• Completion of successful IPO
• Revenue growth of 45.0%; 42.1% at constant currency
• Provides guidance for fourth quarter and full year 2021

Thoughtworks Holding, Inc. (NASDAQ: TWKS) ("Thoughtworks" or the "Company"), a leading global technology consultancy, today reported results for the third quarter of 2021 and provided its financial outlook for the fourth quarter and full year 2021.

Guo Xiao, Thoughtworks' Chief Executive Officer, commented, "In our first quarter as a public company, I am pleased to report that we have delivered revenues of $285.1 million, an increase of 45.0% year on year and 42.1% in constant currency¹.

Our premium position and cultivating culture attract and retain what we believe to be the best talent in the industry. And I am delighted that we achieved another milestone in the quarter, reaching over 10,000 Thoughtworkers across five continents, delivering extraordinary impact through our technology excellence and culture.

Our strong combination of best-in-class strategy, software engineering, design and organizational transformation expertise has made Thoughtworks a leading digital transformation partner in a large and rapidly-expanding market. We have seen positive momentum in the third quarter and expect a strong end to the year.

To reflect the positive momentum we are seeing in the third quarter as well as our expectations for the remainder of the year, we are providing our fourth quarter and full year 2021 guidance."

Third quarter 2021 highlights

• Revenues of $285.1 million, an increase of 45.0% year-over-year and 42.1% on a constant currency basis
• Gross margin of 35.5%, a decrease of 6.1% from 41.6% in the third quarter of 2020, impacted by $25.8 million of additional stock-based compensation
• Adjusted Gross Margin of 45.7%, compared to 42.7% in the third quarter of 2020, after adjustment for stock-based compensation and depreciation, reflecting solid execution and strong demand for our premium digital transformation services
• Net loss of $(25.2) million and net loss margin of (8.9)%, impacted by $73.2 million of stock-based compensation
• Diluted loss per common share of $(0.10) compared to diluted earnings per common share of $0.08 for the third quarter 2020, which includes the impact of stock-based compensation as noted above
• Adjusted Diluted Earnings per Share of $0.14 compared to $0.08 for the third quarter 2020, which includes the following adjustments: $73.2 million of stock-based compensation, $3.0 million of intangibles amortization, $1.4 million of unrealized foreign exchange losses, $1.6 million of costs related to our initial public offering (“IPO”), $0.5 million of acquisition costs, $0.1 million of non-recurring professional fees and $17.4 million in income tax effects for the aforementioned adjustments
• Adjusted EBITDA of $66.5 million, an increase of 52.5% compared to the third quarter of 2020; Adjusted EBITDA Margin of 23.3%, a 110 bps increase compared to the third quarter of 2020
• Cash flow from operations of $35.2 million; Free Cash Flow of $27.5 million

We had positive revenue growth in the third quarter of 2021 across all of our geographic markets, with North America growing at 35.4%, APAC growing at 53.2%, Europe growing at 49.1% and LATAM at 47.4%. Revenue growth across all of our industry verticals was strong, with our financial services and insurance vertical growing at 61.3%, a good rebound in our retail and consumer vertical growing at 61.1% and our energy, public and health services growing at 47.8%. Acquisitions completed in the last nine months contributed 2.0% to revenue growth in the quarter. In the third quarter, we achieved a gross margin of 35.5%, a decrease of 6.1% from 41.6% in the third quarter of 2020 which was primarily due to $25.8 million recorded in cost of revenues of additional stock-based compensation incurred in conjunction with our successful IPO, partially offset by the increased demand for our services. Our Adjusted Gross Margin was 45.7%, compared to 42.7% in the third quarter of 2020, reflecting solid execution and strong demand for our premium digital transformation services.

In the third quarter, our net loss margin was (8.9)%, compared to a net income margin of 11.1% for the third quarter of 2020, impacted by $73.2 million of additional stock-based compensation expense incurred in conjunction with our successful IPO. Our Adjusted EBITDA Margin increased to 23.3%, an increase of 1.1% compared to the third quarter of 2020. We had a diluted net loss per common share of $(0.10) in the third quarter, compared to a net income per common share of $0.08 in the third quarter of 2020, impacted by $73.2 million of additional stock-based compensation incurred in connection with the IPO, noted above.

We continue to have strong liquidity and cash flow from operations. We had cash and cash equivalents of $452.8 million as of September 30, 2021, along with $165.0 million of borrowing capacity under our revolving credit line. In October 2021, we repaid an additional $100.0 million of debt, which decreased our total debt outstanding, before deferred financing fees, to $511.4 million, compared to the $611.4 million at September 30, 2021. Free Cash Flow in the third quarter was $27.5 million, compared to $24.1 million in the third quarter of 2020.

IPO

On September 17, 2021, we successfully completed our IPO, in which 42.4 million shares of the Company's common stock were sold, which included the issuance and sale by the Company of 16.4 million shares of common stock, the sale by selling stockholders of 20.4 million shares of common stock, and the full exercise of the underwriters' option to purchase 5.5 million additional shares of common stock from certain of the selling stockholders. We did not receive any proceeds from the sale of our common stock by the selling stockholders. We received net proceeds of $314.7 million upon the closing of the IPO, after deducting the underwriting discounts and commissions and other offering expenses of approximately $30.3 million.

Financial outlook

Thoughtworks provides the following outlook for the fourth quarter and full year 2021:

Fourth quarter

Thoughtworks expects the following for the fourth quarter:

• Revenues in the range of $285 million to $287 million, reflecting year-over-year growth at the midpoint of 39%, or 38% on a constant currency basis;
• Adjusted EBITDA Margin in the range of 17.0% to 18.0%; and
• Adjusted Diluted Earnings per Share ("Adjusted Diluted EPS") in the range of $0.08 to $0.09 for the quarter, assuming a weighted average of 331 million diluted outstanding shares for the quarter.

Full year

Thoughtworks expects the following for the full year:

• Revenues in the range of $1,068 million to $1,070 million, reflecting year-over-year growth at the midpoint of 33%, or 29% on a constant currency basis;
• Adjusted EBITDA Margin in the range of 20.6% to 20.9%; and
• Adjusted Diluted EPS to be in the range of $0.45 to $0.46 for the year, assuming a weighted average of 274 million diluted outstanding shares for the year.

Conference call information

Thoughtworks will host a conference call and webcast call at 8:00 a.m. Eastern Time on Monday, November 15, 2021, to discuss our financial results. The conference call can be accessed through the following numbers: USA / Canada toll-free: +1 (844) 834-1436, International dial-in number: +1 (929) 517-0930, Conference ID: 8968336. To access the webcast and the accompanying slide presentation, which has additional information regarding Thoughtworks' operating results, you can visit our investor relations website at https://investors.thoughtworks.com. A telephone replay will be available from 11:00 a.m. ET on Monday, November 15, 2021 and for seven days following that, on +1 (855) 859-2056 and on +1 (404) 537-3406. A replay of the webcast will also be made available on our investor relations website at https://investors.thoughtworks.com. Information on Thoughtworks' website is not part of this press release.

About Thoughtworks

Thoughtworks is a global technology consultancy that integrates strategy, design and engineering to drive digital innovation. We are 10,000+ Thoughtworkers strong across 48 offices in 17 countries. Over the last 25+ years, we've delivered extraordinary impact together with our clients by helping them solve complex business problems with technology as the differentiator.

Forward-looking statements

This press release includes "forward-looking statements" within the meaning of the "safe harbor" provisions of the United States Private Securities Litigation Reform Act of 1995. In some cases, you can identify these forward-looking statements by the use of terms such as "expect," "will," "continue," or similar expressions, and variations or negatives of these words, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements represent our management's beliefs and assumptions only as of the date of this press release. You should read this press release with the understanding that our actual future results may be materially different from what we expect. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, which include but are not limited to: the statements under "Financial outlook," including expectations relating to revenues and other financial or business metrics; statements regarding relationships with clients and business momentum; and any other statements of expectation or belief. These statements are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from results expressed or implied in this press release. Such risk factors include, but are not limited to, those related to: the current and future impact of the COVID-19 pandemic on Thoughtworks' business and industry; the effects of competition on the future business of Thoughtworks; uncertainty regarding the demand for and market utilization of our services; the ability to maintain or acquire new client relationships; general business and economic conditions; and our ability to successfully execute our growth strategy and strategic plans. Additional information concerning these and other risks and uncertainties are contained in the "Risk Factors" section of Thoughtworks' registration statement on Form S-1. Additional information will be made available in our quarterly reports on Form 10-Q, and other filings and reports that Thoughtworks may file from time to time with the SEC. Except as required by law, Thoughtworks assumes no obligation, and does not intend to, to update these forward-looking statements, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

Non-GAAP financial measures

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

Certain non-GAAP measures related to our financial outlook included in this press release and the associated webcast were not reconciled to the comparable GAAP financial measures because the GAAP measures are not accessible on a forward-looking basis. The Company is unable to reconcile these forward-looking non-GAAP financial measures to the most directly comparable GAAP measures without unreasonable efforts because the Company is currently unable to predict with a reasonable degree of certainty the type and extent of certain items that would be expected to impact GAAP measures for these periods but would not impact the non-GAAP measures. Such items may include stock-based compensation, acquisitions, income tax effects of adjustments and other items. The unavailable information could have a significant impact on the Company's GAAP financial results. Based on the foregoing, the Company believes that providing estimates of the amounts that would be required to reconcile the range of the non-GAAP measures to forecasted GAAP measures would imply a degree of precision that would be confusing or misleading to investors for the reasons identified above.

Revenue Growth Rate and Revenue Growth Rate at constant currency

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

Adjusted Gross Profit and Adjusted Gross Margin

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

Adjusted SG&A and Adjusted SG&A Margin

We define Adjusted Selling, General & Administrative ("Adjusted SG&A") as selling, general and administrative expense excluding stock-based compensation expense, acquisition costs, certain professional fees that are considered unrelated to our ongoing revenue-generating operations, tender offer compensation expense that is considered one-time in nature, certain costs related to business rationalization and IPO-related costs. We calculate Adjusted SG&A Margin by dividing Adjusted SG&A by total revenues.

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

Adjusted Net Income and Adjusted Diluted EPS

We define Adjusted Net Income as net (loss) income adjusted for unrealized gain (loss) on foreign currency exchange, stock-based compensation expense, amortization of acquisition-related intangibles, acquisition costs, certain professional fees that are considered unrelated to our ongoing revenue-generating operations, 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 define Adjusted Diluted Earnings per Share ("Adjusted Diluted EPS") as diluted (loss) earnings per common share, with the numerator adjusted for unrealized gain (loss) on foreign currency exchange, stock-based compensation expense, amortization of acquisition-related intangibles, acquisition costs, certain professional fees that are considered unrelated to our ongoing revenue-generating operations, 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. In other words, the numerator for Adjusted Diluted EPS utilizes Adjusted Net Income. We calculate Adjusted Diluted EPS by dividing Adjusted Net Income, after adjustment for preferred stock dividends, resulting in Adjusted Net Income attributable to common shareholders, by diluted weighted average shares outstanding.

Our management uses Adjusted Net Income and Adjusted Diluted EPS 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.

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

Adjusted EBITDA and Adjusted EBITDA Margin

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

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

Free Cash Flow

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

Stock-based compensation expense included in the condensed consolidated statements of (loss) income was as follows:

__________

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

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

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

(d) 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.

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

(f) Adjusts for the income tax effects of the foregoing adjusted items.

^{_______________________________________}

¹ Revenue Growth Rate at constant currency, Adjusted EBITDA and certain other measures in this release, are non-GAAP financial measures. See “Non-GAAP Measures” for how we define these measures and the financial tables that accompany this release for reconciliations of these measures to the closest comparable GAAP measures.

² Certain amounts, percentages, and other figures presented in this press release 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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20211115005675/en/