered one-time in nature, certain costs related to business rationalization, IPO-related costs and income tax effects of adjustments.

We calculate Adjusted EBITDA as net income adjusted to exclude income tax expense, interest expense, other (expense) income, unrealized gain (loss) on foreign currency exchange, stock-based compensation expense, depreciation and amortization expense, acquisition costs, executive compensation expenses considered one-time in nature, certain professional fees that are considered unrelated to our ongoing revenue-generating operations, tender offer compensation expense that is considered one-time in nature, certain costs related to business rationalization and IPO-related costs. Adjusted EBITDA Margin is calculated by dividing Adjusted EBITDA by total revenues.

Management uses these measures as supplemental measures of our operating performance and the operating leverage in our business. We believe that these non-GAAP financial measures are useful to investors for supplemental period-to-period comparisons of our business and in understanding and evaluating our operating results for the following reasons:

 

   

Our management uses Adjusted Net Income 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 effect of the adjusted items;

 

   

Adjusted EBITDA and Adjusted EBITDA Margin are widely used by investors and securities analysts to measure a company’s operating performance without regard to items such as stock-based compensation expense, depreciation and amortization expense, interest expense, other (income) expense, net, and income tax expense 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 Net Income, Adjusted EBITDA and Adjusted EBITDA Margin in conjunction with financial measures prepared in accordance with GAAP 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; and

 

   

Adjusted Net Income, Adjusted EBITDA and Adjusted EBITDA Margin provide consistency and comparability with our past financial performance, facilitate period-to-period comparisons of our core operating results, and also facilitate comparisons with other peer companies, many of which use similar non-GAAP financial measures to supplement their GAAP results.

Adjusted Net Income, Adjusted EBITDA and Adjusted EBITDA Margin 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. Some of these limitations are, or may in the future be, as follows:

 

   

Although depreciation and amortization expense is a non-cash charge, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA and Adjusted EBITDA Margin do not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;


 

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Adjusted Net Income, Adjusted EBITDA and Adjusted EBITDA Margin exclude stock-based compensation expense, which has recently been, and will continue to be for the foreseeable future, a significant recurring expense for our business and an important part of our compensation strategy;

 

   

Adjusted Net Income, Adjusted EBITDA and Adjusted EBITDA Margin do not reflect changes in, or cash requirements for, our working capital needs;

 

   

Adjusted EBITDA and Adjusted EBITDA Margin do not reflect (i) interest expense, or the cash requirements necessary to service interest or principal payments on our debt, which reduces cash available to us; or (ii) accruals or tax payments that may represent a reduction in cash available to us;

 

   

Adjusted Net Income, Adjusted EBITDA and Adjusted EBITDA Margin do not reflect transaction costs related to acquisitions; and

 

   

The expenses and other items that we exclude in our calculations of Adjusted Net Income, Adjusted EBITDA and Adjusted EBITDA Margin may differ from the expenses and other items, if any, that other companies may exclude from similarly-titled non-GAAP measures when they report their operating results, and we may, in the future, exclude other significant, unusual or non-recurring expenses or other items from these financial measures.

Because of these limitations, Adjusted Net Income, Adjusted EBITDA and Adjusted EBITDA Margin should be considered along with other financial performance measures presented in accordance with GAAP.

The following tables present a reconciliation of Adjusted Net Income and Adjusted EBITDA to their most directly comparable financial measure prepared in accordance with GAAP, for each of the periods indicated.

 

     Six Months Ended
June 30,
     Year Ended
December 31,
 
(in thousands)    2021      2020      2020      2019  

Net income

   $ 36,737      $ 37,797      $ 79,283      $   28,420  

Unrealized foreign exchange losses (gains)

     2,519        68        (5,351      703  

Stock-based compensation

     10,236        774        1,667        1,949  

Amortization of acquisition-related intangibles

     6,033        5,199        10,537        10,635  

Acquisition costs(a)

     7,486        —        633        158  

Non-recurring executive compensation expense(b)

     —        —        —          802  

Certain professional fees(c)

     1,846        56      56        1,512  

Non-recurring tender offer compensation expense(d)

     2,715        —        —          —    

Business rationalization(e)

     —        803        1,316        4,589  

IPO-related costs(f)

     1,075        220        315        —    

Income tax effects of adjustments(g)

     (9,222      (1,232      (2,073      (8,261
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted Net Income

   $ 59,425      $ 43,685      $ 86,383      $ 40,507  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Six Months Ended
June 30,
     Year Ended
December 31,
 
(in thousands, except percentages)    2021      2020      2020      2019  

Net income

   $ 36,737      $ 37,797      $ 79,283      $ 28,420  

Income tax expense

     14,962        7,907        23,164        19,417  

Interest expense

     13,582        13,817        25,767        26,428  

Other income, net

     (144      (127      (185      (117

Unrealized foreign exchange losses (gains)

     2,519        68        (5,351      703  

Stock-based compensation

     10,236        774        1,667        1,949  

Depreciation and amortization

     14,041        12,706        26,528        23,268  

Acquisition costs(a)

     7,486        —        633        158  

Non-recurring executive compensation expense(b)

     —        —        —          802  

Certain professional fees(c)

     1,846        56        56        1,512  

Non-recurring tender offer compensation expense(d)

     2,715        —        —          —    

 

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     Six Months Ended
June 30,
     Year Ended
December 31,
 
(in thousands, except percentages)    2021      2020      2020      2019  

Business rationalization(e)

     —        803        1,316        4,589  

IPO-related costs(f)

     1,075        220        315        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

   $ 105,055      $ 74,021      $ 153,193      $ 107,129  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income margin

     7.4%        9.4%        9.9%        3.7%  

Adjusted EBITDA Margin

     21.1%        18.5%        19.1%        13.9%  

 

  (a)

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

  (b)

Reflects executive compensation expenses for certain roles that were eliminated in connection with our acquisition by the Apax Funds.

  (c)

Adjusts for certain transaction expenses, non-recurring legal expenses, and one-time professional fees.

  (d)

Adjusts for the additional compensation expense related to the tender offer completed in the first quarter of 2021.

  (e)

Adjusts for business rationalization revenues and costs related to closing Thoughtworks Studios, which was completely shut down as of December 31, 2020. Thoughtworkers previously associated with Thoughtworks Studios have been transitioned to higher-revenue generating functions.

  (f)

Adjusts for IPO-readiness costs and expenses that do not qualify as equity issuance costs.

  (g)

Adjusts for the income tax effects of the foregoing adjusted items.


 

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RISK FACTORS

Investing in our common stock involves a substantial risk of loss. You should carefully consider these risk factors, together with all of the other information included in this prospectus, before you decide to purchase shares of our common stock. If any of the following risks occur, it could have a material adverse effect on our business, financial condition or results of operations. In that case, the trading price of our common stock could decline, and you could lose part or all of your investment. Some statements in this prospectus, including statements in the following risk factors, constitute forward-looking statements. See the section of this prospectus captioned “Special Note Regarding Forward-Looking Statements.”

Risks Related to COVID-19

Our results of operations have been adversely affected and could in the future be materially adversely affected by the COVID-19 pandemic.

The COVID-19 pandemic has created widespread economic disruption and uncertainty, including as it relates to our operations, our people’s ability to work and demand for our services and solutions. For example, the majority of the COVID-19 impact on our business was seen in the second quarter of 2020, following a slowdown in our new business pipeline along with one-time pauses and select cancellations in projects as certain clients were addressing the initial challenges of the pandemic. We generally experienced a return to historical levels in the fourth quarter of 2020 with our daily average revenue increasing to $3.3 million as clients re-engaged with us, and in some cases accelerated, on their digital transformation projects.

The extent to which the COVID-19 pandemic will further impact our business, operations and financial results will depend on numerous factors that are frequently changing or unknown, and that we may not be able to accurately predict, including: the duration and scope of the pandemic; governmental, business and individuals’ responses or planned responses to the pandemic, including availability and administration rates of vaccines; the impact of the pandemic on economic activity and any interventions or government relief or stimulus intended to mitigate decreased economic activity; the global rollout and widespread adoption of COVID-19 vaccines; the effect on our clients and client demand for our services and solutions; our ability to sell and provide our services and solutions, including as a result of travel restrictions and social distancing; our ability to acquire new clients or deepen relationships with our existing clients due to budgetary constraints or changes in business strategy at our clients as a result of the COVID-19 pandemic; the ability of our clients to pay in a timely manner, if at all, for our services and solutions with or without discounts requested by our clients; bankruptcy or other insolvency procedures among our clients; and closures of our and our clients’ offices and facilities.

Certain clients, such as those in the brick-and-mortar retail and travel industries, have experienced broad disruptions in their businesses, which have disrupted, and continue to disrupt, the demand for our services and solutions. Among other things, we have experienced, and could continue to experience, reductions in work orders, delays or interruptions in the performance of contracts, losses of revenues and an increase in bad debt expense. Clients may also slow or halt decision-making, delay planned work, or suspend, terminate, fail to renew or reduce existing contracts or services. In contrast, certain clients have increased their work orders as those clients have accelerated or initiated digital transformation projects as a result of the COVID-19 pandemic. We cannot be certain that any increased levels of demands for our services will be sustained.

We have also experienced higher than normal employee absentee rates due to illness, family medical leave and bereavement leave. For example, we see more of our employees unable to work during a more localized surge of COVID-19 cases, such as in India or Brazil. Such a surge, if sufficiently widespread, could materially impact our operations.

Further, travel and immigration restrictions may delay or prevent our people from accessing worksites. Even as employees return to our worksites, we may be prevented from conducting business activities at full capacity

 

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for an indefinite period of time. Moreover, there may be additional costs that we will have to incur in connection with further changes to, or a return to, normal operating conditions. Further, implementing a hybrid remote/in-office workforce may exacerbate talent management issues and result in issues relating to the onboarding of new employees remotely, dilution of our culture, mismanagement of current employees by failing to identify high performers or misallocation of resources for projects. We may experience additional absenteeism in the future as travel restrictions are reduced and employees feel more comfortable traveling. To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this section of this prospectus.

Risks Related to Our People and Growth

We may be unable to implement our growth strategy.

We have grown rapidly and significantly expanded our business over the past several years. Our growth has resulted in part from developing innovative solutions at the forefront of emerging technologies for our clients. However, this requires that we invest substantial amounts of cash in human capital and the infrastructure to support our growth, including training, administration and facilities. Our growth strategy places significant demands on our management and our administrative, operational and financial infrastructure, and our growth strategy creates challenges, including:

 

   

recruiting, training and retaining sufficiently skilled professionals and management personnel;

 

   

planning our staffing needs on a consistent basis and efficiently using on-site and off-site staffing;

 

   

maintaining close and effective relationships with a larger number of clients in a greater number of industries and locations;

 

   

controlling costs and minimizing cost overruns and project delays in delivery center and infrastructure expansion;

 

   

effectively maintaining productivity levels and implementing process improvements across geographies and business units; and

 

   

improving our internal administrative, operational and financial infrastructure.

We intend to continue our expansion and pursue available opportunities for the foreseeable future. As we introduce new services, enter into new markets, and take on increasingly innovative projects, often implementing or introducing new technologies to our clients, our business may face new risks and challenges. If our clients do not choose us for innovative projects or we do not effectively manage those projects, our reputation, business and financial goals may be damaged. We need to generate business and revenues to support new investments and infrastructure projects. The challenges associated with expansion could negatively impact our anticipated growth and margins. As a result, our business, prospects, financial condition and results of operations could be materially adversely affected.

Our ability to generate and retain business depends on our reputation in the marketplace.

Our services are marketed to clients and prospective clients based on a number of factors, including reputation. Our corporate reputation is a significant factor in our potential clients’ evaluation of whether to engage our services. Our clients’ perception of our ability to add value through our services is critical to the profitability of our engagements. We believe that the Thoughtworks brand name and our reputation are important corporate assets that help distinguish our services from those of our competitors and contribute to our efforts to recruit and retain talented employees.

Our corporate reputation is potentially susceptible to damage by actions or statements made by current or former clients and employees, competitors, vendors, adversaries in legal proceedings, government regulators, as

 

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well as members of the investment community and the media. We and our officers and directors are and may from time to time be subject to legal proceedings in the ordinary course of business or otherwise, which could adversely affect our reputation even if we or they ultimately prevail. There is a risk that negative information about us, even if untrue, could adversely affect our business, could cause damage to our reputation and be challenging to repair, could make potential or existing clients reluctant to select us for new engagements, could lead to a loss of revenue or litigation, and could adversely affect our recruitment and retention efforts. Damage to our reputation could also reduce the value and effectiveness of the Thoughtworks brand name and could reduce investor confidence in us.

If we cannot positively evolve our Thoughtworks culture as we grow and become a public company, we could lose the innovation, teamwork, passion and execution that we believe contribute to our success, and our business may be harmed.

We believe a critical component to our success has been our corporate culture. We have invested substantial time and resources in building our team and developing our leaders. Our culture has evolved over time and will likely continue to evolve as a result of this offering, including in ways that may be unforeseeable or unfavorable to us. As we develop the infrastructure of a public company, our operations may need to change to support that infrastructure. In particular, we are committed to a business culture that promotes intentional sharing of business information and decision-making processes so that our team members are engaged and invested in our mission and operational success. Due to certain operational changes needed to become a public company, we may find it difficult to maintain important aspects of our corporate culture. Further, if we are required to maintain work-from-home arrangements for a significant period of time due to the COVID-19 pandemic or otherwise, it may impact our ability to preserve our corporate culture. Any failure to preserve our culture could harm our future success, including our ability to retain and recruit our people and our leadership team, innovate and operate effectively, and execute on our business strategy.

We must successfully attract, hire, train and retain qualified professionals to service our clients’ projects and we must productively deploy our professionals to remain profitable.

Identifying, recruiting, hiring and retaining professionals with diverse skill sets across our broad geography of operations and consistent with our evolving client delivery model is critical to maintaining existing engagements and obtaining new business. If we are unable to recruit skilled professionals and if we do not deploy those professionals productively, our profitability will be significantly impacted. We must manage our professionals well and by planning and training for future needs effectively and staffing projects appropriately while accurately predicting the general economy and our clients’ need for our services. If we are unable to attract, hire, train and retain highly skilled professionals and productively deploy them on client projects, we will jeopardize our ability to meet our clients’ expectations and develop ongoing and future business, which could adversely affect our financial condition and results of operations.

Competition for highly skilled professionals is intense in the markets where we operate, and we may experience significant employee turnover rates due to such competition. If we are unable to retain professionals with specialized skills, our revenues, operating efficiency and profitability will decrease. Cost reductions, such as reducing headcount, or voluntary departures that result from our failure to retain the professionals we hire, could negatively affect our reputation as an employer and our ability to hire skilled professionals to meet our business requirements. Increased compensation to retain skilled professionals could lead to lower margins or to price increases that may in turn lead to a decline in demand for our services.

Any significant growth in the market for our services or solutions or our entry into new markets may require an expansion of our employee base for managerial, operational, financial and other purposes. During any period of growth, we may face problems related to our operational and financial systems and controls, including quality control and delivery and service capacities. We would also need to continue to expand, train and manage our employee base. Continued future growth will impose significant added responsibilities upon the members of management to identify, recruit, maintain, integrate and motivate new employees.

 

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We cannot assure you that we will be able to recruit and train a sufficient number of qualified professionals or that we will be successful in retaining current or future employees. Increased hiring by technology companies, particularly in Latin America, the United States, Asia and Europe, and increasing worldwide competition for skilled technology professionals may lead to a shortage in the availability of skilled professionals in the locations where we operate and hire. Failure to hire and train or retain qualified technology professionals in sufficient numbers could have a material adverse effect on our business, results of operations and financial condition.

Increases in wages, equity compensation and other compensation expenses could prevent us from sustaining our competitive advantage and increase our costs.

Wages for technology professionals in emerging countries where we have significant operations and delivery centers are lower than comparable wages in more developed countries. However, wages in the technology industry in these countries may increase at a faster rate than in the past, which may make us less competitive unless we are able to increase the efficiency and productivity of our employees. If we increase operations and hiring in more developed economies, our compensation expenses will increase because of the higher wages demanded by technology professionals in those markets. In all countries in which we operate, wage inflation, whether driven by competition for talent or ordinary course pay increases, may also increase our cost of providing services and reduce our profitability if we are not able to pass those costs on to our clients or charge premium prices when justified by market demand.

If we fail to integrate or manage acquired companies successfully, or if acquisitions do not perform to our expectations, our overall profitability, our culture and growth plans could be materially adversely affected.

As part of our growth strategy, we expect to acquire businesses that we believe are a strategic fit with ours, both culturally and operationally, to augment our organic growth or to keep us at the forefront of emerging technologies. However, we may not be able to find acquisition targets that meet our criteria, and there may be intense competition for acquisition targets that are attractive to us. In addition, we do not have extensive experience integrating and managing acquired businesses or assets. Such acquired businesses or assets may not advance our business strategy or achieve a satisfactory return on our investment; we may not be able to successfully integrate acquired employees into our culture, client relationships or operations; and acquisitions divert significant management attention and financial resources from our ongoing business. Historical practices, policies and controls of acquired companies may present reputation and business risks to us. Furthermore, contracts between our acquisition targets and their clients may lack terms and conditions that adequately protect us against the risks associated with the services we provide, which may increase our potential exposure to damages. If not effectively managed, the disruption of our ongoing business, increases in our expenses (including significant one-time expenses and write-offs) and the difficulty and complexity of effectively integrating acquired operations may adversely affect our overall growth and profitability.

Risks Related to Our Global Operations

Our global business exposes us to operational, geopolitical and economic risks.

Our operations and our clients are located throughout the world, and a significant part of our revenues comes from international sales. The global nature of our business creates operational and economic risks. Our results of operations may be affected by global, regional, and local economic developments, monetary policy, inflation, and recession, as well as political, trade and military disputes. In addition, our growth strategy includes certain markets, the developing nature of which presents several risks, including deterioration of social, political, labor, or economic conditions in a country or region, and difficulties in staffing and managing foreign operations. Emerging nationalist trends in specific countries may significantly alter the trade environment. Changes to trade policy or agreements as a result of populism, protectionism, or economic nationalism may result in higher tariffs, local sourcing initiatives, or other developments that make it more difficult to sell our services and solutions internationally. For example, the use or availability of certain work visas could limit our global delivery model.

 

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Certain legal systems or policy decisions may make it more difficult to obtain, maintain, protect and enforce intellectual property, contractual or corporate rights. Disruptions of these kinds in developed or emerging markets could negatively impact demand for our services and solutions or increase our operating costs.

Our business, financial condition and results of operations may be adversely affected by fluctuations in foreign currency exchange rates.

Our functional currency is the U.S. dollar. However, we are exposed to foreign currency exchange transaction related to our non-U.S. operations. Our profit margins are subject to volatility as a result of changes in foreign exchange rates. In the six months ended June 30, 2021, approximately 65% of our $498.1 million of operating revenues were denominated in currencies other than the U.S. dollar. Any significant fluctuations in currency exchange rates may have a material impact on our business and results of operations. In some countries, we may be subject to regulatory or practical restrictions on the movement of cash and the exchange of foreign currencies, which would limit our ability to use cash across our global operations and increase our exposure to currency fluctuations. This risk could increase as we continue expanding our global operations, which may include entering emerging markets that may be more likely to impose these types of restrictions. Currency exchange volatility caused by political or economic instability or other factors could also materially impact our results. See the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Foreign Currency Risk.”

War, terrorism, other acts of violence or natural or manmade disasters may affect the markets in which we operate, our clients and our service delivery.

Our business may be negatively affected by instability, disruption or destruction in the many geographic regions where we operate. War, terrorism, riot, civil insurrection or social unrest; and natural or manmade disasters, including famine, flood, fire, earthquake, pandemics and other regional or global health crises, storm or disease may cause clients to delay their decisions on spending for the services we provide and give rise to sudden significant changes in regional and global economic conditions and cycles. Our crisis management procedures, business continuity plans and disaster recovery capabilities may not be effective at preventing or mitigating the effects of such disasters, particularly in the case of a catastrophic event. These events may pose significant security risks to our employees, the facilities where they work, our operations, electricity and other utilities, communications, travel and network services, and the disruption of any or all of them could materially adversely affect our financial results. Travel restrictions resulting from natural or manmade disruptions and political or social conflict increase the difficulty of obtaining and retaining highly-skilled and qualified professionals and could unexpectedly increase our labor costs and expenses, both of which could also adversely affect our ability to serve our clients.

Our effective tax rate could be materially adversely affected by several factors.

We conduct business globally and file income tax returns in multiple jurisdictions. Our effective tax rate could be materially adversely affected by several factors, including changes in the amount of income taxed by or allocated to the various jurisdictions in which we operate that have differing statutory tax rates; changing tax laws, regulations and interpretations of such tax laws in one or more jurisdictions; and the resolution of issues arising from tax audits or examinations and any related interest or penalties. The determination of our income tax expense and other tax liabilities requires estimation, judgment and calculations where the ultimate tax determination may not be certain. Our determination of tax liability is always subject to review or examination by authorities in various jurisdictions. If a tax authority in any jurisdiction reviews any of our tax returns and proposes an adjustment, including, but not limited to, a determination that the transfer prices and terms we have applied are not appropriate, such an adjustment could have a negative impact on our results of operations, business and profitability. In addition, any significant changes enacted by the new U.S. presidential administration to the Tax Cuts and Jobs Act (“U.S. Tax Act”) enacted in 2017, or to regulatory guidance associated with the U.S. Tax Act, could materially adversely affect our effective tax rate.

 

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Risks Related to Our Industry

If we are unable to adapt to rapidly changing technologies, methodologies and evolving industry standards, we may lose clients and our business could be materially adversely affected.

Rapidly changing technologies, methodologies and evolving industry standards are inherent in the market for our services and solutions. Our ability to anticipate developments in our industry, enhance our existing services, develop and introduce new services or tools, provide enhancements and new features for our solutions and tools, and keep pace with changes and developments are critical to meeting changing client needs. Developing solutions for our clients is extremely complex and could become increasingly complex and expensive in the future due to the introduction of new platforms, operating systems, technologies and methodologies. Our ability to keep pace with, anticipate or respond to changes and developments is subject to a number of risks, including that:

 

   

we may not be able to develop new, or update existing, services, applications, tools and software quickly or inexpensively enough to meet our clients’ needs;

 

   

we may find it difficult or costly to make existing software and tools work effectively and securely over the internet or with new or changed operating systems;

 

   

we may find it challenging to develop new, or update existing, software, services and tools to keep pace with evolving industry standards, methodologies and regulatory developments in the industries where our clients operate at a pace and cost that is acceptable to our clients; and

 

   

we may find it difficult to maintain high quality levels of performance with new technologies and methodologies.

We may not be successful in anticipating or responding to these developments in a timely manner, or if we do respond, the services, tools, technologies or methodologies we develop or implement may not be successful in the marketplace. Further, services, tools, technologies or methodologies that our competitors develop may render our services or tools non-competitive or obsolete. Our failure to enhance our existing services and tools and to develop and introduce new services and tools to promptly address the needs of our clients could have a material adverse effect on our business.

We face intense competition from a range of technology and software services providers, and an increase in competition or our inability to compete successfully could materially adversely affect our business.

The market for technology services and solutions is intensely competitive, highly fragmented and subject to rapid change and evolving industry standards and we expect competition to intensify. Our success depends on creating software services and solutions that deeply connect our clients with consumers and employees. For example, if we are unable to anticipate technology developments, enhance our existing services or develop and introduce new services to keep pace with such changes and meet changing client needs, we may lose clients and our revenues and results of operations could suffer. Our results of operations would also suffer if our innovations are not responsive to the needs of our clients, are not appropriately timed with market opportunities, are not effectively brought to market or are commoditized. Our competitors may be able to offer engineering, design and innovation services that are, or that are perceived to be, substantially similar or better than those we offer, or they may offer such services at a discounted rate. In addition, our competitors may have greater financial, technical and other resources and greater name recognition than we do. Certain competitors may also have, or over time have, a stronger presence in certain geographic markets. We may also face competition from in-house development by our clients, academic and government institutions, and the open-source community who may offer similar solutions or an adequate substitute for our services and solutions. These factors may force us to compete on other fronts in addition to the quality of our services and to expend significant resources in order to remain competitive, which we may be unable to do.

 

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Operating in a rapidly evolving industry, it is difficult to evaluate our future prospects, which may increase the risk that we will not continue to be successful and, accordingly, increases the risk of your investment.

Given that we operate in the technology services industry, which is competitive and continuously evolving, we are subject to rapidly changing demands and constant technological developments. As a result, success and performance metrics are difficult to predict and measure. Since services and technologies are rapidly evolving and each company within the industry can vary greatly in terms of the services it provides, its business model and its results of operations, it can be difficult to predict how any company’s services, including ours, will be received in the market. While enterprises have been willing to devote significant resources to incorporate emerging technologies and related market trends into their business models, enterprises may not continue to spend any significant portion of their budgets on our services in the future. Neither our past financial performance nor the past financial performance of any other company in the technology services industry is indicative of how our company will fare financially in the future. Our future profits may vary substantially from those of other companies, and those we have achieved in the past, making investment in our company risky and speculative. If our clients’ demand for our services declines, as a result of economic conditions, market factors or shifts in the technology industry, our business would suffer and our results of operations and financial condition would be adversely affected.

Risks Related to Our Client Relationships

We are dependent on our existing client base and our ability to retain and expand our relationships with such clients.

Historically, a significant percentage of our revenues has come from our existing client base. For example, during the fiscal year ended December 31, 2020, 92% of our revenues came from recurring clients (as defined elsewhere in this prospectus). However, the volume of work performed for a specific client is likely to vary from year to year, especially since we generally do not have long-term commitments from our clients and are often not our clients’ exclusive technology services provider. A client in one year may not provide the same level of revenue for us in any subsequent year. Further, one or more of our significant clients could be acquired, and there can be no assurance that the acquirer would choose to use our services in respect of such client to the same degree as previously, if at all. In particular, some of our clients are owned by private equity firms and are therefore inherently more likely to be sold at some point in the future.

In addition, the services we provide to our clients, and the revenues and income from those services, may decline or vary as the type and quantity of services we provide changes over time. In addition, our reliance on any individual client for a significant portion of our revenues may give that client a certain degree of pricing leverage against us when negotiating contracts and terms of service.

Our business model also depends on relationships our teams develop with our clients so that we can understand our clients’ needs and deliver solutions and services that are tailored to those needs. If a client is not satisfied with the quality of work performed by us, or with the type of services or solutions delivered, we could incur additional costs to address the situation, the profitability of that work might be impaired, and the client’s dissatisfaction with our services could damage our ability to obtain additional work from that client. In particular, clients that are not satisfied might seek to terminate existing contracts, which could mean that we could incur costs for the services performed with no associated revenue. This could also direct future business to our competitors.

Additionally, if our client base is adversely impacted by the ongoing COVID-19 pandemic, then we may experience a decrease in demand, delays in payment or postponement of projects, which could have a material adverse effect on our business, results of operations and financial condition.

 

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We generally do not have long-term commitments from our clients, our clients may terminate contracts before completion or choose not to renew contracts, and we are not guaranteed payment for services performed under contract. A loss of business, non-payment or a decrease in the scope of business from significant clients could materially affect our results of operations.

We are generally not our clients’ exclusive IT services provider and we generally do not have long-term commitments from clients to purchase our services. Our clients’ ability to terminate engagements with or without cause and our clients’ inability or unwillingness to pay for services we performed makes our future revenues and profitability uncertain. Although a substantial majority of our revenues are typically generated from clients who also contributed to our revenues during the prior year, our engagements with our clients are typically for projects that are singular in nature. Therefore, we must seek to obtain new engagements when our current engagements end.

There are a number of factors relating to our clients that are outside of our control, which might lead them to terminate or decline to renew a contract or project with us, or be unable to pay us, including:

 

   

financial difficulties;

 

   

corporate restructuring, or mergers and acquisitions activity;

 

   

our inability to complete our contractual commitments and bill and collect our contracted revenues;

 

   

change in strategic or operational priorities or economic conditions, resulting in elimination of the project or a reduced level of technology-related spending;

 

   

change in outsourcing strategy resulting in moving more work to the client’s in-house technology departments or to our competitors;

 

   

replacement of existing software with packaged software supported by licensors; and

 

   

uncertainty and disruption to the global markets including due to public health pandemics, such as the ongoing COVID-19 pandemic.

Termination or non-renewal of a client contract could cause us to experience a higher-than-expected number of unassigned employees and thus compress our margins until we are able to reallocate our headcount. Clients that delay payment, request modifications to their payment arrangements, or fail to meet their payment obligations to us could increase our cash collection time, cause us to incur bad debt expense, or cause us to incur expenses in collections actions. The loss of clients, a significant decrease in the volume of work our clients outsource to us or the price they are willing or able to pay us, if not replaced by new service engagements and revenue, could materially adversely affect our revenues and results of operations.

Our cash flows and results of operations may be adversely affected if we are unable to collect on billed and unbilled receivables from clients.

Our business depends on our ability to successfully obtain payment from our clients of the amounts they owe us for work performed. We maintain provisions against receivables. Actual losses on client balances could differ from those that we currently anticipate and, as a result, we may need to adjust our provisions. We may not accurately assess the creditworthiness of our clients. Macroeconomic conditions, such as a potential credit crisis in the global financial system, including as a result of the COVID-19 pandemic, could also result in financial difficulties for our clients, including limited access to the credit markets, insolvency or bankruptcy. Such conditions could cause clients to delay payment, request modifications of their payment terms, or default on their payment obligations to us, all of which could increase our receivables balance. Timely collection of fees for client services also depends on our ability to complete our contractual commitments and subsequently bill for and collect our contractual service fees. If we are unable to meet our contractual obligations, we might experience delays in the collection of or be unable to collect our client balances, which would adversely affect our results of operations and could adversely affect our cash flows. In addition, if we experience an increase in the time

 

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required to bill and collect for our services, our cash flows could be adversely affected, which in turn could adversely affect our ability to make necessary investments and, therefore, our results of operations.

If our pricing structures are based on inaccurate expectations and assumptions regarding the cost of performing our work, or if we are not able to maintain favorable pricing for our services, then our contracts could be unprofitable.

We face a number of risks when pricing our contracts and setting terms with our clients. Our pricing is highly dependent on our internal forecasts, assumptions and predictions about our projects, the marketplace, global economic conditions (including foreign exchange volatility) and the coordination of operations and our people in multiple locations with different skill sets and competencies. If our pricing for a project includes dedicated professionals or facilities and the client were to slow or stop that project, we may not be able to reallocate resources to other clients. Our pricing and cost estimates for the work that we perform may include anticipated long-term cost savings that we expect to achieve and sustain over the life of the contract. Because of such inherent uncertainties, we may underprice our services, fail to accurately estimate the costs of performing the work, or fail to accurately assess the risks associated with potential contracts, such as defined performance goals, service levels and completion schedules. The risk of underpricing our services or underestimating the costs of performing the work is heightened in fixed-price contracts and other similar commercial contracting arrangements, which may become a larger portion of our revenues if our pricing structures change. If we fail to accurately estimate the resources, time or quality levels required to complete such engagements, or if the cost to us of employees, facilities, or technology unexpectedly increases, we could be exposed to cost overruns. Any increased or unexpected costs, delays or failures to achieve anticipated cost savings, or unexpected risks we encounter in connection with the performance of the services, including those caused by factors outside our control, could make these contracts less profitable or unprofitable.

Our industry is sensitive to the economic environment and the industry tends to decline during general economic downturns. For example, if the economies in North America, Europe or Asia are slow to recover from their current condition due to the COVID-19 pandemic, pricing for our services may be depressed and our clients may reduce or postpone their technology related spending significantly, which may in turn lower the demand for our services and negatively affect our revenues and profitability.

We face risks associated with having a long selling and implementation cycle for our services that require us to make significant resource commitments prior to realizing revenues for those services.

We have experienced, and may in the future experience, a long selling cycle for our services. Our sales cycle is defined as the elapsed time between the date of opening a qualified client opportunity and to the date the opportunity is closed with an agreement to provide services to the client, and is on average 71 days. Before potential clients commit to use our services, they require us to expend substantial time and resources educating them on the value of our services and our ability to meet their requirements. Therefore, our selling cycle is subject to many risks and delays over which we have little or no control, including our clients’ decision to select another service provider or in-house resources to perform the services, the timing of our clients’ budget cycles, and client procurement and approval processes. If our sales cycle unexpectedly lengthens for one or more large projects, it could negatively affect the timing of our revenues and our revenue growth. In certain cases, we may begin work and incur costs prior to executing a contract, which may cause fluctuations in recognizing revenues between periods or jeopardize our ability to collect payment from clients.

Implementing our services also involves a significant commitment of resources over an extended period of time from both our clients and us. Our current and future clients may not be willing or able to invest the time and resources necessary to implement our services, and we may fail to close sales with potential clients despite devoting significant time and resources to them. Any significant failure to generate revenues or delays in recognizing revenues after incurring costs related to our sales or services processes could have a material adverse effect on our business.

 

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Additionally, we have experienced and may continue to experience longer sales and implementation cycles for current and future clients due to the worldwide economic impact of the COVID-19 pandemic and the restrictions and precautions that have been implemented by governments and companies, including ours, around the world. Notably, restrictions on face-to-face meetings with clients and our ability to work from client facilities could lengthen our selling and implementation cycles.

Risks Related to Our Services and Solutions

If we cause disruptions to our clients’ businesses, provide inadequate service, or breach contractual obligations, our clients may have claims for substantial damages against us and our reputation may be damaged. Our insurance coverage may be inadequate to protect us against such claims.

If our professionals make errors in the course of delivering services or we fail to meet contractual obligations to a client, these errors or failures could disrupt the client’s business or expose confidential or personally identifiable information. Any of these events could result in a reduction in our revenues, damage to our reputation, and could also result in a client terminating our engagement and making claims for substantial damages against us. Some of our client agreements do not limit our potential liability for occurrences such as breaches of confidentiality and indemnification relating to intellectual property infringement, misappropriation or other violations, and we cannot generally limit liability to third parties with which we do not have a contractual relationship. In some cases, breaches of confidentiality obligations, including obligations to protect personally identifiable information, may entitle the aggrieved party to equitable remedies, including injunctive relief.

Although we maintain professional liability insurance, product liability insurance, commercial general and property insurance, business interruption insurance, workers’ compensation coverage, cyber insurance and umbrella insurance for certain of our operations, our insurance coverage does not insure against all risks in our operations or all claims we may receive. Damage claims from clients or third parties brought against us or claims that we initiate due to the disruption of our business, litigation or natural disasters, may not be covered by our insurance, may exceed the limits of our insurance coverage, and may result in substantial costs and diversion of resources even if insured. Some types of insurance are not available on reasonable terms or at all in some countries in which we operate, and we cannot insure against damage to our reputation. The assertion of one or more large claims against us, whether or not successful and whether or not insured, could materially adversely affect our reputation, business, financial condition and results of operations.

Security breaches, cyber-attacks, employee and other internal misconduct, computer viruses, the mishandling of personal data and other disruptions to network security could compromise our information and expose us to liability, which would cause our business and reputation to suffer.

In the ordinary course of business, we collect, use, store, process, transmit and view sensitive or confidential data, including intellectual property, proprietary business information or personally identifiable information belonging to us, our clients, respective employees and other end users. This information is stored on our networks or in the data centers and networks of third-party providers. Physical security and the secure processing, maintenance and transmission of this information is critical to our operations and business strategy. Some of our clients have sought, and may continue to seek, additional assurances for the protection of their sensitive information, including personally identifiable information, and attach greater liability in the event that their sensitive information is disclosed.

Despite security measures, information technology and infrastructure may be vulnerable to attacks by hackers, computer malware, viruses, social engineering (including phishing and ransomware attacks), or breached due to software bugs, human error, employee theft, misuse, misconduct or malfeasance, system failure or other disruptions. Any such breach could compromise our networks, or the networks of our third-party providers, and the information stored there could be accessed, held for ransom, publicly disclosed, misappropriated, lost or stolen. Some of our systems will not be fully redundant and any problems at our

 

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third-party providers’ data centers could result in lengthy interruptions in service. Such a breach, misappropriation or disruption could also disrupt our operations and the services we provide to clients, damage our reputation, and cause a loss of confidence in our tools and services, as well as require us to expend significant resources to protect against further breaches and to rectify problems caused by these events. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under applicable laws, and regulatory penalties and could adversely affect our business, revenues and competitive position.

The techniques utilized and planned by hackers, bad actors, and other unauthorized entrants are varied and constantly evolving and may not be detected until a breach has occurred. As a result, despite our efforts, it may be difficult or impossible for us to implement measures that fully prevent such attacks or react in a timely manner. Unauthorized parties may in the future attempt to gain access to our systems or facilities through various means, including, among others, hacking into our or our clients’ systems or facilities, or attempting to fraudulently induce our employees, clients or others into disclosing usernames, passwords, or other sensitive information, which may, in turn, be used to access our information technology systems and gain access to our data or other confidential, proprietary, or sensitive information. Such efforts may be state-sponsored and supported by significant financial and technological resources, making them even more difficult to detect and prevent. There can be no assurance that any security or other operational measures that we or our third-party providers have implemented will be effective against any of the foregoing threats or issues.

In addition, certain of our third-party providers may also be subject to such attempts, which then can be used to attempt to infiltrate our systems or to access our data or other confidential, proprietary, or sensitive information. Because we do not control our third-party service providers or the processing of data by such providers, other than through our contractual relationships, our ability to monitor our third-party providers’ data security may be very limited such that we cannot ensure the integrity or security of measures they take to protect and prevent the loss of our or our clients’ data. As a result, we are subject to the risk that cyber-attacks on, or other security incidents affecting, our third-party providers may adversely affect our business even if an attack or breach does not directly impact our systems. It is also possible that security breaches sustained by, or other security incidents affecting, our competitors could result in negative publicity for our entire industry that indirectly harms our reputation and diminishes demand for our services and solutions.

Furthermore, federal and state regulators and many federal and state laws and regulations require notice of certain data security breaches that involve personal information, which, if applicable, could lead to widespread negative publicity, which may cause our clients to lose confidence in the effectiveness of our data security measures. In addition, we may incur significant costs and operational consequences in connection with investigating, mitigating, remediating, eliminating, and putting in place additional measures designed to prevent future actual or perceived security incidents, as well as in connection with complying with any notification or other obligations resulting from any security incidents.

Our insurance policies may not be adequate to reimburse us for losses caused by security breaches, and we may not be able to collect fully, if at all, under these insurance policies. The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could adversely affect our business. Furthermore, we cannot be certain that insurance coverage will continue to be available on acceptable terms or at all, or that the insurer will not deny coverage as to any future claim.

If we are unable to fully protect the security and privacy of our data, or if we or our third-party service providers are unable to prevent any data security breach, incident, unauthorized access, and/or misuse of our information by our clients, employees, service providers, or hackers, it could result in significant liability (including litigation and regulatory actions and fines), cause lasting harm to our brand and reputation and cause us to lose existing clients and fail to win new clients.

 

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A significant failure in our systems, telecommunications or IT infrastructure could harm our service model, which could result in a reduction of our revenues and otherwise disrupt our business.

Our service model relies on maintaining well-functioning voice and data communications, online resource management, financial and operational record management, client service and data processing systems between our client sites and our client management locations. Our business activities may be materially disrupted in the event of a partial or complete failure of any of these technologies, which could be due to software malfunction, computer virus attacks, conversion errors due to system upgrades, damage from fire, earthquake, power loss, telecommunications failure, unauthorized entry, demands placed on internet infrastructure by growing numbers of users and time spent online, increased bandwidth requirements or other events beyond our control. Such events could result in interruptions in service to our clients, damage to our reputation, harm to our client relationships, and reduced revenues and profitability. Further, because we rely on third-party service providers, we may be affected by security incidents that we can neither control nor mitigate, including their vulnerability to damage or interruption from physical theft, fire, natural disasters, acts of terrorism, power loss, war, telecommunications and other service failures, computer viruses, degradation of service attacks, ransomware, insider theft or misuse, break-ins, software bugs, human error, technical malfunctions and similar events.

Our crisis management procedures, business continuity plans and disaster recovery capabilities may not be effective at preventing or mitigating the effects of such disruptions, particularly in the case of a catastrophic event. Loss of all or part of the infrastructure or systems for a period of time could hinder our performance or our ability to complete client projects on time which, in turn, could lead to a reduction of our revenues or otherwise materially adversely affect our business and business reputation.

Risks Related to Regulation, Legislation and Legal Proceedings

Changes in privacy and data protection regulations could expose us to risks of noncompliance and costs associated with compliance.

We are subject to federal, state and international data privacy and data security regimes due to our global business. For example, among others, we are subject to the European Union’s General Data Protection Regulation (the “GDPR”), California’s Consumer Privacy Act (the “CCPA”), China’s PRC Cybersecurity Law and Brazil’s General Protection Data Law. Each regulatory regime imposes significant restrictions and requirements relating to the processing of personal data. These and other national and international data protection laws are more burdensome than historical privacy standards. Each regime has established complex legal obligations that organizations must follow with respect to the processing of personal data, including a limitation on the transfer of personal information to third parties or to other countries, and the imposition of additional notification, security and other control measures. Compliance with such regimes, including U.S. and foreign data protection laws and regulations, could require us to take on more onerous obligations in our contracts, restrict our ability to collect, use and disclose data, or in some cases, impact our ability to operate.

In the United States, numerous federal and state laws and regulations, including state data breach notification laws and state consumer protection laws, which govern the collection, use, disclosure and protection of personal information could apply to our operations. Many state legislatures have adopted legislation that regulates how businesses operate online, including measures relating to privacy, data security and data breaches. Laws in all 50 states require businesses to provide notice to clients whose personally identifiable information has been disclosed as a result of a data breach. The laws are not consistent, and compliance in the event of a widespread data breach is costly. Furthermore, California recently enacted the CCPA, which became effective in January 2020. The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches. Additionally, a new privacy law, the California Privacy Rights Act (the “CPRA”), was approved by California voters in the November 2020 election. The CPRA, which will take effect in most material respects in January 2023, modifies the CCPA significantly, potentially resulting in further uncertainty and requiring us to incur additional costs and expenses in an effort to comply.

 

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Foreign data protection laws, including the GDPR, may also apply to other personal information obtained outside of the United States. The GDPR introduced new data protection requirements in the European Union (the “EU”), as well as potential fines for noncompliant companies of up to the greater of €20 million or 4% of annual global revenue. Among other requirements, the GDPR regulates transfers of personal data subject to the GDPR to third countries that have not been found to provide adequate protection to such personal data, including the United States, and the efficacy and longevity of current transfer mechanisms between the EU and the United States remains uncertain. For example, in 2016, the EU and United States agreed to a transfer framework for data transferred from the EU to the United States, called the Privacy Shield, but the Privacy Shield was invalidated in July 2020 by the Court of Justice of the European Union.

Enforcement actions and decision notices taken by the European Union data protection authorities, in the case of GDPR, by individuals or the California regulatory authorities, in the case of the CCPA, or by other relevant supervisory bodies as well as audits or investigations by one or more individuals, organizations, or foreign government agencies could result in civil or criminal penalties and fines for non-compliance or direct claims against us in the event of any loss or damage as a result of a breach of these regulations. The burden of compliance with additional data protection requirements may result in significant additional costs, complexity and risk in our services. Clients may seek to shift the potential risks resulting from the implementation of data privacy legislation to us. We are required to establish processes and change certain operations in relation to the processing of personal data as a result of these many regulatory regimes, which may involve substantial expense and distraction from other aspects of our business. The rate of change in the privacy and data protection landscape compounds these risks. Claims that we have violated individuals’ privacy rights, failed to comply with data protection laws or breached our contractual obligations, even if we are not found liable, could be expensive and time consuming to defend, could result in adverse publicity and could have a material adverse effect on our business, financial condition, results of operations and prospects.

We are subject to laws and regulations in the U.S. and other countries in which we operate, including export restrictions, economic sanctions, the Foreign Corrupt Practices Act (the “FCPA”) and similar anti-corruption laws. Compliance with these laws requires significant resources and non-compliance may result in civil or criminal penalties and other remedial measures.

We are subject to many laws and regulations that restrict our international operations, including laws that prohibit activities involving restricted countries, organizations, entities and persons that have been identified as unlawful actors or that are subject to U.S. sanctions. The U.S. Office of Foreign Assets Control, or OFAC, and other international bodies have imposed sanctions that prohibit us from engaging in trade or financial transactions with certain countries, businesses, organizations and individuals. We are also subject to the FCPA and anti-bribery and anti-corruption laws in other countries, all of which prohibit companies and their intermediaries from bribing government officials for the purpose of obtaining or keeping business or otherwise obtaining favorable treatment. We operate in many parts of the world that have experienced government corruption to some degree, and, in certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices, although adherence to local customs and practices is generally not a defense under U.S. and other anti-bribery laws.

Our compliance program contains controls and procedures designed to ensure our compliance with the FCPA, OFAC and other sanctions, and laws and regulations. The continuing implementation and ongoing development and monitoring of our compliance program may be time consuming, expensive, and could result in the discovery of compliance issues or violations by us or our employees, independent contractors, subcontractors or agents of which we were previously unaware.

Any violations of these or other laws, regulations and procedures by our employees or agents, including third parties with whom we associate or companies we acquire, could expose us to administrative, civil or criminal penalties, fines or business restrictions, which could have a material adverse effect on our results of operations and financial condition and would adversely affect our reputation and the market for shares of our common stock and may require certain of our investors to disclose their investment in us under certain state laws.

 

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We may become subject to disputes or legal or other proceedings that could involve significant expenditures by us, which could have a material adverse effect on us, including our financial results.

The nature of our business exposes us to the potential for disputes or legal or other proceedings from time to time relating to product liability, tax matters, personal injury, labor and employment matters, contract disputes, intellectual property, data privacy and data security, and other issues. These disputes, individually or collectively, could affect our business by distracting our management from the operation of our business or impacting our market reputation with our clients. If these disputes develop into proceedings or judgments, these proceedings or judgments, individually or collectively, could involve significant expenditures and any reserves relating thereto may ultimately prove to be inadequate.

Risks Related to Our Indebtedness

Our existing indebtedness could adversely affect our business and growth prospects.

As of June 30, 2021, we had $713.2 million outstanding under our Term Loan (as defined below) and $165.0 million of availability under our Revolver (as defined below). We expect our total debt service obligation for 2021 to be approximately $30.9 million (inclusive of interest). See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Our Credit Facilities.” Our indebtedness, and any future indebtedness we may incur, could require us to divert funds identified for other purposes for debt service, which could adversely affect our business and growth prospects.

Our level of indebtedness may place us at a competitive disadvantage to our competitors that are not as highly leveraged. Fluctuations in interest rates can increase borrowing costs. Increases in interest rates may directly impact the amount of interest we are required to pay and reduce earnings accordingly. In addition, developments in tax policy, such as the disallowance of tax deductions for interest paid on outstanding indebtedness, could have an adverse effect on our liquidity and our business, financial conditions and results of operations.

The Credit Agreement governing our Term Loan and Revolver contains a number of restrictive covenants that impose significant operating and financial restrictions on us and may limit our ability to engage in acts that may be in our long-term best interests, including our ability to incur additional debt, create or incur liens, engage in mergers or consolidations, sell, transfer or otherwise dispose of assets, make voluntary prepayments to subordinated debt, pay dividends or distributions, make investments, and enter into certain transactions with affiliates. In addition, the restrictive covenants in the Credit Agreement require us to satisfy a financial condition test for the benefit of our Revolver in the event our Revolver usage exceeds 35% of our available Revolver (subject to certain exclusions for letters of credit). Our ability to satisfy those tests can be affected by events beyond our control.

A breach of the covenants or restrictions under the Credit Agreement could result in an event of default, which could permit our creditors to accelerate our debt and terminate commitments to extend credit to us. In addition, if we cannot generate sufficient cash flow from operations to service our debt, we may need to refinance our debt, dispose of assets or issue equity to obtain necessary funds, which we may not be able to do on favorable terms, or at all.

In addition, we typically use LIBOR, which is expected to be phased out at the end of 2021, as a reference rate for the Term Loan and Revolver. While our Credit Agreement includes LIBOR replacement provisions, it is impossible to predict the effect of LIBOR being phased out on our interest expense.

Risks Related to Our Intellectual Property

If we cannot protect our brand through our intellectual property rights, our business may be harmed.

We believe that developing and maintaining our brand is critical to achieving widespread acceptance of our services and solutions and is an important element in attracting new clients and retaining existing clients. We rely

 

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on our brand names, trademarks, trade names and service marks to distinguish our services and solutions from the services of our competitors. If we are unable to adequately protect our brand, trademarks and other intellectual property rights, third parties may use brand names or trademarks similar to ours in a manner that may cause confusion or dilute our brand or trademarks, which could decrease the value of our brand. From time to time, third parties may challenge our use of our trademarks. If we do enforce our trademarks and our other intellectual property rights through litigation, we may not be successful and the litigation may result in substantial costs and diversion of resources and management attention. In the event that our trademarks are successfully challenged, we could be forced to rebrand the affected services and solutions, which could result in loss of brand recognition and could have a material adverse impact on our business.

We may not be able to prevent unauthorized use of our or our clients’ intellectual property, and our business and competitive position may be damaged as a result.

We rely on a combination of copyright, trademark, patent and unfair competition laws, as well as intellectual property assignment and confidentiality agreements and other methods to protect our intellectual property rights. Protection of intellectual property rights and confidentiality in some countries, including China, India and Brazil, in which we operate may not be as effective as in other countries with more developed intellectual property protections.

We require our employees and independent contractors to assign to us all intellectual property and work product they create in connection with their employment or engagement. These assignment agreements also obligate our people to keep proprietary information confidential. While it is our policy to require our employees and independent contractors who may be involved in the conception or development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who, in fact, conceives or develops intellectual property that we regard as our own. The assignment of intellectual property rights may not be self-executing, or the assignment agreements may be breached, and we may be forced to bring claims against third parties, or defend claims that they may bring against us, to determine the ownership of what we regard as our intellectual property. If these agreements are not enforceable in any of the jurisdictions in which we operate, we cannot ensure that we will own the intellectual property they create or that our clients’ proprietary information will not be disclosed. Reverse engineering, unauthorized copying or other misappropriation of our clients’ proprietary technologies, tools and applications could enable unauthorized parties to benefit from our clients’ technologies, tools and applications without payment and may make us liable to our clients for damages and compensation, which could harm our business and competitive position.

We may face intellectual property infringement, misappropriations or other violation claims that could be time-consuming and costly to defend. If we fail to defend ourselves against such claims, we may lose significant intellectual property rights, our reputation may be damaged, we may lose clients and our business could be materially adversely affected.

Our success largely depends on our ability to use and develop our technology, tools, code, methodologies, solutions and services for our clients without infringing, misappropriating or otherwise violating third parties’ intellectual property rights, including patents, copyrights, trade secrets and trademarks. We may be unaware of intellectual property rights relating to our solutions or services that could give rise to potential infringement, misappropriation or violation claims against us or our clients. If those intellectual property rights are potentially relevant to our service offerings, we may need to license those rights in order to continue to use the applicable technology, but the holders of those intellectual property rights may be unwilling to license those rights to us on commercially acceptable terms, if at all.

We typically indemnify clients who purchase our services and solutions against potential infringement of third-party intellectual property rights, which subjects us to the risk and cost of defending the underlying infringement claims. These claims may require us to initiate or defend protracted and costly litigation on behalf

 

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of our clients, regardless of the merits of these claims, and our indemnification obligations are often not subject to liability limits or exclusion of consequential, indirect or punitive damages. Intellectual property litigation could also divert our management’s attention from our business and existing or potential clients could defer or limit their purchase or use of our software product development services or solutions until we resolve such litigation. If any of these claims succeed, we may be forced to pay damages on behalf of our clients, redesign or cease offering our allegedly infringing tools, services or solutions to that client, or obtain a license for the intellectual property that such services or solutions allegedly infringe. If we cannot obtain all necessary licenses on commercially reasonable terms, the affected client may be forced to stop using our services or solutions.

Any of these actions, regardless of the outcome of litigation or merits of the claim, could damage our reputation and materially adversely affect our business, financial condition and results of operations.

Risks Related to Our Common Stock and This Offering

The Apax Funds control us, and their interests may conflict with ours or yours in the future.

Immediately following this offering, the Apax Funds will indirectly beneficially own approximately 67% of our common stock, or 65% if the underwriters exercise in full their option to purchase additional shares in this offering. As a result, the Apax Funds will be able to control the election and removal of directors on the Board and thereby determine our corporate and management policies, including potential mergers or acquisitions, payment of dividends, asset sales, amendment of our certificate of incorporation or bylaws, and other significant corporate transactions for so long as the Apax Funds and their affiliates retain significant ownership of us. This concentration of our ownership may delay or deter possible changes in control of the Company, which may reduce the value of an investment in our common stock. Even when the Apax Funds cease to own shares of our stock representing a majority of the total voting power, for so long as the Apax Funds continue to own a significant portion of our stock, the Apax Funds will still be able to significantly influence the composition of our Board and the approval of actions requiring shareholder approval. Accordingly, for such period of time, the Apax Funds will have significant influence with respect to our management, business plans and policies, including the appointment and removal of our officers, decisions on whether to raise future capital, and amending our charter and bylaws, which govern the rights attached to our common stock. In particular, for so long as the Apax Funds continue to beneficially own a significant percentage of our stock, the Apax Funds could cause or prevent a change of control of the Company or a change in the composition of our Board and could preclude any unsolicited acquisition of us. The concentration of ownership could deprive you of an opportunity to receive a premium for your shares of common stock as part of a sale of us and ultimately might affect the market price of our common stock.

In addition, in connection with this offering, we will enter into a director nomination agreement with the Apax Funds through their control of Turing EquityCo. II L.P. that provides the Apax Funds the right, but not the obligation, to nominate a number of individuals designated for election as our directors at any meeting of our stockholders (the “Apax Directors”), such that, upon the election of each such individual, and each other individual nominated by or at the direction of our board of directors or a duly-authorized committee of the board, as a director of our company, the number of Apax Directors serving as directors of our company will be equal to: (i) if the Apax Funds and their affiliates together continue to beneficially own at least 50% of the total voting power of the outstanding shares of our common stock, the lowest whole number that is greater than 50% of the total number of directors comprising our board of directors; (ii) if the Apax Funds and their affiliates together continue to beneficially own at least 40% (but less than 50%) of the total voting power of the outstanding shares of our common stock, the lowest whole number that is at least 40% of the total number of directors comprising our board of directors; (iii) if the Apax Funds and their affiliates together continue to beneficially own at least 30% (but less than 40%) of the total voting power of the outstanding shares of our common stock, the lowest whole number that is at least 30% of the total number of directors comprising our board of directors; (iv) if the Apax Funds and their affiliates together continue to beneficially own at least 20% (but less than 30%) of the total voting power of the outstanding shares of our common stock, the lowest whole number that is at least 20% of the total number of directors comprising our board of directors; and (v) if the Apax Funds and their affiliates together

 

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continue to beneficially own at least 10% (but less than 20%) of the total voting power of the outstanding shares of our common stock, the lowest whole number that is at least 10% of the total number of directors comprising our board of directors. The Apax Funds may also assign such right to their affiliates. The Director Nomination Agreement will also provide for certain consent rights for the Apax Funds so long as they own at least 50% of the total voting power of the outstanding shares of our common stock. Additionally, the Director Nomination Agreement will also prohibit us from increasing or decreasing the size of our Board without the prior written consent of the Apax Funds for so long as the Apax Funds hold at least 40% of the total voting power of the outstanding shares of our common stock. See “Certain Relationships and Related Party Transactions—Director Nomination Agreement” for more details with respect to the Director Nomination Agreement.

Apax Partners, the Apax Funds and their affiliates engage in a broad spectrum of activities, including investments in the software industry and technology industry generally. In the ordinary course of their business activities, Apax Partners, the Apax Funds and their affiliates may engage in activities where their interests conflict with our interests or those of our other shareholders, such as investing in or advising businesses that directly or indirectly compete with certain portions of our business or are suppliers or clients of ours. Our certificate of incorporation to be effective in connection with the closing of this offering will provide that none of Apax Partners, the Apax Funds, any of their affiliates, or any director who is not employed by us (including any non-employee director who serves as one of our officers in both his or her director and officer capacities) will have any duty to refrain from engaging, directly or indirectly, in the same business activities or similar business activities or lines of business in which we operate. Apax Partners and the Apax Funds also may pursue acquisition opportunities that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us. In addition, Apax Partners and the Apax Funds may have an interest in pursuing acquisitions, divestitures and other transactions that, in their judgment, could enhance their investment, even though such transactions might involve risks to you.

Upon listing our shares on Nasdaq, we will be a “controlled company” within the meaning of Nasdaq rules and, as a result, we will qualify for, and intend to rely on, exemptions from certain corporate governance requirements. You will not have the same protections as those afforded to stockholders of companies that are subject to such governance requirements.

After completion of this offering, the Apax Funds will continue to indirectly control a majority of the voting power of our outstanding common stock. As a result, we will be a “controlled company” within the meaning of the corporate governance standards of Nasdaq. Under these rules, a company of which more than 50% of the voting power for the election of directors is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements, including:

 

   

the requirement that a majority of our Board consist of independent directors;

 

   

the requirement that we have a nominating and corporate governance committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities;

 

   

the requirement that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and

 

   

the requirement for an annual performance evaluation of the nominating and corporate governance and compensation committees.

Following this offering, we intend to utilize these exemptions. As a result, we may not have a majority of independent directors on our Board, our Compensation and Talent Committee and our Nominating & Governance Committee may not consist entirely of independent directors, and our Compensation and Nominating & Governance Committees may not be subject to annual performance evaluations. Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of other companies listed on Nasdaq.

 

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An active, liquid trading market for our common stock may not develop, which may limit your ability to sell your shares.

Prior to this offering, there has been no public market for our common stock. Although our common stock has been approved for listing on Nasdaq under the symbol “TWKS,” an active trading market for our shares may never develop or be sustained following this offering. The initial public offering price was determined by negotiations between us and the underwriters and may not be indicative of market prices of our common stock that will prevail in the open market after the offering. A public trading market having the desirable characteristics of depth, liquidity and orderliness depends upon the existence of willing buyers and sellers at any given time, such existence being dependent upon the individual decisions of buyers and sellers over which neither we nor any market maker has control. The failure of an active and liquid trading market to develop and continue would likely have a material adverse effect on the value of our common stock. The market price of our common stock may decline below the initial public offering price, and you may not be able to sell your shares of our common stock at or above the price you paid in this offering, or at all. An inactive market may also impair our ability to raise capital to continue to fund operations by issuing shares and may impair our ability to acquire other companies or technologies by using our shares as consideration.

We are an “emerging growth company” and we expect to elect to comply with reduced public company reporting requirements, which could make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act. For as long as we continue to be an emerging growth company, we are eligible for certain exemptions from various public company reporting requirements. These exemptions include, but are not limited to, (i) not being required to comply with the auditor attestation requirements of Section 404 of Sarbanes-Oxley, (ii) reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements, (iii) exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved, and (iv) not being required to provide audited financial statements for the fiscal year ended 2018 in this prospectus. We could be an emerging growth company for up to five years after the first sale of our common stock pursuant to an effective registration statement under the Securities Act of 1933, as amended (the “Securities Act”), which fifth anniversary will occur in 2026. However, if certain events occur prior to the end of such five-year period, including if we become a “large accelerated filer,” our annual gross revenues exceed $1.07 billion, or we issue more than $1.0 billion of non-convertible debt securities in any three-year period, we would cease to be an emerging growth company prior to the end of such five-year period. We have made certain elections with regard to the reduced disclosure obligations regarding executive compensation in this prospectus and may elect to take advantage of other reduced disclosure obligations in future filings. As a result, the information that we provide to holders of our common stock may be different than you might receive from other public reporting companies in which you hold equity interests. We cannot predict if investors will find our common stock less attractive as a result of our reliance on these exemptions. If some investors find our common stock less attractive as a result of any choice we make to reduce disclosure, there may be a less active trading market for our common stock and the market price for our common stock may be more volatile.

In addition, Section 107 of the JOBS Act provides that an emerging growth company can use the extended transition period provided in Section 7(a)(2)(B) of the Securities Act to delay adoption of new or revised accounting standards until such time as those standards apply to private companies. We have elected to “opt-in” to this extended transition period for complying with new or revised accounting standards and, therefore, we will not be subject to the same new or revised accounting standards as other public companies that comply with such new or revised accounting standards on a non-delayed basis. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates.

 

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We will incur increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives and corporate governance practices. We may fail to comply with the rules that apply to public companies, including Section 404 of the Sarbanes-Oxley Act, which could result in sanctions or other penalties that would harm our business.

As a public company, and particularly after we are no longer an “emerging growth company,” we will incur significant legal, accounting, and other expenses that we did not incur as a private company, including costs resulting from public company reporting obligations under the Securities Act, the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or the regulations regarding corporate governance practices. The Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the rules of the SEC, the listing requirements of Nasdaq, and other applicable securities rules and regulations impose various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. These requirements will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. We cannot predict or estimate the amount of additional costs we may incur as a result of becoming a public company or the timing of such costs.

Pursuant to Sarbanes-Oxley Act Section 404, we will be required to furnish a report by our management on our internal control over financial reporting beginning with our second filing of an Annual Report on Form 10-K with the SEC after we become a public company. However, while we remain an emerging growth company, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To achieve compliance with Sarbanes-Oxley Act Section 404 within the prescribed period, we will be engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. There is a risk that we will not be able to conclude, within the prescribed timeframe or at all, that our internal control over financial reporting is effective as required by Sarbanes-Oxley Act Section 404. If we identify one or more material weaknesses, it could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.

Provisions of our corporate governance documents could make an acquisition of us more difficult and may prevent attempts by our shareholders to replace or remove our current management, even if beneficial to our shareholders.

In addition to the Apax Funds’ beneficial ownership of 67% of our common stock after this offering (or 65%, if the underwriters exercise in full their option to purchase additional shares in this offering), our certificate of incorporation and bylaws to be effective in connection with the closing of this offering and the Delaware General Corporation Law (the “DGCL”) contain provisions that could make it more difficult for a third party to acquire us, even if doing so might be beneficial to our shareholders. Among other things:

 

   

these provisions allow us to authorize the issuance of undesignated preferred stock, the terms of which may be established and the shares of which may be issued without shareholder approval, and which may include supermajority voting, special approval, dividend or other rights or preferences superior to the rights of shareholders;

 

   

these provisions provide for a classified Board with staggered three-year terms;

 

   

these provisions provide that, at any time when the Apax Funds beneficially own, in the aggregate, less than 50% in voting power of our stock entitled to vote generally in the election of directors, directors may only be removed for cause, and only by the affirmative vote of holders of at least 6623% in voting power of all the then-outstanding shares of our stock entitled to vote thereon, voting together as a single class;

 

   

these provisions prohibit shareholder action by written consent from and after the date on which the Apax Funds beneficially own, in the aggregate, less than 50% in voting power of our stock entitled to vote generally in the election of directors;

 

   

these provisions provide that, for as long as the Apax Funds beneficially own, in the aggregate, at least 50% in voting power of our stock entitled to vote generally in the election of directors, any amendment,

 

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alteration, rescission or repeal of our bylaws by our shareholders will require the affirmative vote of a majority in voting power of the outstanding shares of our stock and at any time when the Apax Funds beneficially own, in the aggregate, less than 50% in voting power of all outstanding shares of our stock entitled to vote generally in the election of directors, any amendment, alteration, rescission or repeal of our bylaws by our shareholders will require the affirmative vote of the holders of at least 6623% in voting power of all the then-outstanding shares of our stock entitled to vote thereon, voting together as a single class; and

 

   

these provisions establish advance notice requirements for nominations for elections to our Board or for proposing matters that can be acted upon by shareholders at shareholder meetings.

Our certificate of incorporation, to be effective in connection with the closing of this offering will contain a provision that provides us with protections similar to Section 203 of the DGCL and will prevent us from engaging in a business combination with a person (excluding the Apax Funds and any of their direct or indirect transferees and any group as to which such persons are a party) who acquires at least 15% of our common stock for a period of three years from the date such person acquired such common stock, unless board or shareholder approval is obtained prior to the acquisition. See “Description of Capital Stock—Anti-Takeover Effects of Our Certificate of Incorporation and Our Bylaws.” These provisions could discourage, delay or prevent a transaction involving a change in control of us. These provisions could also discourage proxy contests and make it more difficult for you and other shareholders to elect directors of your choosing and cause us to take other corporate actions you desire, including actions that you may deem advantageous, or negatively affect the trading price of our common stock. In addition, because our Board is responsible for appointing the members of our management team, these provisions could in turn affect any attempt by our shareholders to replace current members of our management team.

These and other provisions in our certificate of incorporation, bylaws and Delaware law could make it more difficult for shareholders or potential acquirers to obtain control of our Board or initiate actions that are opposed by our then-current Board, including delay or impede a merger, tender offer or proxy contest involving our company. The existence of these provisions could negatively affect the price of our common stock and limit opportunities for you to realize value in a corporate transaction. For information regarding these and other provisions, see “Description of Capital Stock.”

Our certificate of incorporation will designate the Court of Chancery of the State of Delaware as the exclusive forum for certain litigation that may be initiated by our shareholders and the federal district courts of the United States as the exclusive forum for litigation arising under the Securities Act, which could limit our shareholders’ ability to obtain a favorable judicial forum for disputes with us.

Pursuant to our certificate of incorporation to be effective in connection with the closing of this offering, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our shareholders, (iii) any action asserting a claim against us arising pursuant to any provision of the DGCL, our certificate of incorporation or our bylaws, or (iv) any other action asserting a claim against us that is governed by the internal affairs doctrine; provided that, for the avoidance of doubt, the forum selection provision that identifies the Court of Chancery of the State of Delaware as the exclusive forum for certain litigation, including any “derivative action,” will not apply to suits to enforce a duty or liability created by the Securities Act, the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. Our certificate of incorporation will also provide that, unless we consent in writing to the selection of an alternative forum, the federal district courts of the U.S. shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. However, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce a duty or liability created by the Securities Act or the rules and regulations thereunder; accordingly, we cannot be certain that a court would enforce such a provision. Our certificate of

 

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incorporation will further provide that any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock is deemed to have notice of and consented to the provisions of our certificate of incorporation described above; however, our shareholders will not be deemed to have waived (and cannot waive) compliance with the federal securities laws and the rules and regulations thereunder. See “Description of Capital Stock—Exclusive Forum.” The forum selection clause in our certificate of incorporation may have the effect of discouraging lawsuits against us or our directors and officers and may limit our shareholders’ ability to obtain a favorable judicial forum for disputes with us. If the enforceability of our forum selection provision were to be challenged, we may incur additional costs associated with resolving such a challenge. While we currently have no basis to expect that any such challenge would be successful, if a court were to find our forum selection provision to be inapplicable or unenforceable, we may incur additional costs associated with having to litigate in other jurisdictions, which could have an adverse effect on our business, financial condition and results of operations and result in a diversion of the time and resources of our employees, management and Board.

If you purchase shares of common stock in this offering, you will suffer immediate and substantial dilution of your investment.

The initial public offering price of our common stock will be substantially higher than the pro forma net tangible book value per share of our common stock. Therefore, if you purchase shares of our common stock in this offering, you will pay a price per share that substantially exceeds our pro forma net tangible book value per share after this offering. Based on the initial public offering price of $21.00, you will experience immediate dilution of $(0.37) per share, representing the difference between our pro forma net tangible book value per share after giving effect to this offering and the initial public offering price. In addition, purchasers of common stock in this offering will have contributed 45% of the aggregate price paid by all purchasers of our common stock but will own only approximately 5% of our common stock outstanding after this offering. See “Dilution” for more detail.

Our management will have significant flexibility in using the net proceeds of this offering, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately.

We intend to use the net proceeds from this offering for general corporate purposes, which may include, among other things, capital expenditures, additions to working capital, investments in our subsidiaries, repayment of indebtedness and acquisitions. Depending on future developments and circumstances, we may use some of the proceeds for other purposes. We do not have more specific plans for the net proceeds from this offering. Therefore, our management will have significant flexibility in applying the net proceeds we receive from this offering. The net proceeds could be applied in ways that do not improve our operating results. The actual amounts and timing of these expenditures will vary significantly depending on a number of factors, including the amount of cash used in or generated by our operations.

Our operating results and stock price may be volatile, and the market price of our common stock after this offering may drop below the price you pay.

Our quarterly operating results are likely to fluctuate in the future. In addition, securities markets worldwide have experienced, and are likely to continue to experience, significant price and volume fluctuations. This market volatility, as well as general economic, market or political conditions, could subject the market price of our shares to wide price fluctuations regardless of our operating performance. Our operating results and the trading price of our shares may fluctuate in response to various factors, including:

 

   

market conditions in our industry or the broader stock market;

 

   

actual or anticipated fluctuations in our quarterly financial and operating results;

 

   

introduction of new solutions or services by us or our competitors;

 

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issuance of new or changed securities analysts’ reports or recommendations;

 

   

sales, or anticipated sales, of large blocks of our stock;

 

   

additions or departures of key personnel;

 

   

regulatory or political developments;

 

   

litigation, litigation-related indemnification and governmental investigations;

 

   

changing economic conditions, including impacts from COVID-19;

 

   

investors’ perception of us;

 

   

events beyond our control, such as weather and war; and

 

   

any default on our indebtedness.

These and other factors, many of which are beyond our control, may cause our operating results and the market price and demand for our shares to fluctuate substantially. Fluctuations in our quarterly operating results could limit or prevent investors from readily selling their shares and may otherwise negatively affect the market price and liquidity of our shares. In addition, in the past, when the market price of a stock has been volatile, holders of that stock have sometimes instituted securities class action litigation against the company that issued the stock. If any of our shareholders brought a lawsuit against us, we could incur substantial costs defending the lawsuit. Such a lawsuit could also divert the time and attention of our management away from our business, which could significantly harm our profitability and reputation.

A significant portion of our total outstanding shares are restricted from immediate resale but may be sold into the market in the near future. This could cause the market price of our common stock to drop significantly, even if our business is doing well.

Sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. After giving effect to the Offering Reorganization Transactions and the issuance and sale of shares of common stock in this offering, we will have 305,083,908 shares of common stock outstanding based on the number of shares outstanding as of June 30, 2021. This includes the shares that we are selling in this offering, which may be resold in the public market immediately. Following the consummation of this offering, approximately 87% of our outstanding shares (assuming the issuance and sale of 36,842,106 shares in this offering) will be subject to a 180-day lock-up period provided under lock-up agreements executed in connection with this offering described in “Underwriting” and restricted from immediate resale under the federal securities laws as described in “Shares Eligible for Future Sale.” In addition, we have agreed with the underwriters to (i) prohibit the transfer of all outstanding shares of common stock, options to acquire common stock and any similar securities held by our employees who are not subject to lock-up agreements, subject to certain exceptions, and (ii) not to modify or waive that restriction, in each for the same 180-day period. See “Underwriting.” All of these shares (including shares issuable upon the exercise of options) will, however, be able to be resold after the expiration of the lock-up period, as well as pursuant to customary exceptions thereto or upon the waiver of the lock-up agreement by on behalf of the underwriters, in each case, subject to the additional lock-up restrictions imposed under our 2017 Stock Option Plan, if applicable to such securities. We also intend to register shares of common stock that we may issue under our equity compensation plans. Once we register these shares, they can be freely sold in the public market upon issuance, subject to the lock-up agreements and the additional lock-up restrictions imposed under our 2017 Stock Option Plan, if applicable to such shares. As restrictions on resale end, the market price of our stock could decline if the holders of currently-restricted shares sell them or are perceived by the market as intending to sell them.

In addition, pursuant to the Registration Rights Agreement (as defined below), certain holders of shares of our common stock, including the Apax Funds, have the right, in certain circumstances, to require us to register

 

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shares of our common stock under the Securities Act for sale into the public markets. Upon the effectiveness of such a registration statement, all shares covered by the registration statement will be freely transferable. See “Certain Relationships and Related Party Transactions—Registration Rights Agreement.”

Because we have no current plans to pay regular cash dividends on our common stock following this offering, you may not receive any return on investment unless you sell your common stock for a price greater than that which you paid for it.

We do not anticipate paying any regular cash dividends on our common stock following this offering. Any decision to declare and pay dividends in the future will be made at the discretion of our Board and will depend on, among other things, our results of operations, financial condition, cash requirements, contractual restrictions and other factors that our Board may deem relevant. In addition, our ability to pay dividends is, and may be, limited by covenants of existing and any future outstanding indebtedness we or our subsidiaries incur, including under our credit agreement. Therefore, any return on investment in our common stock is solely dependent upon the appreciation of the price of our common stock on the open market, which may not occur. See “Dividend Policy” for more detail.

We may issue shares of preferred stock in the future, which could make it difficult for another company to acquire us or could otherwise adversely affect holders of our common stock, which could depress the price of our common stock.

Our certificate of incorporation will authorize us to issue one or more series of preferred stock. Our Board will have the authority to determine the preferences, limitations and relative rights of the shares of preferred stock and to fix the number of shares constituting any series and the designation of such series, without any further vote or action by our shareholders. Our preferred stock could be issued with voting, liquidation, dividend and other rights superior to the rights of our common stock. The potential issuance of preferred stock may delay or prevent a change in control of us, discouraging bids for our common stock at a premium to the market price, and materially adversely affect the market price and the voting and other rights of the holders of our common stock.

Future offerings of debt or equity securities by us may materially adversely affect the market price of our common stock.

In the future, we may attempt to obtain financing or to further increase our capital resources by issuing additional shares of our common stock or offering debt or other equity securities, including senior or subordinated notes, debt securities convertible into equity, or shares of preferred stock. In addition, we may seek to expand operations in the future to other markets which we would expect to finance through a combination of additional issuances of equity, corporate indebtedness, and/or cash from operations.

Issuing additional shares of our common stock or other equity securities or securities convertible into equity may dilute the economic and voting rights of our existing stockholders or reduce the market price of our common stock or both. Upon liquidation, holders of such debt securities and preferred shares, if issued, and lenders with respect to other borrowings would receive a distribution of our available assets prior to the holders of our common stock. Debt securities convertible into equity could be subject to adjustments in the conversion ratio pursuant to which certain events may increase the number of equity securities issuable upon conversion. Preferred shares, if issued, could have a preference with respect to liquidating distributions or a preference with respect to dividend payments that could limit our ability to pay dividends to the holders of our common stock. Our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, which may adversely affect the amount, timing or nature of our future offerings. Thus, holders of our common stock bear the risk that our future offerings may reduce the market price of our common stock and dilute their stockholdings in us. See “Description of Capital Stock.”

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that are based on our management’s beliefs and assumptions and on information currently available to our management. The forward-looking statements are contained principally in the sections captioned “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” Forward-looking statements include information concerning our possible or assumed future results of operations, business strategies, technology developments, financing and investment plans, dividend policy, competitive position, industry and regulatory environment, potential growth opportunities and the effects of competition. Forward-looking statements include statements that are not historical facts and can be identified by terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “will,” “would” or similar expressions and the negatives of those terms.

Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Given these uncertainties, you should not place undue reliance on forward-looking statements. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this prospectus. You should read this prospectus and the documents that we have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect.

Important factors that could cause actual results to differ materially from our expectations include:

 

   

the COVID-19 pandemic has impacted our business and operations, and future business and operational challenges posed by the COVID-19 pandemic could materially adversely affect us;

 

   

we may be unable to implement our growth strategy;

 

   

our ability to generate and retain business depends on our reputation in the marketplace;

 

   

we must successfully attract, hire, train and retain skilled professionals to service our clients’ projects and we must productively deploy our professionals to remain profitable;

 

   

increases in wages and other compensation expenses could prevent us from sustaining our competitive advantage and could increase our costs;

 

   

our business and operations may be harmed if we cannot positively evolve and preserve our Thoughtworks culture;

 

   

our global business exposes us to operational, geopolitical, regulatory, legal and economic risks;

 

   

our business, financial condition and results of operations may be adversely affected by fluctuations in foreign currency exchange rates or changes in our effective tax rates;

 

   

if we fail to adequately innovate, adapt and/or remain at the forefront of emerging technologies and related client demands, we could be materially adversely affected;

 

   

we may not be successful at attracting new clients or retaining and expanding our relationships with our existing clients;

 

   

we face intense competition and operate in a rapidly evolving industry, which makes it difficult to evaluate our future prospects;

 

   

we generally do not have long-term commitments or contracts with our clients;

 

   

we face risks associated with having a long selling and implementation cycle for our services that require us to make significant resource commitments prior to realizing revenues for those services;

 

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our profitability could suffer if we cannot accurately price our solutions and services, maintain favorable pricing for our solutions and services, are unable to collect on receivables from clients or fail to meet our contractual and other obligations to clients;

 

   

we face risks associated with security breaches as well as privacy and data protection regulations, and we may incur significant liabilities if we fail to manage those risks;

 

   

we may not be able to prevent unauthorized use of our intellectual property, and our intellectual property rights may not be adequate to protect our business and competitive position;

 

   

the Apax Funds control us, and such control may give rise to actual or perceived conflicts of interests; and

 

   

after the completion of this offering, our status as a “controlled company” will grant us exemptions from certain corporate governance requirements, and our status as an “emerging growth company” will allow us to comply with reduced public company reporting requirements.

Except as required by law, we assume no obligation 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.

 

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USE OF PROCEEDS

We expect to receive net proceeds from this offering of approximately $315.3 million after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The principal purposes of this offering are to increase our capitalization and financial flexibility, create a public market for our common stock and enable access to the public equity markets for us and our shareholders.

We will have broad discretion over how to use the net proceeds to us from this offering. We intend to use the net proceeds that we will receive from this offering for general corporate purposes, which may include, among other things, capital expenditures, additions to working capital, investments in our subsidiaries, repayment of indebtedness and acquisitions. We may use a portion of the net proceeds to acquire complementary businesses, products, services, or technologies. However, we do not have agreements or commitments to enter into any acquisitions or repay any indebtedness at this time. Pending use of the proceeds from this offering, we intend to invest the proceeds in a variety of capital preservation investments, including short-term, investment-grade and interest-bearing instruments.

We will not receive any proceeds from the sale of our common stock by the selling stockholders. We will, however, bear the costs associated with the sale of shares of common stock by the selling stockholders, other than underwriting discounts and commissions. For more information, see “Principal and Selling Stockholders” and “Underwriting.”

 

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DIVIDEND POLICY

We currently intend to retain all available funds and any future earnings to fund the development and growth of our business and to repay indebtedness and, therefore, we do not anticipate paying any cash dividends in the foreseeable future. Additionally, our ability to pay dividends on our common stock is limited by restrictions on the ability of our subsidiaries to pay dividends or make distributions to us, including as a result of the restrictions in our credit agreement. Any future determination to pay dividends will be at the discretion of our Board, subject to compliance with covenants in current and future agreements governing our and our subsidiaries’ indebtedness and requirements under Delaware law, and will depend on our results of operations, financial condition, capital requirements and other factors that our Board may deem relevant.

Because we are a holding company and have no direct operations, we will only be able to pay dividends from our available cash on hand and any funds we received from our subsidiaries.

Under Delaware law, dividends may be payable only out of surplus, which is calculated as our net assets less our liabilities and our capital, or, if we have no surplus, out of our net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year.

See “Risk Factors—Risks Related to Our Common Stock and This Offering—Because we have no current plans to pay regular cash dividends on our common stock following this offering, you may not receive any return on investment unless you sell your common stock for a price greater than that which you paid for it.”

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of June 30, 2021:

 

   

on an actual basis;

 

   

on an as adjusted basis to give effect to the Offering Reorganization Transactions, each of which has occurred or will occur substantially concurrently with the completion of this offering; and

 

   

on an as further adjusted basis to give effect to (i) the adjustments set forth above, (ii) the proceeds received by us from the issuance and sale by us of 16,429,964 shares of common stock in this offering after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us (a portion of which were paid prior to June 30, 2021), and (iii) receipt of cash by us in connection with the exercise of options underlying shares of common stock to be sold by certain of the selling stockholders in this offering.

You should read this table together with the sections of this prospectus captioned “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Description of Capital Stock” and our consolidated financial statements and related notes included elsewhere in this prospectus.

 

     As of June 30, 2021  
(in thousands, except per share data)    Actual      As
Adjusted
     As
Further
Adjusted
 

Cash and cash equivalents(a)

   $ 215,950      $ 215,950      $ 540,428  
  

 

 

    

 

 

    

 

 

 

Total long-term liabilities

   $ 812,618      $ 812,618      $ 812,618  

Redeemable, convertible preferred stock:

        

Series A Redeemable, Convertible Preferred Stock, $0.001 par value; 217,902,632 shares authorized and 51,258,628 issued and 51,258,628 outstanding, actual; and zero shares authorized, issued and outstanding, adjusted and as further adjusted

     703,794        —          —    

Series B Redeemable, Convertible Preferred Stock, $0.001 par value; 43,580,527 shares authorized and 8,231,330 issued and 8,231,330 outstanding, actual; and zero shares authorized, issued and outstanding, adjusted and as further adjusted

     122,228        —          —    

Stockholders’ (deficit) equity:

        

Class A common stock, $0.001 par value; 416,194,027 shares authorized, 272,054,182 shares issued and 222,436,118 shares outstanding, actual; and zero shares authorized, issued and outstanding, adjusted and as further adjusted

     6        —          —    

Class B common stock, $0.001 par value; 116,577,908 shares authorized, 5,135,801 shares issued and 4,042,205 shares outstanding, actual; zero shares authorized, issued and outstanding, adjusted and as further adjusted

     —          —          —    

Class C common stock, $0.001 par value; 55,565,172 shares authorized, 1,876,243 shares issued and 1,602,332 shares outstanding, actual; zero shares authorized, issued and outstanding, adjusted and as further adjusted

     —          —          —    

Common stock, $0.001 par value; zero shares authorized, zero shares issued and outstanding, actual; 1,000,000,000 shares authorized, 338,556,178 shares issued and 287,570,607 shares outstanding, as adjusted; 1,000,000,000 shares authorized, 356,069,479 shares issued and 305,083,908 shares outstanding, as further adjusted

     —          288        305  

 

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Treasury stock, 1,169,916 shares, actual; 50,985,571 shares as adjusted and as further adjusted

     (629,424     (629,424     (629,424

Additional paid-in capital

     104,058       929,798       1,301,629  

Accumulated other comprehensive loss

   $ (3,482     (3,482     (3,482

Retained earnings

     18,152       18,152       (23,846 )(b) 

Total stockholders’ (deficit) equity

     (510,690     315,332       645,182  
  

 

 

   

 

 

   

 

 

 

Total liabilities, redeemable, convertible preferred stock and stockholders’ (deficit) equity

   $ 1,298,766     $ 1,298,766     $ 1,616,563  
  

 

 

   

 

 

   

 

 

 

 

  (a)

In April 2021, the Company declared and paid a pro rata dividend of $325.0 million to the Company’s shareholders, including our then-principal shareholder, Turing EquityCo. L.P., an affiliate of Turing EquityCo. II L.P., the investment vehicle through which the Apax Funds now hold their investment in the Company and the principal selling shareholder in this offering. In addition, subsequent to June 30, 2021, the Company made a voluntary prepayment of $100.0 million on outstanding amounts owed on its outstanding term loan. See “—Note 14, Subsequent Events,” to our unaudited condensed consolidated financial statements included elsewhere in this prospectus.

 

  (b)

Reflects increased stock-based compensation expense as a result of acceleration of performance-based vesting options in connection with the completion of this offering.

 

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DILUTION

Investors purchasing our common stock in this offering will experience immediate and substantial dilution in the pro forma as adjusted net tangible book value of their shares of common stock. Dilution in pro forma as adjusted net tangible book value represents the difference between the initial public offering price of our common stock and the pro forma as adjusted net tangible book value per share of our common stock immediately after the offering.

Historical net tangible book value per share represents our total tangible assets (total assets excluding goodwill and other intangible assets, net) less total liabilities, divided by the number of shares of outstanding common stock. After giving effect to (i) the filing and effectiveness of our Fourth Amended and Restated Certificate of Incorporation immediately prior to the closing of this offering and (ii) the sale of shares of common stock in this offering by the Company and the selling stockholders at an initial public offering price of $21.00 per share after deducting $19.0 million in underwriting discounts and commissions and estimated offering expenses of $10.8 million, the pro forma as adjusted net tangible book value as of June 30, 2021 would have been approximately $(112.1) million, or $(0.37) per share. This represents an immediate increase in pro forma as adjusted net tangible book value of $1.57 per share to our existing stockholders and an immediate dilution of $20.63 per share to new investors purchasing common stock in this offering.

The following table illustrates this dilution on a per share basis to new investors.

 

Initial public offering price per share

     $ 21.00  

Historical net tangible book value per share as of June 30, 2021

   $ (1.94  

Increase in as adjusted net tangible book value per share attributable to the investors in this offering(1)

   $ 1.57    

Pro forma net tangible book value per share after giving effect to this offering

   $ (0.37  

Dilution per share to new investors participating in this offering

     $ 20.63  
    

 

 

 

 

(1)

Gives effect to receipt of cash by us in connection with the exercise of options underlying shares of common stock to be sold by certain of the selling stockholders in this offering.

The following table summarizes on the pro forma as adjusted basis described above, as of June 30, 2021, the difference between the number of shares of common stock purchased from us, the total consideration paid or to be paid and the average price per share paid or to be paid by our existing stockholders and new investors in this offering at an initial public offering price of $21.00 per share before deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. As the table shows, new investors purchasing common stock issued by the Company in this offering will pay an average price per share substantially higher than our existing stockholders paid.

 

     Shares Purchased      Total Consideration      Average Price
Per Share
 
     Number     Percent      Amount      Percent  

Existing stockholders.

     288,653,944 (1)      95%      $ 428,654,982        55%      $ 1.49  

New investors

     16,429,964       5%      $ 345,029,244        45%      $ 21.00  
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Total

     305,083,908       100%      $ 773,684,226        100%      $ 2.54  
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Reflects 20,412,142 shares owned by the selling stockholders that will be purchased by new investors as a result of this offering:

 

     Shares Purchased     Total Consideration     Average Price
Per Share
 
     Number      Percent
of Total
    Amount      Percent
of Total
 

Selling stockholders

     20,412,142        7   $ 30,312,305        4   $ 1.49  

 

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If the underwriters exercise their option to purchase additional shares of our common stock in full, the percentage of shares of common stock held by existing stockholders will decrease to approximately 92.9% of the total number of shares of our common stock outstanding after this offering, and the number of shares held by new investors will increase to 21,956,279, or approximately 7.1% of the total number of shares of our common stock outstanding after this offering.

To the extent that options are issued under our compensatory stock plans or we issue additional shares of common stock in the future, there will be further dilution to investors participating in this offering.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes appearing elsewhere in this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should read the sections titled “Risk Factors” and “Special Note Regarding Forward-Looking Statements” for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Our fiscal year ends on December 31, and our fiscal quarters end on March 31, June 30, September 30, and December 31. Our fiscal years ended December 31, 2018, 2019 and 2020 are referred to herein as fiscal 2018, fiscal 2019 and fiscal 2020, respectively. Quarterly results reflected herein are not necessarily indicative of our operating results for a full year or any future period.

Overview

We are a leading premium global technology consultancy that integrates strategy, design and software engineering to enable enterprises and technology disruptors across the globe to thrive as modern digital businesses. This is reflected in our average annual revenue per employee of over $100,000 in each of 2019 and 2020, which is higher than our public pure-play competitors and which we believe is meaningfully higher than all our pure-play competitors. See “Business—Competition.” With companies facing ongoing digital disruption, many lack the capabilities and talent necessary to keep pace with the accelerating rate of technological change. Thoughtworks is a digital native service provider that has been a thought leader at the forefront of technology innovation for the past 28 years. We leverage our vast experience to improve our clients’ ability to respond to change; utilize data assets to unlock new sources of value; create resilient technology platforms that move with business strategies; and rapidly design, deliver and evolve exceptional digital products and experiences at scale. We are a globally diversified business, with clients across all major verticals and geographies. Our global distributed agile delivery model operates where our clients are, with over 9,000 employees working across 17 countries on five continents. Further, our unique, diverse and cultivating culture, with a reputation for technology excellence and thought leadership, enables us to attract and retain what we believe is the best talent in the industry. That is why our clients trust Thoughtworks as their premium digital transformation partner.

Our Business Model

Our revenues are generated from providing professional services based on the mix and locations of delivery professionals involved, the pricing structure, which is predominantly time-and-materials, and the type of services, including: enterprise modernization, platforms & cloud; customer experience, product & design; data & AI; and digital transformation & operations.

We have established a consistent track record of growth, despite headwinds related to the COVID-19 pandemic. From 2017 through 2020, we grew revenue at a compound annual growth rate, or CAGR, of 14.4%.

Starting in the second quarter of 2020, we experienced a slowdown in new business generation, pauses in ongoing engagements and select project cancellations as certain of our clients focused on the immediate challenges linked to the COVID-19 pandemic. See “—Business Update Regarding COVID-19.” We returned to pre-COVID activity levels by the fourth quarter of 2020 and have continued to have positive growth trends in 2021, as reflected in our growth in the six months ended June 30, 2021, with revenues increasing 24.4%, or 18.2% on a constant currency basis, compared to the six months ended June 30, 2020. We believe that our pre-pandemic revenue growth, which amounted to a CAGR of 20.0% between 2017 and 2019, reflects the long-term success of our business model, though it is not necessarily indicative of our results for fiscal year 2021 or any future period. For important information about the comparability of financial information for periods preceding January 1, 2019, see “—Basis of Presentation.”

 

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For the three months ended June 30, 2021 and June 30, 2020:

 

   

Our total revenues were $260.4 million and $185.6 million, respectively, reflecting year-over-year growth of 40.3%, or 32.1% on a constant currency basis.

For the six months ended June 30, 2021 and June 30, 2020:

 

   

Our total revenues were $498.1 million and $400.5 million, respectively, reflecting year-over-year growth of 24.4%, or 18.2% on a constant currency basis;

 

   

Our net income was $36.7 million and $37.8 million, respectively, representing net income margins of 7.4% and 9.4%, respectively;

 

   

Our Adjusted Net Income was $59.4 million and $43.7 million, respectively; and

 

   

Our Adjusted EBITDA was $105.1 million and $74.0 million, respectively, representing Adjusted EBITDA Margins of 21.1% and 18.5%, respectively.

For 2020 and 2019:

 

   

Our total revenues were $803.4 million and $772.2 million, respectively, reflecting year-over-year growth of 4.0%, or 5.1% on a constant currency basis;

 

   

Our net income was $79.3 million and $28.4 million, respectively, representing net income margins of 9.9% and 3.7%, respectively;

 

   

Our Adjusted Net Income was $86.4 million and $40.5 million, respectively; and

 

   

Our Adjusted EBITDA was $153.2 million and $107.1 million, respectively, representing Adjusted EBITDA Margins of 19.1% and 13.9%, respectively.

Our total revenues grew to $772.2 million in 2019 from $647.4 million in 2018, reflecting year-over-year growth of 19.3%, or 22.7% on a constant currency basis. We adopted ASC 606 as of January 1, 2019, but the impact of its adoption on our revenues was not material. See “Basis of Presentation.” For more information relating to the quarterly performance in our business, see the section titled “—Quarterly Results of Operations and Key Metrics.”

For a definition of Adjusted Net Income, Adjusted EBITDA and Adjusted EBITDA Margin and information regarding our use and reconciliations of such non-GAAP financial measures to their respective most directly comparable GAAP measures, see the section titled “—Non-GAAP Financial Measures.”

Factors Affecting Our Performance

Our long-term financial trend is characterized by strong organic growth, strong client retention, a significant amount of revenues from recurring clients and substantial margin optimization with the support of onshore, nearshore and offshore delivery centers. Our performance for historical periods and future periods is driven by numerous factors discussed in this prospectus, including the following key factors.

Ability to retain and expand existing client relationships

We currently serve over 300 clients, many of whom we work with across multiple geographies. We actively manage our client portfolio and target clients where we believe there is opportunity to develop long-term relationships and drive significant growth, as reflected by our top ten clients by 2020 revenues who have been with us for an average of seven years. Accordingly, in 2020 and 2019, respectively, 92% and 90% of our revenues were derived from recurring clients, which we define as clients for whom we have done work and generated revenues in excess of $25,000 within the preceding fiscal year. In 2020, 24 clients generated between

 

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$5 million and $10 million in revenues and 23 clients generated over $10 million in revenues. We have been able to drive organic growth with existing clients, as those clients increasingly come to understand the extraordinary value we provide.

Despite our expansion of our existing client relationships, we maintain relatively low client concentration. Our revenues from our top five and ten clients by 2020 revenues as a percentage of total revenues were 20% and 32%, respectively.

We also utilize the net dollar retention ratio to measure revenue growth from our clients. Net dollar retention rate provides visibility into the risks associated with our revenues and expected growth. We use this metric to appropriately manage resources and client retention and growth, such as account management and capability development of our account leadership teams. The net dollar retention rate may fluctuate as a result of a number of factors, including but not limited to, expansion of service offerings, client satisfaction, pricing, general economic conditions, length of sales cycle, delays in planned work and project cancellations. The net dollar retention ratio is calculated by dividing (a) the current period revenue from recurring clients as of the period one year prior by (b) the one year prior period. The net dollar retention ratio was approximately 127% for the six months ended June 30, 2021 and approximately 118% for the six months ended June 30, 2020. The net dollar retention ratio was approximately 102% for the twelve months ended December 31, 2020 and approximately 118% for the twelve months ended December 31, 2019.

The decrease in net dollar retention rate from 118% for fiscal 2019 to 102% for fiscal 2020 was largely driven by the impact of COVID-19. Starting in the second quarter of 2020, we experienced pauses in ongoing engagements and select project cancellations as certain of our clients focused on the immediate challenges linked to the COVID-19 pandemic. We believe that the financial challenges caused by COVID-19 contributed to lower technology spending by our existing customers concentrated in certain verticals, such as automotive, travel and transportation and retail and consumer. To partially offset the impact on revenue from the affected verticals, we pivoted our focus to companies that were increasing their spending on digital transformation in response to the COVID-19 pandemic. During this period, sector diversification enabled us to re-balance sales exposure to verticals that were spending incrementally through the pandemic, such as technology and business services and energy, public and health services. As a result, we were able to return to pre-COVID activity levels by the fourth quarter of 2020 and have continued to experience positive growth trends in 2021 resulting in the net dollar retention rate increasing to 127% for the first half of 2021. For more information regarding the business impacts of COVID-19 see “—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Business Update Regarding COVID-19.”

Ability to acquire new clients

We intend to continue to acquire new clients through programs designed to generate new business demand and position us as a trusted partner. Winning new business in existing and new geographies and industry verticals is a critical component of our growth strategy. Dedicated new business teams work with marketing using data-driven approaches to focus on client acquisition efforts. Commensurately, our total number of clients, which we define as clients with annual spend in excess of $25,000 in the relevant year, increased to 320 in 2020 from 289 in 2019, as we saw increased demand for our global services, including in North America, Europe, Asia-Pacific (“APAC”) and Latin America (“LATAM”). Going forward, we may also add new clients, including in new geographies and industry verticals, through selective strategic acquisitions.

Expanding our technical capabilities and client solutions

We combine strategy, design and software engineering expertise to offer premium, end-to-end solutions to our clients. Our value proposition is based on our thought leadership and expertise across innovative new technologies, differentiated client solutions across our service lines and local and nearshore capabilities (i.e., those delivered from nearby countries in similar time zones) and offshore capabilities (i.e., those delivered from

 

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distant countries in different time zones). Our premium positioning enabled us to drive average revenue per employee of approximately $108,000 in 2020 and $120,000 in 2019. We define average revenue per employee as total revenues for the period divided by the average number of employees in such period. The year-over-year decline reflected the impact of the COVID-19 pandemic, particularly in the second quarter of 2020, and our ramp up in hiring in the fourth quarter of 2020, to meet the anticipated increase in demand for our services driven by economic recovery from the pandemic. Our ability to continue delivering premium and innovative services to our clients depends on evolving our technical and engineering capabilities.

Ability to recruit and retain talent

To provide services to our clients, we must efficiently hire, train and retain skilled professionals without compromising on the high standards we set for our people. We believe our ability to attract and retain top talent drives high client satisfaction and enables us to deliver on strong client demand to generate growth. Apart from driving high client satisfaction, lower attrition leads to lower hiring and training costs and increased productivity. In 2020, our voluntary attrition rate was 11.5%. Meanwhile, we increased our total number of employees to 7,976 as of December 31, 2020 from 7,126 as of December 31, 2019, an 11.9% increase. Additionally, we will accelerate vesting of all outstanding, unvested performance vesting options and convert all outstanding SARs to RSUs upon the completion of this offering. We expect this to result in an additional charge of approximately $54.0 million (based on a fair value of $21.00 per share, the initial public offering price) in the period in which we complete this offering. For more information, please refer to the section titled “Summary Consolidated Financial and Other Data.”

Ability to optimize our global delivery

We have a global footprint with the ability to deliver services from multiple geographic regions. During 2020, nine of our top ten clients relied on Thoughtworks’ delivery from more than one region. We utilize a blended delivery model, which means we are able to offer a combination of local talent with nearshore/offshore talent, allowing us to maintain close proximity to our clients for context and local market knowledge, while driving rapid and high-quality delivery at scale.

Business Update Regarding COVID-19

Since early 2020, the COVID-19 pandemic has caused general business disruption worldwide. As a result of the COVID-19 pandemic, we took precautionary measures to minimize the risk of the virus to our personnel, our clients and the communities in which we operate, including the temporary suspension of all non-essential business travel of personnel and the temporary closure of all of our major offices. Although a significant portion of our workforce has worked remotely through the COVID-19 pandemic, there has been minimal disruption in our ability to effectively provide our service offerings, as our employees are accustomed to operating in remote and distributed environments. Going forward, we will continue to monitor working conditions and adapt as needed.

The majority of the COVID-19 impact on our business was seen in the second quarter of 2020, following a slowdown in new business pipeline, one-time pauses and select cancellations in projects as certain clients were addressing the initial challenges of the pandemic. This impact was concentrated in affected verticals, such as automotive, travel and transportation and retail and consumer. In 2020, our average revenue per day, which we define as a weekday that is not a local public holiday, declined from $3.4 million in the first quarter to approximately $3.0 million in the second and third quarters. We began to experience a return to historical activity levels in the fourth quarter of 2020 with our average revenue per day increasing to $3.3 million, driven by increased demand for digital services from both new and existing clients. We also pivoted offerings to leverage market tailwinds as some companies increased their focus on digital transformation in response to the COVID-19 pandemic. During this period, sector diversification enabled us to re-balance sales exposure to verticals that were spending incrementally through the pandemic, such as technology and business services and energy, public and health services. The positive trend continued in the first and second quarters of 2021 with our average revenue

 

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per day increasing to $3.8 million and $4.2 million, respectively. For the six months ended June 30, 2021, our revenue by employee was approximately $59,000, or $118,000 annualized, compared to approximately $54,000, or $108,000 annualized, for the six months ended June 30, 2020. During 2020, we were able to accelerate certain strategic operational efficiency initiatives. Accordingly, these initiatives helped increase our gross margins (i.e., revenues minus cost of revenues) to 40.8% in 2020, from 38.3% in 2019, and decrease our selling, general and administrative expenses as a percentage of revenues to 23.6% in 2020, from 26.4% in 2019.

In 2020, we experienced, and we may continue to experience, a modest adverse impact on certain parts of our business, including a lengthening of the sales cycle for some prospective clients and delays in the delivery of professional services and trainings to our clients. We also experienced, and we may continue to experience, a modest positive impact on other aspects of our business, such as slower growth in certain operating expenses due to reduced business travel and the virtualization or cancellation of in-person client and workforce events.

The COVID-19 pandemic has caused substantial global public health and economic challenges. Our employees, communities and business operations, particularly in India and Brazil, and the global economy and financial markets continue to be affected. We cannot accurately predict the extent to which the COVID-19 pandemic will continue to directly and indirectly impact our business, results of operations and financial condition. Future developments and actions to contain the public health and economic impact of the COVID-19 pandemic in the markets we serve are rapidly evolving and highly uncertain.

Key Operational and Business Metrics

In addition to the measures presented in our consolidated financial statements, we use the following key operational and business metrics to evaluate our business, measure our performance, develop financial forecasts and make strategic decisions:

 

     Six Months Ended
June 30,
    Years Ended
December 31,
 
(in thousands, except percentages)    2021     2020     2020     2019(1)  

Revenue Growth Rate as reported

     24.4     8.9     4.0     19.3

Revenue Growth Rate at Constant Currency

     18.2     12.3     5.1     22.7

Net income

   $ 36,737     $ 37,797     $ 79,283     $ 28,420  

Net income margin

     7.4     9.4     9.9     3.7

Adjusted Net Income(2)

   $ 59,425     $ 43,685     $ 86,383     $ 40,507  

Adjusted EBITDA(2)

   $ 105,055     $ 74,021     $ 153,193     $ 107,129  

Adjusted EBITDA Margin(2)

     21.1     18.5     19.1     13.9

 

(1)

Growth rates based on increase over 2018 revenue, which was prepared according to ASC 605. Our adoption of ASC 606 as of January 1, 2019 did not materially impact our revenues. See “Revenue Growth Rate and Revenue Growth Rate at Constant Currency.”

(2)

For a definition of Adjusted Net Income, Adjusted EBITDA and Adjusted EBITDA Margin and information regarding our use and reconciliations of such non-GAAP financial measures to their respective most directly comparable GAAP measures, see the section titled “—Non-GAAP Financial Measures.”

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 the U.S. dollars can impact the comparability of our revenues between periods. Accordingly, we use Revenue Growth at Constant Currency as an important indicator of our underlying performance. Revenue Growth at Constant Currency is calculated by applying the average exchange rates in effect during the earlier comparative fiscal period to the later fiscal period.

 

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During the six months ended June 30, 2021, we reported revenue growth of 24.4% over the prior period, which includes the impact of decreased reimbursable travel costs. Had our consolidated revenues been expressed in constant currency terms using the exchange rates in effect during the six months ended June 30, 2020, we would have reported revenue growth of 18.2%. During the six months ended June 30, 2021, revenues were positively impacted by the depreciation of the U.S. dollar relative to certain principal functional currencies of our subsidiaries.

During the six months ended June 30, 2020, we reported slower revenue growth of 8.9% over the prior period due to the adverse impact of the global COVID-19 pandemic. The COVID-19 impact to our business was concentrated in affected verticals, such as automotive, travel and transportation and retail and consumer. Had our consolidated revenues been expressed in constant currency terms using the exchange rates in effect during the six months ended June 30, 2019, we would have reported revenue growth of 12.3%. During the six months ended June 30, 2020, revenues were negatively impacted by the appreciation of the U.S. dollar relative to certain principal functional currencies of our subsidiaries.

During the year ended December 31, 2020, we reported revenue growth of 4.0% over the prior year, which includes the impact of decreased reimbursable travel costs. Had our consolidated revenues been expressed in constant currency terms using the exchange rates in effect during 2019, we would have reported revenue growth of 5.1%. During 2020, revenues were negatively impacted by the appreciation of the U.S. dollar relative to certain principal functional currencies of our subsidiaries.

During the year ended December 31, 2019, we reported revenue growth of 19.3% over the prior year. Had our consolidated revenues been expressed in constant currency terms using the exchange rates in effect during 2018, we would have reported revenue growth of 22.7%. During 2019, revenues were negatively impacted by the appreciation of the U.S. dollar relative to certain principal functional currencies of our subsidiaries.

For more detail regarding our exposure to foreign currency rate fluctuations, see Note 2, Revenue Recognition, to our audited consolidated financial statements included elsewhere in this prospectus and “—Quantitative and Qualitative Disclosure about Market Risk.”

Net Income, Net Income Margin and Adjusted Net Income

We use Adjusted Net Income as an important indicator of our performance. We calculate Adjusted Net Income as net income adjusted for unrealized gain (loss) on foreign currency exchange, stock-based compensation expense, amortization of acquisition-related intangibles, acquisition costs, executive compensation expenses considered one-time in nature, certain professional fees that are considered unrelated to our ongoing revenue-generating operations, tender offer compensation expense that is considered one-time in nature, certain costs related to business rationalization, IPO-related costs and income tax effects of adjustments. See “—Non-GAAP Financial Measures” below for a reconciliation of Adjusted Net Income to net income, the most directly comparable GAAP measure, how we use this measure and an explanation of why we consider this non-GAAP measure to be helpful for investors.

During the six months ended June 30, 2021, we reported net income of $36.7 million, a decrease of $1.1 million, or approximately 2.8%, compared to $37.8 million during the six months ended June 30, 2020. Net income decreased due to the inclusion of certain acquisition related costs, increased stock-based compensation expenses, and increased income taxes, offset by continued strong demand for our services and improvements in our gross margin.

Our net income margin was 7.4%, a decrease of approximately 2%, compared to 9.4% for the prior period. Net income margin decreased due to increased income taxes and certain acquisition related expenses. We consider net income margin as the most directly comparable GAAP measure to Adjusted EBITDA Margin.

 

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During the six months ended June 30, 2021, we reported Adjusted Net Income of $59.4 million, an increase of $15.7 million, or approximately 36.0%, compared to $43.7 million during the six months ended June 30, 2020. Adjusted Net Income increased due to higher revenues as a result of strong demand for our services and lower travel expenses of $11.6 million due to COVID-19 restrictions and remote working. This was partially offset by increased payroll expenses (excluding stock-based compensation) of $73.5 million which were incurred because we hired more employees to support revenue growth.

During the year ended December 31, 2020, we reported net income of $79.3 million, an increase of $50.9 million, or 179.0%, compared to $28.4 million in 2019. Net income increased due to higher revenues as demand for our services increased, a foreign exchange gain of $7.2 million (compared to a foreign exchange loss of $1.8 million in 2019) and decreased operating expenses, particularly non-payroll costs due, in part, to lower travel expense related to COVID-19 restrictions and remote working.

During the year ended December 31, 2020, our net income margin was 9.9%, an increase of approximately 6.2%, compared to 3.7% in 2019. Net income margin increased due to higher demand for our services, lower travel expenses as a percentage of revenues combined with improved efficiencies in the cost of delivering the general and administrative activities of our business, as well as favorable changes in foreign exchange. We consider net income margin as the most directly comparable GAAP measure to Adjusted EBITDA Margin.

During the year ended December 2020, we reported Adjusted Net Income of $86.4 million, an increase of $45.9 million, or 113.3%, compared to $40.5 million in 2019. Adjusted Net Income increased due to higher revenues and lower operating expenses as noted above.

Adjusted EBITDA and Adjusted EBITDA Margin

We also use Adjusted EBITDA and Adjusted EBITDA Margin as important indicators of our performance. We calculate Adjusted EBITDA as net income adjusted to exclude income tax expense, interest expense, other (expense) income, unrealized gain (loss) on foreign currency exchange, stock-based compensation expense, depreciation and amortization expense, acquisition costs, executive compensation expenses considered one-time in nature, certain professional fees that are considered unrelated to our ongoing revenue-generating operations, tender offer compensation expense that is considered one-time in nature, certain costs related to business rationalization and IPO-related costs. Adjusted EBITDA Margin is calculated by dividing Adjusted EBITDA by total revenues. See “—Non-GAAP Financial Measures” below for a definition of and a reconciliation of Adjusted EBITDA to net income, the most directly comparable GAAP measure, how we use Adjusted EBITDA and Adjusted EBITDA Margin and an explanation of why we consider these non-GAAP measures to be helpful for investors.

During the six months ended June 30, 2021, we reported Adjusted EBITDA of $105.1 million, an increase of $31.0 million, or approximately 41.9%, compared to $74.0 million during the six months ended June 30, 2020. Adjusted EBITDA increased due to higher revenues as demand for our services increased offset partially by higher operating expenses as certain costs, such as payroll, increased to support increased levels of demand.

During the six months ended June 30, 2021, we reported an Adjusted EBITDA Margin of

21.1%, an increase of approximately 2.6%, compared to 18.5% during the six months ended June 30, 2020. Adjusted EBITDA Margin increased primarily due to increased demand for our services, which outpaced the growth in our number of employees, and lower travel costs as a percentage of revenues.

During the year ended December 31, 2020, we reported Adjusted EBITDA of $153.2 million, an increase of $46.1 million, or 43.0%, compared to $107.1 million in 2019. Adjusted EBITDA increased due to higher revenues as demand for services increased, combined with decreased operating expenses, driven by lower travel expenses as travel activity was impacted by COVID-19 restrictions.

 

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During the year ended December 31, 2020, we reported an Adjusted EBITDA Margin of

19.1%, an increase of 5.2%, compared to 13.9% in 2019. Adjusted EBITDA Margin increased due to lower travel expenses as a percentage of revenues combined with improved efficiencies in the cost of delivering the general and administrative activities of our business.

Components of Our Operating Results

We operate and manage our business as one reportable segment. While the Company has offerings in multiple market segments and operates in multiple countries, the Company’s business operates as one operating segment. Almost all of the Company’s service offerings are delivered and supported on a global basis. Additionally, most of the Company’s service offerings are deployed in a nearly identical way and the Company’s chief operating decision maker evaluates the Company’s financial information and resources and assesses the performance of these resources on a consolidated basis.

Revenues

Time-and-Materials Revenues. We generate the majority of our revenues under time-and-materials contracts, which are billed using hourly, daily or monthly rates to determine the amounts to be charged to the client. Revenue from time-and-material contracts is based on the number of hours worked and at contractually agreed-upon hourly rates and is recognized as those services are rendered as control of the services passes to the customer over time.

Fixed-Price Revenues. Fixed-price contracts include application development arrangements, where progress towards satisfaction of the performance obligation is measured using input methods as there is a direct correlation between hours incurred and the end product delivered to the client. Assumptions, risks and uncertainties inherent in the estimates used to measure progress could affect the amount of revenues, receivables and deferred revenues at each reporting period. Revenues under these contracts are recognized using costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying performance obligations.

For a detailed discussion of our revenue recognition policy, refer to our consolidated financial statements and the related notes appearing elsewhere in this prospectus.

Cost of Revenues

Cost of revenues consists primarily of personnel and related costs directly associated with professional services, including salaries, bonuses, stock-based compensation, fringe benefits, projected related travel costs and costs of contracted third-party vendors. Also included in cost of revenues is the portion of depreciation attributable to the portion of our property and equipment utilized in the delivery of services to our clients.

Selling, General and Administrative

Selling, general and administrative expenses represent expenses associated with promoting and selling our services and general and administrative functions of our business. These expenses include the costs of salaries, bonuses, fringe benefits, stock-based compensation, severance, bad debt, travel, legal and accounting services, insurance, facilities (including operating leases), advertising and other promotional activities. We expect our selling, general and administrative expenses to continue to increase in absolute terms as our business expands but generally to remain steady as a percentage of our revenues for the foreseeable future.

Depreciation and Amortization

Depreciation and amortization consist primarily of depreciation of fixed assets, amortization of capitalized software development costs (internal-use software) and amortization of acquisition-related intangible assets.

 

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Other Income (Expense), net

Other income (expense), net consists of interest expense impacts from foreign exchange transactions and gains (losses) on the sale of assets.

Income Tax Expense

Determining the consolidated income tax expense, deferred income tax assets and liabilities and any potential related valuation allowances involves judgment. We consider factors that may contribute, favorably or unfavorably, to the overall annual effective tax rate in the current year as well as the future. These factors include statutory tax rates and tax law changes in the countries where we operate as well as consideration of any significant or unusual items. Our income tax expense includes the impact of provisions established for uncertain income tax positions, as well as any related interest and penalties. These reserves are adjusted given changing facts and circumstances, such as the closing of a tax audit, statute of limitation lapse or the refinement of an estimate. To the extent the final outcome of an uncertain income tax position differs from the amounts recorded, such differences will impact our income tax expense in the period in which such determination is made.

Results of Operations

The following table sets forth a summary of our consolidated results of operations for the periods indicated. This information should be read together with our consolidated financial statements and related notes included elsewhere in this prospectus. The operating results in any period are not necessarily indicative of the results that may be expected for any future period.

 

     Six Months Ended
June 30,
    Year Ended
December 31,
 
(in thousands, except percentages)    2021     2020     2020     2019  

Revenues

   $ 498,094     $ 400,533     $ 803,375     $ 772,191  

Operating expenses:

        

Cost of revenues

     287,102       236,901       475,560       476,631  

Selling, general and administrative expenses

     135,347       97,425       189,497       203,886  

Depreciation and amortization

     8,834       8,244       17,479       15,776  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

     66,811       57,963       120,839       75,898  

Other (expense) income:

        

Interest expense

     (13,582     (13,817     (25,767     (26,428

Net realized and unrealized foreign currency (loss) gain

     (1,674     1,431       7,190       (1,750

Other income, net

     144       127       185       117  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other expense

     (15,112     (12,259     (18,392     (28,061
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     51,699       45,704       102,447       47,837  

Income tax expense

     14,962       7,907       23,164       19,417  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 36,737     $ 37,797     $ 79,283     $ 28,420  
  

 

 

   

 

 

   

 

 

   

 

 

 

Effective tax rate

     28.9     17.3     22.6     40.6

Summary Comparison of Six Months Ended June 30, 2021 with the Six Months Ended June 30, 2020

Revenues for the six months ended June 30, 2021 increased $97.6 million, or 24.4%, to $498.1 million, compared to $400.5 million for the six months ended June 30, 2020, despite decreased reimbursable travel costs. The increase in revenues was driven by higher demand for services as certain clients accelerated their digital transformation projects. The majority of our revenues are generated from recurring clients or those expanding their usage of our services. Revenue recognized from our recurring client base was approximately 90.4% for the six months ended June 30, 2021 and approximately 96.4% for the six months ended June 30, 2020. Revenue

 

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growth from our recurring client base for the six months ended June 30, 2021 was $94.7 million and $2.9 million of revenue growth came from new clients.

Our revenue growth depends on our ability to retain and drive growth from existing clients. Our net dollar retention ratio was approximately 127% for the six months ended June 30, 2021 and approximately 118% for the six months ended June 30, 2020.

Income from operations for the six months ended June 30, 2021 increased $8.8 million, or approximately 15.3%, to $66.8 million compared to $58.0 million for the six months ended June 30, 2020. Income from operations as a percentage of revenues for the six months ended June 30, 2021 was 13.4%, compared to 14.5% for the six months ended June 30, 2020, and decreased because of additional stock-based compensation of $9.5 million recorded in the period ending June 30, 2021. The six months ended June 30, 2021 benefited from a reduction in travel related expenses of $9.4 million reported in cost of revenues combined with a reduction in travel-related expenses and bad debt of $9.5 million reported in selling, general and administrative expenses compared to the six months ended June 30, 2020.

Our effective tax rate for the six months ended June 30, 2021 and June 30, 2020 was 28.9% and 17.3%, respectively. The effective tax rate in each period differed from the U.S. statutory tax rate of 21% principally due to U.S. corporate state income taxation and the effect of foreign operations which reflects the impact of different income tax rates in locations outside the United States. The increase in the effective tax rate for the six months ended June 30, 2021 over the prior year was principally due to the favorable impact of a U.S. federal net operating loss carryback refund claim pursuant to the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act filed in the six months ended June 30, 2020, combined with the impact of remeasuring deferred tax liabilities to account for the UK corporate income tax rate increase enacted in the six months ended June 30, 2021.

Net income for the six months ended June 30, 2021 decreased by approximately $1.1 million, or approximately 2.8%, to $36.7 million compared to $37.8 million for the six months ended June 30, 2020.

Summary Comparison of 2020 with 2019

Revenues for the year ended December 31, 2020 increased $31.2 million, or 4.0%, to $803.4 million, compared to $772.2 million for the year ended December 31, 2019. Revenue growth was lower than anticipated in 2020 primarily due to stunted revenue growth in the automotive, travel and transportation industry and the retail and consumer industry, largely driven by the impact of COVID-19, including temporary discounts extended to certain clients, combined with foreign currency impacts. Revenue growth was further impacted by decreased reimbursable travel expenses as travel activity declined in 2020 compared to 2019. The majority of our revenues are generated from recurring clients or those expanding their usage of our services. Revenue recognized from our recurring client base was approximately 92% for the year ended December 31, 2020 and approximately 90% for the year ended December 31, 2019. Revenue growth from our recurring client base for the twelve months ended December 31, 2020 was $17.4 million and $13.8 million of revenue growth came from new clients.

Our revenue growth depends on our ability to retain and drive growth from existing clients. Our net dollar retention ratio was approximately 102% for the twelve months ended December 31, 2020 and approximately 118% for the twelve months ended December 31, 2019.

Income from operations for the year ended December 31, 2020 increased $44.9 million, or 59.2%, to $120.8 million compared to the year ended December 31, 2019. 2020 income from operations as a percentage of revenues was 15.0%, compared to 9.8% for the year ended December 31, 2019, and benefited from a reduction in travel-related expenses reported in cost of revenues combined with a reduction in travel-related and facilities expenses reported in selling, general and administrative expenses. In addition, certain cost savings were realized

 

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in salaries and benefits expenses, reported in cost of revenues and selling, general and administrative expenses, as a result of government-supported furlough programs combined with improved efficiencies in the cost of delivering the general and administrative activities of our business.

Our effective tax rate for the twelve months ended December 31, 2020 and December 31, 2019 was 22.6% and 40.6%, respectively. The effective tax rate in each period differed from the U.S. statutory rate of 21% principally due to U.S. corporate state income taxation and the effect of foreign operations which reflects the impact of higher income tax rates in locations outside the United States. The decrease in the effective tax rate for the twelve months ended December 31, 2020 over the prior year was principally due to the beneficial tax impact of increased U.S. earnings allowing for a reduction in the U.S. corporate federal income tax on certain foreign sourced earnings, changes in the Company’s taxable earnings among jurisdictions and the favorable impact of a U.S. federal net operating loss carryback refund claim pursuant to the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act.

Net income for the year ended December 31, 2020 increased $50.9 million, or 179.0%, to $79.3 million compared to $28.4 million for the year ended December 31, 2019.

Revenues

We continue to expand our international presence and nearshore capabilities in different geographies. During the six months ended June 30, 2021, total revenues grew 24.4% over the same period in the prior year to $498.1 million. The increase in revenues was attributable to strong demand for our services, including the impact of accelerated digital transformation projects by certain clients, despite a reduction in reimbursable travel costs.

During 2020, our total revenue grew 4.0% over the previous year to $803.4 million. This growth resulted from our ability to retain existing clients and increase the level of services we provide to them and our ability to produce revenues from new client relationships. Revenue growth in 2020 was negatively impacted by the decline in reimbursable travel costs. We discuss below the breakdown of our revenues by industry vertical and by geography.

Our total revenues grew to $772.2 million in 2019 from $647.4 million in 2018, reflecting year-over-year growth of 19.3%, or 22.7% on a constant currency basis. We adopted ASC 606 as of January 1, 2019, but the impact of its adoption on the comparability of our 2018 and 2019 revenues was not material. See “—Basis of Presentation.”

Revenues by Industry Vertical

The following table presents our revenues by industry vertical and revenues as a percentage of total revenues by industry vertical for the periods indicated:

 

     Six Months Ended June 30,     Year Ended December 31,  
(in thousands, except percentages)    2021     2020     2020     2019  

Technology and business services

   $ 136,140        27.3   $ 106,342        26.6   $ 228,514        28.6   $ 174,049        22.5

Energy, public and health services

     133,909        26.9     96,068        24.0     200,785        25.0     152,238        19.7

Retail and consumer

     88,923        17.9     71,968        18.0     141,729        17.6     149,739        19.4

Financial services and insurance

     75,109        15.0     70,980        17.7     123,291        15.3     152,419        19.7

Automotive, travel and transportation

     64,013        12.9     54,958        13.7     108,656        13.5     142,061        18.4

Other

            0     217        0.1     400        0.0     1,685        0.3
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total Revenues

   $ 498,094        100   $ 400,533        100   $ 803,375        100   $ 772,191        100
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

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During the six months ended June 30, 2021, we continued to sustain revenue growth across technology and business services, energy, public and health services, as well as experienced a recovery in the retail and consumer, financial services and insurance, and automotive, travel and transportation verticals compared to the six months ended June 30, 2020.

During the year ended December 31, 2020, we pivoted our offerings to leverage market tailwinds as some companies increased their focus on digital transformation in response to the COVID-19 pandemic. We experienced significant year-over-year growth, driven by increased revenue from software and technology infrastructure clients of 133.1%, in our technology and business services industry vertical. In addition, we rebalanced our strategy into obtaining new client acquisitions and revenue from contract expansion from government and federal agency clients, which grew 79.7%, followed by healthcare, which grew 39.4%, in our energy, public and health services vertical. This was offset by declines in the automotive, travel and transportation industry vertical of $33.4 million, financial services and insurance industry vertical of $29.1 million, and retail and consumer industry vertical of $8.0 million, in each case due to the adverse impacts resulting from the global COVID-19 pandemic.

Revenues by Client Location

Our revenues are sourced from four geographic markets: North America, APAC, Europe and LATAM. We present and discuss our revenues by the geographic location where the revenues are under client contract; however, the delivery of those client contracts could be supported by offshore delivery locations.

 

     Six Months Ended June 30,     Year Ended December 31,  
(in thousands, except percentages)    2021     2020     2020     2019  

Customer Location:

                    

North America

   $ 187,185        37.6   $ 167,148        41.7   $ 321,237        40.0   $ 296,534        38.4

APAC

     162,171        32.5     117,281        29.3     248,776        31.0     241,765        31.3

Europe

     126,955        25.5     97,050        24.2     195,372        24.3     191,237        24.8

LATAM

     21,783        4.4     19,054        4.8     37,990        4.7     42,655        5.5
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Revenues

   $ 498,094        100.0   $ 400,533        100.0   $ 803,375        100.0   $ 772,191        100.0
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

During the six months ended June 30, 2021, the United States contributed $178.5 million of our North America revenues, compared to $160.1 million for the same period in 2020, with the largest client demand coming from the technology and business services industry vertical. During the year ended December 31, 2020, the United States contributed revenues of $307.2 million compared to $282.5 million for 2019 due to increased focus on digital transformation resulting from the impact of the COVID-19 pandemic.

During the six months ended June 30, 2021, the top three revenue contributing customer location countries in APAC were Australia, China and India generating revenues of $52.7 million, $45.9 million and $25.5 million, respectively, compared to $33.0 million, $35.4 million and $17.5 million, respectively, for the same period in 2020. The increase in revenues for APAC during this period was driven by increased client demand in the technology and business services industry vertical. During the year ended December 31, 2020, the top three revenue contributing customer location countries in APAC were China, Australia and Singapore generating revenues of $83.5 million, $65.2 million and $39.1 million, respectively, compared to $91.5 million, $68.1 million and $36.8 million, respectively, for 2019, with the largest driver of client demand in 2020 coming from our technology and business services industry vertical.

During the six months ended June 30, 2021, the top two revenue contributing customer location countries in Europe were Germany and the United Kingdom generating revenues of $54.1 million and $53.5 million, respectively, compared to $40.1 million and $45.0 million, respectively, for the same period in 2020, with the largest driver of client demand coming from our automotive, travel and transportation industry vertical. During

 

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the year ended December 31, 2020, the top two revenue contributing customer location countries in Europe were the United Kingdom and Germany generating revenues of $89.2 million and $81.5 million, respectively, compared to $97.2 million and $77.1 million, respectively, for 2019, with the largest driver of client demand coming from our automotive, travel and transportation industry vertical.

During the six months ended June 30, 2021, Brazil was our largest customer location in LATAM contributing revenues of $13.4 million compared to $6.9 million for the same period in 2020, with the largest driver of client demand coming from our technology and business services industry vertical. During the year ended December 31, 2020, Brazil contributed revenues of $16.4 million compared to $12.7 million for 2019, with the largest driver of client demand in 2020 coming from our technology and business services industry vertical.

Revenues by Client Concentration

We have long-standing relationships with many of our clients. We seek to grow revenues from our existing clients by continually increasing the value we provide and expanding the scope and size of our engagements. Revenues derived from these clients may fluctuate as these accounts mature or upon beginning or completion of multi-year projects. We believe there is a significant potential for future growth as we expand our capabilities and offerings within existing clients. In addition, we remain committed to diversifying our client base and adding more clients to our client mix.

The following table presents revenues contributed by our clients by amount and as a percentage of total revenues for the periods indicated:

 

     Six Months Ended June 30,     Year Ended December 31,  
(in thousands, except percentages)    2021     2020     2020     2019  

Top five clients

   $ 90,804        18.2   $ 81,808        20.4   $ 158,679        19.8   $ 162,396        21.0

Top ten clients

   $ 145,388        29.2   $ 131,561        32.8   $ 256,825        32.0   $ 262,558        34.0

Cost of Revenues

 

     Six Months Ended
June 30,
               
(in thousands, except percentages)    2021      2020      Change      % Change  

Cost of revenues

   $ 287,102      $ 236,901      $ 50,201        21.2

During the six months ended June 30, 2021, cost of revenues increased by $50.2 million, or 21.2%, compared to the six months ended June 30, 2020. This increase was primarily driven by an increase in payroll and benefit expenses (including stock-based compensation) of $50.4 million due to higher headcount as we hired more employees to support increased revenues and an increase in professional fees of $5.3 million and stock-based compensation of $3.3 million, partially offset by reduced travel costs of $9.4 million due to the COVID-19 pandemic.

 

     Year Ended December 31,                
(in thousands, except percentages)    2020      2019      Change      % Change  

Cost of revenues

   $ 475,560      $ 476,631      $ (1,071      (0.2 )% 

During 2020, cost of revenues decreased by $1.1 million, or 0.2%, compared to 2019. This decrease was driven by reduced travel expenses of $42.7 million costs owing to the restrictions by governments on travel and group gatherings and due to the actions taken to protect our people’s health and safety, such as adopting remote work in all our offices, canceling non-essential international business travel and shifting our events and global trainee programs from face-to-face to virtual in response to the global COVID-19 pandemic which was partially

 

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offset by an increase in stock-based compensation, payroll (excluding stock-based compensation), and contractor expenses of $40.3 million due to higher headcount as we hired more employees to support increased revenues.

Gross Profit and Gross Margin

 

     Six Months Ended
June 30,
              
(in thousands, except percentages)    2021     2020     Change      % Change  

Gross profit

   $ 210,992     $ 163,632     $ 47,360        28.9

Gross margin

     42.4     40.9     

Our gross margin increased by 151 basis points for the six months ended June 30, 2021 compared to the six months ended June 30, 2020, primarily due to increased demand for our services, which outpaced the growth in our number of employees, and lower travel costs as a percentage of revenues.

 

     Year Ended December 31,               
(in thousands, except percentages)    2020     2019     Change      % Change  

Gross profit

   $ 327,815     $ 295,560     $ 32,255        10.9

Gross margin

     40.8     38.3     

Our gross margin increased by 253 basis points for 2020 compared to 2019, primarily driven by reduced travel costs that resulted from the impact of the COVID-19 pandemic.

Selling, General and Administrative Expenses

 

     Six Months Ended
June 30,
               
(in thousands, except percentages)    2021      2020      Change      % Change  

Selling, general and administrative expenses

   $ 135,347      $ 97,425      $ 37,922        38.9

For the six months ended June 30, 2021, selling, general and administrative expenses were $135.3 million, representing an increase of approximately 38.9% as compared to $97.4 million reported in the same period in the prior year. Our selling, general and administrative expenses have increased due to increases in payroll expenses (excluding stock-based compensation), which include acquisition-related retention payments, of $31.5 million, stock-based compensation expenses of $6.2 million, facility expenses of $2.3 million and professional fees of $4.3 million, offset by a decrease in bad debt expense of $7.2 million.

 

     Year Ended December 31,                
(in thousands, except percentages)    2020      2019      Change      % Change  

Selling, general and administrative expenses

   $ 189,497      $ 203,886      $ (14,389      (7.1 )% 

During 2020, selling, general and administrative expenses were $189.5 million, representing a decrease of approximately 7.1% as compared to $203.9 million reported in the prior year. Our selling, general and administrative expenses in 2020 decreased due to reduced travel of $12.1 million, advertising and recruiting expenses of $3.7 million combined with reduced office expenses of $2.0 million due to stay-at-home orders as a result of COVID-19 partially offset by an increase in our reserve for bad debt of $3.9 million (and an expense in the same amount). Further, we also focused on accelerating long-term operational efficiencies, which also supported the year-on-year decline in selling, general and administrative expenses as a percentage of revenues.

Depreciation and Amortization

 

     Six Months Ended
June 30,
               
(in thousands, except percentages)    2021      2020      Change      % Change  

Depreciation and amortization

   $ 8,834      $ 8,244      $ 590        7.2

 

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During the six months ended June 30, 2021, depreciation and amortization expense increased by $0.6 million, or 7.2%, compared to the six months ended June 30, 2020. The increase in depreciation and amortization expense was due to a decrease in capitalized software amortization expense and an increase in amortization related to our acquired intangibles of $0.8 million as a result of our acquisitions of Fourkind and Gemini. For more detail regarding the Gemini and Fourkind transactions, see “—Note 3, Acquisitions, to our unaudited consolidated financial statements included elsewhere in this prospectus.

 

     Year Ended
December 31,
               
(in thousands, except percentages)    2020      2019      Change      % Change  

Depreciation and amortization

   $ 17,479      $ 15,776      $ 1,703        10.8

During 2020, depreciation and amortization expense increased by $1.7 million, or 10.8%, compared to 2019. The increase in depreciation and amortization expense was primarily due to an increase in capitalized software development costs, and the corresponding amortization expense; an increase in leasehold improvements, and the corresponding amortization expense; and an increase in global headcount, which is driving an increase in laptops and other computer equipment purchases to support the increased personnel.

Interest Expense

 

     Six Months Ended
June 30,
               
(in thousands, except percentages)    2021      2020      Change      % Change  

Interest expense

   $ (13,582    $ (13,817    $ 235        (1.7 )% 

Interest expense is primarily related to our term loan and revolving credit facilities. There were no material changes in interest expense in the six months ended June 30, 2021 as compared to the six months ended June 30, 2020.

 

     Year Ended
December 31,
               
(in thousands, except percentages)    2020      2019      Change      % Change  

Interest expense

   $ (25,767    $ (26,428    $ 661        (2.5 )% 

There were no material changes in interest expense in 2020 as compared to 2019.

Income Tax Expense

 

     Six Months Ended
June 30,
               
(in thousands, except percentages)    2021      2020      Change      % Change  

Income tax expense

   $ 14,962      $ 7,907      $ 7,055        89.2

The Company’s income tax expense increased by $7.1 million for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020 primarily due to the favorable impact of a U.S. federal net operating loss carryback refund claim pursuant to the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act filed in the six months ended June 30, 2020, combined with the impact of remeasuring deferred tax liabilities to account for the UK corporate income tax rate increase enacted in the six months ended June 30, 2020.

 

     Year Ended
December 31,
               
(in thousands, except percentages)    2020      2019      Change      % Change  

Income tax expense

   $ 23,164      $ 19,417      $ 3,747        19.3

 

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The Company’s income tax expense increased by $3.7 million for the twelve months ended December 31, 2020 as compared to 2019, primarily due to the increase in income before taxes compared with the prior period, reduced by the beneficial tax impact of increased U.S. earnings allowing for a reduction in the U.S. corporate federal income tax on certain foreign sourced earnings.

Net Income

 

     Six Months Ended
June 30,
               
(in thousands, except percentages)    2021      2020      Change      % Change  

Net income

   $ 36,737      $ 37,797      $ (1,060      (2.8 )% 

During the six months ended June 30, 2021, Net income was $36.7 million, representing a decrease of approximately 2.8% as compared to $37.8 million in the same period in the prior year. See “—Summary Comparison of Six Months ended June 30, 2021 with the Six Months ended June 30, 2020” above.

 

     Year Ended
December 31,
               
(in thousands, except percentages)    2020      2019      Change      % Change  

Net income

   $ 79,283      $ 28,420      $ 50,863        179.0

During the year ended December 31, 2020, net income was $79.3 million, representing an increase of 179.0% as compared to $28.4 million reported for the prior year. See “—Summary Comparison of 2020 with 2019” above.

Foreign Currency Exchange Gains and Losses

See “—Quantitative and Qualitative Disclosure About Market Risk—Foreign Currency Risk” and “Risk Factors—Risks Related to Our Global Operations—Our business, financial condition and results of operations may be adversely affected by fluctuations in foreign currency exchange rates.”

 

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Quarterly Results of Operations and Key Metrics

The following table sets forth our unaudited quarterly condensed consolidated statements of operations data for each of the ten quarters in the period ended June 30, 2021. The information for each of these quarters has been prepared on a basis consistent with our audited annual consolidated financial statements appearing elsewhere in this prospectus and, in our opinion, include all normal recurring adjustments necessary for the fair statement of the financial information contained in those statements. The following unaudited consolidated quarterly financial data should be read in conjunction with our annual consolidated financial statements and the related notes included elsewhere in this prospectus. These quarterly results are not necessarily indicative of our operating results for a full year or any future period.

 

    Three Months Ended  
    Mar. 31,
2019
    June 30,
2019
    Sep. 30,
2019
    Dec. 31,
2019
    Mar. 31,
2020
    June 30,
2020
    Sep. 30,
2020
    Dec. 31,
2020
    Mar. 31,
2021
    June 30,
2021
 
                            (in thousands)                          

Revenue

  $ 182,986     $ 184,907     $ 199,384     $ 204,914     $ 214,905     $ 185,628     $ 196,549     $ 206,293     $ 237,662     $ 260,432  

Operating Expenses:

                   

Cost of revenues

    108,803       118,633       122,631       126,564       127,169       109,732       114,849       123,810       134,791       152,311  

Selling, general, and administrative

    46,283       54,988       51,114       51,501       50,268       47,157       42,073       49,999       66,516       68,831  

Depreciation and amortization

    3,712       3,827       4,133       4,104       4,077       4,167       4,343       4,892       4,346       4,488  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    158,798       177,448       177,878       182,169       181,514       161,056       161,265       178,701       205,653       225,630  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

    24,188       7,459       21,506       22,745       33,391       24,572       35,284       27,592       32,009       34,802  

Other (expense) income:

                   

Interest expense

    (4,733     (6,399     (7,735     (7,561     (7,101     (6,716     (6,016     (5,934     (6,194     (7,388

Net realized and unrealized foreign currency (loss) gain

    (417     97       (2,096     666       (2,717     4,148       938       4,821       (2,668     994  

Other income (expense), net

    4       681       35       (603     101       26       12       46       61       83  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

    19,042       1,838       11,710       15,247       23,674       22,030       30,218       26,525       23,208       28,491  

Income tax expense

    7,258       845       4,765       6,549       6,042       1,865       8,336       6,921       4,623       10,339  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

  $ 11,784     $ 993     $ 6,945     $ 8,698     $ 17,632     $ 20,165     $ 21,882     $ 19,604     $ 18,585     $ 18,152  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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The following table sets forth our results of operations for the last ten quarterly periods presented as a percentage of our total revenue for those periods:

 

    Three Months Ended  
    Mar. 31,
2019
    June 30,
2019
    Sep. 30,
2019
    Dec. 31,
2019
    Mar. 31,
2020
    June 30,
2020
    Sep. 30,
2020
    Dec. 31,
2020
    Mar. 31,
2021
    June 30,
2021
 
          (% of Revenues)  

Operating Expenses:

                   

Cost of revenues

    59.5     64.2     61.5     61.8     59.2     59.1     58.4     60.0     56.7     58.5

Selling, general, and administrative

    25.3     29.7     25.6     25.1     23.4     25.4     21.4     24.2     28.0     26.4

Depreciation and amortization

    2.0     2.1     2.1     2.0     1.9     2.2     2.2     2.4     1.8     1.7
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    86.8     96.0     89.2     88.9     84.5     86.8     82.0     86.6     86.5     86.6
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

    13.2     4.0     10.8     11.1     15.5     13.2     18.0     13.4     13.5     13.4

Other (expense) income:

                   

Interest (expense) income, net

    (2.6 )%      (3.5 )%      (3.9 )%      (3.7 )%      (3.3 )%      (3.6 )%      (3.1 )%      (2.9 )%      (2.6 )%      (2.8 )% 

Net realized and unrealized foreign currency (loss) gain

    (0.2 )%      0.1     (1.1 )%      0.3     (1.3 )%      2.2     0.5     2.3     (1.1 )%      0.4

Other income (expense), net

    0.0     0.4     0.0     (0.3 )%      0.0     0.0     0.0     0.0     0.0     0.0
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

    10.4     1.0     5.9     7.4     11.0     11.9     15.4     12.9     9.8     10.9

Income tax expense

    4.0     0.5     2.4     3.2     2.8     1.0     4.2     3.4     1.9     4.0
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

    6.4     0.5     3.5     4.2     8.2     10.9     11.1     9.5     7.8     7.0
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The following table sets forth our key operational and business metrics to evaluate our business for the last ten quarterly periods (in thousands, except percentages):

 

    Three Months Ended  
    Mar. 31,
2019
    June 30,
2019
    Sep. 30,
2019
    Dec. 31,
2019
    Mar. 31,
2020
    June 30,
2020
    Sep. 30,
2020
    Dec. 31,
2020
    Mar. 31,
2021
    June 30,
2021
 
          (in thousands, except percentages)  

Gross profit

  $ 74,183     $ 66,274     $ 76,753     $ 78,350     $ 87,736     $ 75,896     $ 81,700     $ 82,483     $ 102,871     $ 108,121  

Gross margin

    40.5     35.8     38.5     38.2     40.8     40.9     41.6     40.0     43.3     41.5

Net income

  $ 11,784     $ 993     $ 6,945     $ 8,698     $ 17,632     $ 20,165     $ 21,882     $ 19,604     $ 18,585     $ 18,152  

Net income margin

    6.4     0.5     3.5     4.2     8.2     10.9     11.1     9.5     7.8     7.0

Adjusted EBITDA

  $ 31,397     $ 15,870     $ 29,325     $ 30,537     $ 40,862     $ 33,159     $ 43,551     $ 35,621     $ 53,836     $ 51,219  

Adjusted EBITDA Margin

    17.2     8.6     14.7     14.9     19.0     17.9     22.2     17.3     22.7     19.7

Adjusted net income

  $ 13,636     $ 4,174     $ 10,557     $ 12,140     $ 22,454     $ 21,231     $ 24,231     $ 18,467     $ 35,079     $ 24,346  

Revenue growth rate as reported

    21.4     15.4     20.7     19.6     17.4     0.4     (1.4 )%      0.7     10.6     40.3

Revenue growth rate at constant currency

    27.4     19.9     23.5     21.3     20.9     3.9     (1.8 )%      (0.9 )%      6.1     32.1

Quarter to quarter revenue growth

    6.8     1.0     7.8     2.8     4.9     (13.6 )%      5.9     5.0     15.2     9.6

 

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The following table sets forth our unaudited condensed consolidated statements of operations data for the year-to-date interim and annual periods, as the context requires, ending with each of the ten quarters in the period ended June 30, 2021:

 

    Year to Date Ended  
    Mar. 31,
2019
    June 30,
2019
    Sep. 30,
2019
    Dec. 31,
2019
    Mar. 31,
2020
    June 30,
2020
    Sep. 30,
2020
    Dec. 31,
2020
    Mar. 31,
2021
    June 30,
2021
 
          (in thousands)  

Revenue

  $ 182,986     $ 367,893     $ 567,277     $ 772,191     $ 214,905     $ 400,533     $ 597,082     $ 803,375     $ 237,662     $ 498,094  

Operating Expenses:

                   

Cost of revenues

    108,803       227,436       350,067       476,631       127,169       236,901       351,750       475,560       134,791       287,102  

Selling, general, and administrative

    46,283       101,271       152,385       203,886       50,268       97,425       139,498       189,497       66,516       135,347  

Depreciation and amortization

    3,712       7,539       11,672       15,776       4,077       8,244       12,587       17,479       4,346       8,834  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    158,798       336,246       514,124       696,293       181,514       342,570       503,835       682,536       205,653       431,283  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

    24,188       31,647       53,153       75,898       33,391       57,963       93,247       120,839       32,009       66,811  

Other (expense) income:

                   

Interest expense

    (4,733     (11,132     (18,867     (26,428     (7,101     (13,817     (19,833     (25,767     (6,194     (13,582

Net realized and unrealized foreign currency (loss) gain

    (417     (320     (2,416     (1,750     (2,717     1,431       2,369       7,190       (2,668     (1,674

Other income, net

    4       685       720       117       101       127       139       185       61       144  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

    19,042       20,880       32,590       47,837       23,674       45,704       75,922       102,447       23,208       51,699  

Income tax expense

    7,258       8,103       12,868       19,417       6,042       7,907       16,243       23,164       4,623       14,962  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

  $ 11,784     $ 12,777     $ 19,722     $ 28,420     $ 17,632     $ 37,797     $ 59,679     $ 79,283     $ 18,585     $ 36,737  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The following table sets forth our key operational and business metrics to evaluate our business for the year-to-date interim and annual periods, as the context requires, ending with each of the last ten quarterly periods (in thousands, except percentages):

 

    Year to Date Ended  
    Mar. 31,
2019
    June 30,
2019
    Sep. 30,
2019
    Dec. 31,
2019
    Mar. 31,
2020
    June 30,
2020
    Sep. 30,
2020
    Dec. 31,
2020
    Mar. 31,
2021
    June 30,
2021
 
          (in thousands, except percentages)  

Gross profit

  $ 74,183     $ 140,457     $ 217,210     $ 295,560     $ 87,736     $ 163,632     $ 245,332     $ 327,815     $ 102,871     $ 210,992  

Gross margin

    40.5     38.2     38.3     38.3     40.8     40.9     41.1     40.8     43.3     42.4

Net income

  $ 11,784     $ 12,777     $ 19,722     $ 28,420     $ 17,632     $ 37,797     $ 59,679     $ 79,283     $ 18,585     $ 36,737  

Net income margin

    6.4     3.5     3.5     3.7     8.2     9.4     10.0     9.9     7.8     7.4

Adjusted EBITDA

  $ 31,397     $ 47,267     $ 76,592     $ 107,129     $ 40,862     $ 74,021     $ 117,572     $ 153,193     $ 53,836     $ 105,055  

Adjusted EBITDA Margin

    17.2     12.8     13.5     13.9     19.0     18.5     19.7     19.1     22.7     21.1

Adjusted net income

  $ 13,636     $ 17,810     $ 28,367     $ 40,507     $ 22,454     $ 43,685     $ 67,916     $ 86,383     $ 35,079     $ 59,425  

Revenue growth rate as reported

    21.4     18.3     19.1     19.3     17.4     8.9     5.3     4.0     10.6     24.4

Revenue growth rate at constant currency

    27.4     23.4     23.4     22.7     20.9     12.3     7.3     5.1     6.1     18.2

 

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Quarterly Trends

Summary Comparison of Three Months Ended June 30, 2021 with the Three Months Ended June 30, 2020

Revenues for the three months ended June 30, 2021, increased $74.8 million, or 40.3%, compared to the prior three months ended June 30, 2020. Had our consolidated revenues been expressed in constant currency terms using the exchange rates in effect during the three months ended June 30, 2020, we would have reported revenue growth of 32.1% for the three months ended June 30, 2021 compared to 3.9% for the prior comparable period ended June 30, 2020. The increase in revenues was driven by higher demand for services as certain clients accelerated their digital transformation projects, combined with continued spend in the technology, business services and energy, public and health services sectors.

Income from operations for the three months ended June 30, 2021 increased $10.2 million, or approximately 41.6%, to $34.8 million compared the prior three months ended June 30, 2020. Income from operations as a percentage of revenues for the three months ended June 30, 2021 was 13.4% compared to 13.2% for the three months ended June 30, 2020. The increase in income from operations was attributable to strong utilization and robust demand combined with reduced travel and bad debt expenses. Operating expenses increased in absolute dollars during the period attributable to higher payroll expenses (including stock-based compensation) as we hired more employees to support revenue growth. Operating expenses as a percent of revenue remained consistent compared to strong revenue growth trends.

During the three months ended June 30, 2021, net income decreased $2.0 million, or 10.0%, compared to the three months ended June 30, 2020 driven by higher income taxes and certain acquisition related costs. During the same period, Adjusted Net Income increased $3.1 million, or 14.7%, compared to the prior three months ended June 30, 2020 attributable to higher revenues. Net income margin for the three months ended June 30, 2021 was 7.0% compared to 10.9% for the three months ended June 30, 2020. Net income margin decreased due to increased income taxes and certain acquisition related expenses.

Adjusted EBITDA for the three months ended June 30, 2021, increased $18.1 million, or

54.5%, compared to the prior three months ended June 30, 2020. Adjusted EBITDA increased due to higher revenues as demand for our services increased offset partially by higher operating expenses as certain costs, such as payroll, increased to support increased levels of demand. Adjusted EBITDA margin for the three months ended June 30, 2021 was 19.7% compared to 17.9% for the three months ended June 30, 2020. Adjusted EBITDA Margin increased primarily due to higher revenues, which outpaced the growth in our number of employees, and lower travel costs as a percentage of revenues.

Revenue

We have primarily seen sustained revenue growth quarter-over-quarter, driven by our ability to retain and enhance project delivery for existing clients combined with new client acquisition. During the second half of 2021, we sustained revenue growth of 32.1% and 18.2%, respectively, at constant currency compared to the three and six months ended June 30, 2020, respectively, driven by a recovery in the financial services and insurance, automotive, travel, and transportation verticals, as well as robust demand for digital services from both new and existing clients, the strategic acquisitions of Gemini and Fourkind. We also pivoted our offerings to leverage market tailwinds as companies increased their focus on digital transformation in response to the COVID-19 pandemic. During this period, sector diversification enabled us to re-balance sales exposure to verticals that were spending incrementally throughout the pandemic, such as technology and business services and energy, public and health services.

Revenues have increased year-over-year in each period between 3.9% and 23.5% at constant currency for each quarter in the trailing twelve months ended June 30, 2020. The second quarter of 2020 was an exception, at a slower growth rate of 3.9%, where most of the COVID-19 impact on our business was seen, following a slowdown in our new business pipeline, one-time pauses and select cancellations in existing customer projects as

 

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certain clients were addressing the initial challenges of the pandemic. The COVID-19 impact to our business was concentrated in affected verticals, such as automotive, travel and transportation and retail and consumer. On a quarter-to-quarter basis, we began to experience a recovery to historical revenue growth levels in the third and fourth quarters of 2020 at 5.9% and 5.0%, respectively.

Cost of Revenue

Cost of revenue has historically fluctuated in line with revenue for all periods presented. During the second quarter of 2021, payroll and benefits expenses (excluding stock-based compensation) increased by $35.5 million driven by higher headcount as we hired more employees to support increased revenues, increased stock-based compensation expenses of $2.5 million, increased travel expenses of $0.8 million, and increased professional fees of $3.3 million compared to the prior three months ended June 30, 2020.

During the first quarter of 2021, cost of revenue decreased as a percentage of revenue compared to all of the previous eight quarters due to a continued focus on driving efficiencies in gross margin. The gross margin improvement was driven by strong utilization and robust demand as revenues grew 15.2% outpacing cost of revenue growth at 8.9%.

During 2020, the historic quarterly trend in absolute dollars was not consistent due to the adverse impacts of the global COVID-19 pandemic and subsequent recovery in our business. During the second quarter of 2020, payroll (excluding stock-based compensation) and travel related expenses decreased $6.7 million and $9.8 million, respectively. The decrease in expenses were driven by temporary country specific reductions in our headcount mainly associated with effects of the global COVID-19 pandemic and due to the actions taken to protect our people’s health and safety, such as adopting remote work in all our offices, canceling non-essential international business travel and shifting our events and global trainee programs from face-to-face to virtual. The countries that experienced reductions in payroll expenses (excluding stock-based compensation) for the quarter ended June 30, 2020 were the United States, United Kingdom, Brazil, China and Germany with reduced payroll related costs of $2.2 million, $1.1 million, $1.1 million, $0.8 million and $0.7 million compared to the preceding quarter ended March 31, 2020, respectively. During the fourth quarter of 2020, payroll and travel related expenses increased from the preceding quarter by $6.8 million and $0.6 million, respectively, due to the easing of hiring and travel restrictions and a general recovery in our business.

Selling, General, and Administrative

Selling, general and administrative costs have fluctuated in line with revenue for all periods presented. For the three months ended June 30, 2021, selling, general and administrative expenses were $68.8 million, representing an increase of approximately 46.0% as compared to $47.2 million reported in the previous period. Our selling, general and administrative expenses have increased primarily due to increases in payroll and stock-based compensation expenses of $21.4 million, professional fees of $1.7 million, facility expenses of $2.4 million, offset by a decrease in bad debt expense of $6.8 million. For the three months ended March 31, 2021, selling, general and administrative expenses were $66.5 million, representing an increase of approximately 32.2% as compared to $50.3 million reported in the previous period. Our selling, general and administrative expenses have increased primarily due to acquisition related retention payments of $6.1 million, payroll expenses (excluding stock-based compensation) of $8.3 million and professional fees of $2.4 million.

During 2020, the historic quarterly trend in absolute dollars was not consistent due to the adverse impacts of the global COVID-19 pandemic and subsequent recovery in our business. During the second quarter of 2020, selling, general and administrative expenses decreased due to reduced travel expenses of $2.2 million, combined with reduced office expenses due to stay-at-home orders of $1.4 million, and reduced payroll related expenses of $5.2 million partially offset by an increase in bad debt expense of $6.1 million. In the third quarter of 2020, selling, general and administrative expenses continued to decrease due to a decrease in bad debt expense of $6.4 million partially offset by an increase in payroll expenses (excluding stock-based compensation) of

 

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$3.1 million. During the fourth quarter of 2020, selling general and administrative expenses increased due to additional office and facilities expenses of $1.2 million as offices prepared to reopen for business, professional fees of $1.6 million, travel related expense of $0.4 million, as well as payroll and benefit (excluding stock-based compensation) related expenses of $2.9 million due to the easing of hiring restrictions, partial easing of travel restrictions and overall recovery from the COVID-19 pandemic.

Depreciation and Amortization

Depreciation and amortization costs have fluctuated in line with revenue for all periods presented and generally increased in absolute dollars on a quarterly basis due to increased capitalized software development costs, and the corresponding amortization expense; an increase in leasehold improvements, and the corresponding amortization expense; and an increase in global headcount, which is driving an increase in laptops and other computer equipment purchases to support the increased personnel.

Net Income, Net Income Margin and Adjusted Net Income

We continue focusing on our margin expansion initiatives, including efficiencies in our implementation and operational processes and controlling general and administrative expenses as described above. On a quarterly basis, we have sustained organic and inorganic net income, net income margin and adjusted net income growth quarter-over-quarter, driven by increased utilization and robust demand for our services, as well as lower operating expenses related to COVID-19 restrictions and remote working. For all of the historic periods presented, we experienced a general uptrend in our net income, net income margin and adjusted net income. On a year to date basis, net income margin ranged between 3.5% and 6.4% for the year ended 2019, 8.2% to 10.0% for 2020, and 7.0% to 7.8% for the quarterly periods ending 2021.

During the six months ended June 30, 2021, net income decreased $1.1 million, or 2.8%, compared to the six months ended June 30, 2020 due to higher net income taxes and certain acquisition-related expense. During the same period, adjusted net income increased $15.7 million, or 36.0%.

In 2020, we reported quarterly net income growth over the comparable quarter of 2019 of between 50% and 1,931%.

Adjusted EBITDA and Adjusted EBITDA Margin

We have demonstrated continued strong quarterly performance in Adjusted EBITDA and Adjusted EBITDA margin. Our adjusted EBITDA margin has improved across the periods demonstrating the leverage in our operating model as we have been able to grow revenue and gross profit at a faster pace than operating expenses.

Revenue Growth Rate at Constant Currency

During the three months ended June 30, 2021, we reported revenue growth of 40.3% compared to the prior three months ended June 30, 2020. Had our consolidated revenues been expressed in constant currency terms using the exchange rates in effect during the three months ended June 30, 2020, we would have reported revenue growth of 32.1%.

During the three months ended March 31, 2021, we reported revenue growth of 10.6% compared to the prior three months ended March 31, 2020, which includes the impact of decreased reimbursable travel costs. Had our consolidated revenues been expressed in constant currency terms using the exchange rates in effect during the three months ended March 31, 2020, we would have reported revenue growth of 6.1%.

Excluding the effects of foreign currency rate fluctuations, our total revenues increased sequentially on a historical basis until the second quarter of 2020. Had our consolidated revenues been expressed in constant

 

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currency terms using the exchange rates in effect during the three months ended June 30, 2019, we would have reported revenue growth of 3.9% compared to 0.4%. Revenues were negatively impacted by the appreciation of the U.S. dollar relative to certain principal functional currencies of our subsidiaries.

Non-GAAP Financial Measures

We use Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted Net Income as measures of operating performance and the operating leverage in our business. We believe that these non-GAAP financial measures are useful to investors for supplemental period-to-period comparisons of our business and in understanding and evaluating our operating results for the following reasons:

 

   

Our management uses Adjusted Net Income 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 effect of the adjusted items;

 

   

Adjusted EBITDA and Adjusted EBITDA Margin are widely used by investors and securities analysts to measure a company’s operating performance without regard to items such as stock-based compensation expense, depreciation and amortization expense, interest expense, other (income) expense, net, and income tax expense 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 Net Income, Adjusted EBITDA and Adjusted EBITDA Margin in conjunction with financial measures prepared in accordance with GAAP 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; and

 

   

Adjusted Net Income, Adjusted EBITDA and Adjusted EBITDA Margin provide consistency and comparability with our past financial performance, facilitate period-to-period comparisons of our core operating results, and also facilitate comparisons with other peer companies, many of which use similar non-GAAP financial measures to supplement their GAAP results.

Adjusted Net Income, Adjusted EBITDA and Adjusted EBITDA Margin 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. Some of these limitations are, or may in the future be, as follows:

 

   

Although depreciation and amortization expense is a non-cash charge, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA and Adjusted EBITDA Margin do not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;

 

   

Adjusted Net Income, Adjusted EBITDA and Adjusted EBITDA Margin exclude stock-based compensation expense, which has recently been, and will continue to be for the foreseeable future, a significant recurring expense for our business and an important part of our compensation strategy;

 

   

Adjusted Net Income, Adjusted EBITDA and Adjusted EBITDA Margin do not reflect changes in, or cash requirements for, our working capital needs;

 

   

Adjusted EBITDA and Adjusted EBITDA Margin do not reflect (i) interest expense, or the cash requirements necessary to service interest or principal payments on our debt, which reduces cash available to us; or (ii) accruals or tax payments that may represent a reduction in cash available to us;

 

   

Adjusted Net Income, Adjusted EBITDA and Adjusted EBITDA Margin do not reflect transaction costs related to acquisitions; and

 

   

The expenses and other items that we exclude in our calculations of Adjusted Net Income, Adjusted EBITDA and Adjusted EBITDA Margin may differ from the expenses and other items, if any, that

 

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other companies may exclude from similarly-titled non-GAAP measures when they report their operating results, and we may, in the future, exclude other significant, unusual or non-recurring expenses or other items from these financial measures.

Because of these limitations, Adjusted Net Income, Adjusted EBITDA and Adjusted EBITDA Margin should be considered along with other financial performance measures presented in accordance with GAAP.

The following tables present a reconciliation of Adjusted Net Income and Adjusted EBITDA to their most directly comparable financial measure prepared in accordance with GAAP, for each of the periods indicated.

 

     Six Months Ended
June 30,
    Years Ended
December 31,
 
(in thousands)    2021     2020     2020     2019  

Net income

   $ 36,737     $ 37,797     $ 79,283     $ 28,420  

Unrealized foreign exchange losses (gains)

     2,519       68       (5,351     703  

Stock-based compensation

     10,236       774       1,667       1,949  

Amortization of acquisition-related intangibles

     6,033       5,199       10,537       10,635  

Acquisition costs(a)

     7,486       —         633       158  

Non-recurring executive compensation expense(b)

     —         —         —         802  

Certain professional fees(c)

     1,846       56       56       1,512  

Non-recurring tender offer compensation expense(d)

     2,715       —         —         —    

Business rationalization(e)

     —         803       1,316       4,589  

IPO-related costs(f)

     1,075       220       315       —    

Income tax effects of adjustments(g)

     (9,222     (1,232     (2,073     (8,261
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted Net Income

   $ 59,425     $ 43,685     $ 86,383     $ 40,507  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

     Six Months Ended
June 30,
    Years Ended
December 31,
 
(in thousands, except percentages)    2021     2020     2020     2019  

Net income

   $ 36,737     $ 37,797     $ 79,283     $ 28,420  

Income tax expense

     14,962       7,907       23,164       19,417  

Interest expense

     13,582       13,817       25,767       26,428  

Other income, net

     (144     (127     (185     (117

Unrealized foreign exchange losses (gains)

     2,519       68       (5,351     703  

Stock-based compensation

     10,236       774       1,667       1,949  

Depreciation and amortization

     14,041       12,706       26,528       23,268  

Acquisition costs(a)

     7,486       —         633       158  

Non-recurring executive compensation expense(b)

     —         —         —         802  

Certain professional fees(c)

     1,846       56       56       1,512  

Non-recurring tender offer compensation expense(d)

     2,715       —         —         —    

Business rationalization(e)

     —         803       1,316       4,589  

IPO-related costs(f)

     1,075       220       315       —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 105,055     $ 74,021     $ 153,193     $ 107,129  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income margin

     7.4     9.4     9.9     3.7
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA Margin

     21.1     18.5     19.1     13.9

 

(a)

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

(b)

Reflects executive compensation expenses for certain roles that were eliminated in connection with our acquisition by the Apax Funds.

(c)

Adjusts for certain transaction expenses, non-recurring legal expenses, and one-time professional fees.

 

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(d)

Adjusts for the additional compensation expense related to the tender offer completed in the first quarter of 2021.

(e)

Adjusts for business rationalization revenues and costs related to closing Thoughtworks Studios, which was completely shut down as of December 31, 2020. Thoughtworkers previously associated with Thoughtworks Studios have been transitioned to higher-revenue generating functions.

(f)

Adjusts for IPO-readiness costs and expenses that do not qualify as equity issuance costs.

(g)

Adjusts for the income tax effects of the foregoing adjusted items.

The following tables present a reconciliation of Adjusted Net Income and Adjusted EBITDA to their most directly comparable financial measures prepared in accordance with GAAP, for each of the periods indicated.

 

     Three Months Ended  
     Mar. 31,
2019
    June 30,
2019
    Sep. 30,
2019
    Dec. 31,
2019
    Mar. 31,
2020
    June 30,
2020
    Sep. 30,
2020
    Dec. 31,
2020
    Mar. 31,
2021
    June 30,
2021
 
(in thousands)                                                             

Net Income

   $ 11,784     $ 993     $ 6,945     $ 8,698     $ 17,632     $ 20,165     $ 21,882     $ 19,604     $ 18,585     $ 18,152  

Unrealized foreign exchange (gains) losses

     (190     (901     1,949       (155     2,817       (2,749     97       (5,516     3,929       (1,410

Stock-based compensation

     820       353       417       359       419       355       292       601       1,874       8,362  

Amortization of acquisition-related-intangibles

     841       2,664       2,644       4,486       2,618       2,581       2,652       2,686       2,981       3,052  

Acquisition costs(a)

     23       135       —         —         —         —         —         633       6,403       1,083  

Non-recurring executive compensation expense(b)

     —         687       —         115       —         —         —         —         —         —    

Certain professional fees(c)

     464       826       217       5       —         56       —         —         1,648       198  

Non-recurring tender offer compensation expense(d)

     —         —         —         —         —         —         —         —         2,714       1  

Business rationalization(e)

     1,034       1,468       1,301       786       415       388       305       208       —         —    

IPO-related costs(f)

     —         —         —         —         203       17       14       81       1,043       32  

Income tax effects of adjustments(g)

     (1,140     (2,051     (2,916     (2,154     (1,650     418       (1,011     170       (4,098     (5,124
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted Net Income

   $ 13,636     $ 4,174     $ 10,557     $ 12,140     $ 22,454     $ 21,231     $ 24,231     $ 18,467     $ 35,079     $ 24,346  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(a)

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

(b)

Reflects executive compensation expenses for certain roles that were eliminated in connection with our acquisition by the Apax Funds.

(c)

Adjusts for certain transaction expenses, non-recurring legal expenses, and one-time professional fees.

(d)

Adjusts for the additional compensation expense related to the tender offer completed in the first quarter of 2021.

(e)

Adjusts for business rationalization revenues and costs related to closing Thoughtworks Studios, which was completely shut down as of December 31, 2020. Thoughtworkers previously associated with Thoughtworks Studios have been transitioned to higher-revenue generating functions.

(f)

Adjusts for IPO-readiness costs and expenses that do not qualify as equity issuance costs.

(g)

Adjusts for the income tax effects of the foregoing adjusted items.

 

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    Three Months Ended  
    Mar. 31,
2019
    June 30,
2019
    Sep. 30,
2019
    Dec. 31,
2019
    Mar. 31,
2020
    June 30,
2020
    Sep. 30,
2020
    Dec. 31,
2020
    Mar. 31,
2021
    June 30,
2021
 
(in thousands, except percentages)                                                            

Net Income

  $ 11,784     $ 993     $ 6,945     $ 8,698     $ 17,632     $ 20,165     $ 21,882     $ 19,604     $ 18,585     $ 18,152  

Income tax expense

    7,258       845       4,765       6,549       6,042       1,865       8,336       6,921       4,623       10,339  

Interest expense

    4,733       6,399       7,735       7,561       7,101       6,716       6,016       5,934       6,194       7,388  

Other (income) expense, net

    (4     (681     (35     603       (101     (26     (12     (46     (61     (83

Unrealized foreign exchange (gains) losses

    (190     (901     1,949       (155     2,817       (2,749     97       (5,516     3,929       (1,410

Stock-based compensation

    820       353       417       359       419       355       292       601       1,874       8,362  

Depreciation and amortization

    5,475       5,746       6,031       6,016       6,334       6,372       6,621       7,201       6,884       7,157  

Acquisition costs(a)

    23       135       —         —         —         —         —         633       6,403       1,083  

Non-recurring executive compensation expense(b)

    —         687       —         115       —         —         —         —         —         —    

Certain professional fees(c)

    464       826       217       5       —         56       —         —         1,648       198  

Non-recurring tender offer compensation expense(d)

    —         —         —         —         —         —         —         —         2,714       1  

Business rationalization(e)

    1,034       1,468       1,301       786       415       388       305       208       —         —    

IPO-related costs(f)

    —         —         —         —         203       17       14       81       1,043       32  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

  $ 31,397     $ 15,870     $ 29,325     $ 30,537     $ 40,862     $ 33,159     $ 43,551     $ 35,621     $ 53,836     $ 51,219  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income margin

    6.4     0.5     3.5     4.2     8.2     10.9     11.1     9.5     7.8     7.0
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA Margin

    17.2     8.6     14.7     14.9     19.0     17.9     22.2     17.3     22.7     19.7
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(a)

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

(b)

Reflects executive compensation expenses for certain roles that were eliminated in connection with our acquisition by the Apax Funds.

(c)

Adjusts for certain transaction expenses, non-recurring legal expenses, and one-time professional fees.

(d)

Adjusts for the additional compensation expense related to the tender offer completed in the first quarter of 2021.

(e)

Adjusts for business rationalization revenues and costs related to closing Thoughtworks Studios, which was completely shut down as of December 31, 2020. Thoughtworkers previously associated with Thoughtworks Studios have been transitioned to higher-revenue generating functions.

(f)

Adjusts for IPO-readiness costs and expenses that do not qualify as equity issuance costs.

Liquidity and Capital Resources

The following table summarizes certain key measures of our liquidity and capital resources:

 

     As of June 30,      As of December 31,  
(in thousands)    2021      2020      2020      2019  

Cash and cash equivalents

   $ 215,950      $ 146,442      $ 490,841      $ 55,973  

Availability under revolving credit facility

     165,000        56,000        85,000        85,000  

Borrowings under revolving credit facility

     —          29,000        —