Filed pursuant to Rule 424(b)(3)

Registration No. 333-259514

 

PROSPECTUS

 

 

 

Up to 10,861,250 Shares of Class A Common Stock Issuable Upon Exercise of Warrants
Up to 38,532,805 Shares of Class A Common Stock
Up to 2,811,250 Warrants to Purchase Class A Common Stock

 

 

 

This prospectus relates to the issuance by us of an aggregate of up to 10,861,250 shares of our Class A Common Stock, $0.0001 par value per share (the “Class A Common Stock”), consisting of (i) 2,811,250 shares of Class A Common Stock issuable upon the exercise of 2,811,250 warrants (the “private warrants”) originally issued in a private placement in connection with the initial public offering of LIV Capital Acquisition Corporation (“LIVK”) by the holders thereof and (ii) 8,050,000 shares of Class A Common Stock issuable upon the exercise of 8,050,000 warrants (the “public warrants” and, together with the private warrants, the “warrants”) originally issued in the initial public offering of LIVK by holders thereof. We will receive the proceeds from any exercise of any warrants for cash.

 

This prospectus also relates to the offer and sale from time to time by the selling securityholders named in this prospectus or their permitted transferees (the “selling securityholders”) of (i) up to 38,532,805 shares of Class A Common Stock consisting of (a) 2,760,000 shares of Class A Common Stock issued in a private placement pursuant to subscription agreements entered into in connection with the Business Combination (as defined herein), (b) 2,811,250 shares of Class A Common Stock issuable upon exercise of the private warrants, and (c) 32,961,555 shares of Class A Common Stock pursuant to that certain Amended and Restated Registration Rights Agreement, dated August 23, 2021, between us and the selling securityholders granting such holders registration rights with respect to such shares of Class A Common Stock, and (ii) up to 2,811,250 private warrants. We will not receive any proceeds from the sale of shares of common stock or Warrants by the selling securityholders pursuant to this prospectus.

 

The selling securityholders may offer, sell or distribute all or a portion of the securities hereby registered publicly or through private transactions at prevailing market prices or at negotiated prices. We will not receive any of the proceeds from such sales of the shares of Class A Common Stock or Warrants, except with respect to amounts received by us upon exercise of the warrants. We will bear all costs, expenses and fees in connection with the registration of these securities, including with regard to compliance with state securities or “blue sky” laws. The selling securityholders will bear all commissions and discounts, if any, attributable to their sale of shares of Class A Common Stock or warrants. See the section entitled “Plan of Distribution.”

 

Our Class A Common Stock and warrants are listed on the Nasdaq Capital Market under the symbols “AGIL” and “AGILW,” respectively. On May 12, 2022, the last reported sales price of our Class A Common Stock was $4.12 per share and the last reported sales price of our public warrants was $0.4175 per warrant.

 

We are an “emerging growth company” as defined under U.S. federal securities laws and, as such, have elected to comply with reduced public company reporting requirements. This prospectus complies with the requirements that apply to an issuer that is an emerging growth company.

 

 

 

Investing in our securities involves a high degree of risks. You should review carefully the risks and uncertainties described in the section titled “Risk Factors” beginning on page 7 of this prospectus, and under similar headings in any amendments or supplements to this prospectus.

 

 

 

Neither the Securities and Exchange Commission nor any state securities commission 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.

 

 

 

The date of this prospectus is  May 12, 2022

 

 

 

 

TABLE OF CONTENTS

 

ABOUT THIS PROSPECTUS   ii
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS   iii
PROSPECTUS SUMMARY   1
THE OFFERING   6
Risk Factors   7
Use of Proceeds   54
DETERMINATION OF OFFERING PRICE   54
MARKET INFORMATION FOR SECURITIES AND DIVIDEND POLICY   54
Management’s Discussion and Analysis of Financial Condition  and Results of Operations   55
Business   81
Management   93
Executive Compensation   101
Certain Relationships and Related Party Transactions   116
Principal Stockholders   124
Selling Securityholders   126
Description of SECURITIES   131
Material United States Federal Income Tax Consequences   138
Plan of Distribution   144
Legal Matters   146
Experts   146
CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT   146
Where You Can Find More Information   146

 

 

 

You should rely only on the information provided in this prospectus, as well as the information incorporated by reference into this prospectus and any applicable prospectus supplement. Neither we nor the selling securityholders have authorized anyone to provide you with different information. Neither we nor the selling securityholders are making an offer of these securities in any jurisdiction where the offer is not permitted. You should not assume that the information in this prospectus or any applicable prospectus supplement is accurate as of any date other than the date of the applicable document. Since the date of this prospectus and the documents incorporated by reference into this prospectus, our business, financial condition, results of operations and prospects may have changed.

 

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ABOUT THIS PROSPECTUS

 

This prospectus is part of a registration statement on Form S-1 that we filed with the Securities and Exchange Commission (the “SEC”) using the “shelf” registration process. Under this shelf registration process, the Selling Securityholders may, from time to time, sell the securities offered by them described in this prospectus. We will not receive any proceeds from the sale by such Selling Securityholders of the securities offered by them described in this prospectus. This prospectus also relates to the issuance by us of the shares of Class A Common Stock issuable upon exercise of any warrants. We will not receive any proceeds from the sale of shares of Class A Common Stock issuable upon exercise of the warrants pursuant to this prospectus, except with respect to amounts received by us upon exercise of the warrants for cash.

 

Neither we nor the Selling Securityholders have authorized anyone to provide you with any information or to make any representations other than those contained in this prospectus or any applicable prospectus supplement or any free writing prospectuses prepared by or on behalf of us or to which we have referred you. Neither we nor the Selling Securityholders take responsibility for, or provide any assurance as to the reliability of, any other information that others may give you. Neither we nor the Selling Securityholders will make an offer to sell these securities in any jurisdiction where the offer or sale is not permitted.

 

We may also provide a prospectus supplement or post-effective amendment to the registration statement to add information to, or update or change information contained in, this prospectus. You should read both this prospectus and any applicable prospectus supplement or post-effective amendment to the registration statement together with the additional information to which we refer you in the sections of this prospectus entitled “Where You Can Find More Information.”

 

On August 23, 2021 (the “Closing Date”), LIVK, our predecessor company, consummated the business combination (as defined below), which was previously announced, pursuant to that certain Agreement and Plan of Merger, dated May 9, 2021 (the “Merger Agreement”), by and between LIVK and AgileThought, Inc., a Delaware corporation (when referred to in its pre-business combination capacity, “Legacy AT”). Pursuant to the Merger Agreement, Legacy AT merged with and into LIVK, whereupon the separate corporate existence of Legacy AT ceased and LIVK became the surviving company (the transactions contemplated by the Merger Agreement, the “business combination”). On the Closing Date, and in connection with the closing of the business combination (the “Closing”), LIVK changed its name to AgileThought, Inc.

 

Unless the context indicates otherwise, references in this prospectus to the “Company,” “AgileThought,” “we,” “us,” “our” and similar terms refer to AgileThought, Inc. (f/k/a LIV Capital Acquisition Corp.) and its consolidated subsidiaries. References to “Legacy AT” refer to our predecessor company prior to the consummation of the Business Combination.

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This prospectus contains forward-looking statements within the meaning of Section 27A of the Securities Act, and Section 21E of the Exchange Act. We have based these forward-looking statements on our current expectations and projections about future events. All statements, other than statements of present or historical fact included in this prospectus, our future financial performance, strategy, future operations, future operating results, estimated revenues, losses, projected costs, prospects, plans and objectives of management are forward-looking statements. Any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “will,” “would” or the negative of such terms or other similar expressions. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this prospectus. We caution you that these forward-looking statements are subject to numerous risks and uncertainties, most of which are difficult to predict and many of which are beyond our control.

 

Forward-looking statements in this prospectus may include, for example, statements about:

 

the financial and business performance of the Company;

 

our ability to repay and/or continue to service our indebtedness;

 

our future capital requirements and sources and uses of cash;

 

our ability to obtain funding for our future operations;

 

our business, expansion plans and opportunities;

 

changes in our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects and plans;

 

our ability to develop, maintain and expand client relationships, including relationships with our largest clients;

 

changes in domestic and foreign business, market, financial, political, regulatory and legal conditions;

 

our ability to recognize the anticipated benefits of the business combination, which may be affected by, among other things, competition and our ability to grow and manage growth profitably;

 

costs related to the business combination;

 

our ability to successfully identify and integrate any future acquisitions;

 

our ability to attract and retain highly skilled information technology professionals;

 

our ability to maintain favorable pricing, utilization rated and productivity levels for our information technology professionals and their services;

 

our ability to innovate successfully and maintain our relationships with key venders;

 

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our ability to provide our services without security breaches and comply with changing regulatory, legislative and industry standard developments regarding privacy and data security matters;

 

our ability to operate effectively in multiple jurisdictions in Latin America and in the United States in the different business, market, financial, political, legal and regulatory conditions in the different markets;

 

developments and projections relating to our competitors and industry;

 

the impact of health epidemics, including the COVID-19 pandemic, on our business and the actions we may take in response thereto;

 

expectations regarding the time during which we will be an emerging growth company under the Jumpstart Our Business Startups Act of 2012, as amended;

 

changes in applicable laws or regulations;

 

the outcome of any known and unknown litigation or legal proceedings and regulatory proceedings involving us;

 

our ability to maintain the listing of our securities and

 

other risks and uncertainties set forth in the prospectus in the section entitled “Risk Factors” beginning on page 7 of the prospectus, which is incorporated herein by reference.

 

Given these risks and uncertainties, you should not place undue reliance on these forward-looking statements. Additional cautionary statements or discussions of risks and uncertainties that could affect our results or the achievement of the expectations described in forward-looking statements may also be contained in any accompanying prospectus supplement.

 

Should one or more of the risks or uncertainties described in this prospectus, or should underlying assumptions prove incorrect, actual results and plans could differ materially from those expressed in any forward-looking statements. Additional information concerning these and other factors that may impact the operations and projections discussed herein can be found in the section entitled “Risk Factors” and in our periodic filings with the SEC. Our SEC filings are available publicly on the SEC’s website at www.sec.gov.

 

You should read this prospectus and any accompanying prospectus supplement completely and with the understanding that our actual future results, levels of activity and performance as well as other events and circumstances may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

 

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Certain Defined Terms

 

Unless the context otherwise requires, references in this prospectus to:

 

“amended and restated registration rights agreement” are to the Amended and Restated Registration Rights Agreement, dated as of August 23, 2021, by and among LIVK, the sponsor and certain other of our equity holders;

 

“board of directors” or “directors” are to the Company’s board of directors

 

“business combination” are to the transactions contemplated by the merger agreement;

 

“business combination marketing fee” are to $2,817,500, such amount being 3.5% of the total gross proceeds raised in the IPO payable as underwriting commissions to the underwriter of the IPO from the proceeds held in the trust account, which the underwriter of the IPO is entitled to receive upon the closing in accordance with the trust agreement;

 

“bylaws” are to the Bylaws of the Company that were adopted by our board of directors effective on August 23, 2021;

 

“CARES Act” are to the Coronavirus Aid, Relief, and Economic Security Act;

 

“certificate of merger” are to the certificate of merger filed in Delaware on the Closing Date evidencing the merger, at the effective time, of Legacy AT with and into LIVK, whereupon the separate corporate existence of Legacy AT ceased, LIVK was the surviving corporation and the name of LIVK changed to “AgileThought, Inc.”;

 

“Cayman Islands Companies Act” are to the Cayman Islands Companies Act (As Revised) of the Cayman Islands, as amended;

 

“charter” are to the Amended and Restated Certificate of Incorporation of the Company that became effective at the effective time of the merger;

 

“Class A Common Stock” are to the shares of Class A common stock of the Company, par value $0.0001 per share;

 

“Class A ordinary shares” are to LIVK’s Class A ordinary shares, par value $0.0001 per share;

 

“Class B ordinary shares” are to LIVK’s Class B ordinary shares, par value $0.0001 per share;

 

“closing” are to the closing of the business combination;

 

“Code” are to the Internal Revenue Code of 1986, as amended;

 

“conversion agreement” are to the conversion agreement, dated as of May 9, 2021, by and among Legacy AT and the Second Lien Lenders;

 

“CSAM Mexico” are to Credit Suisse Asset Management Mexico;

 

“CS Investors” are to collectively, (i) Banco Nacional de México, S.A., Member of Grupo Financiero Banamex, División Fiduciaria, in its capacity as trustee of the trust No. F/17938-6, an investment vehicle managed by CSAM Mexico and (ii) Banco Nacional de México, S.A., Member of Grupo Financiero Banamex, División Fiduciaria, in its capacity as trustee of the trust No. F/17937-8, an investment vehicle managed by CSAM Mexico.

 

“CS Lender” are to Banco Nacional de México, S.A., Integrante del Grupo Financiero Banamex, División Fiduciaria, como fiduciario del fideicomiso irrevocable F/17937-8, as Tranche A Lender and Tranche A-2 Lender;

 

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“DGCL” are to the Delaware General Corporation Law, as amended;

 

“effective time” are to the time at which the certificate of merger was filed with the Secretary of State of the State of Delaware;

 

“Equity Contribution Agreement” are to the agreement between Legacy AT and certain investment funds affiliated with the sponsor (collectively, “LIV Fund IV”) pursuant to which such funds made, on March 19, 2021, an investment in 2,000,000 shares of preferred stock of Legacy AT that, by their terms, which was converted into 2,000,000 shares of Class A Common Stock in the business combination at the Closing;

 

“Exchange Act” are to the Securities Exchange Act of 1934, as amended;

 

“First Lien Facility” are to the amended and restated credit agreement, dated as of July 18, 2019 and as amended, among Legacy AT, the other Legacy AT-related entities that are parties thereto, Monroe Capital Management Advisors, LLC, as administrative agent, and the financial institutions listed therein, as lenders;

 

“founder shares” are to our Class B ordinary shares initially purchased by the sponsor in a private placement prior to LIVK’s IPO and the shares of Class A Common Stock that were issued upon the automatic conversion of such Class B ordinary shares at the time of the domestication (and for the avoidance of doubt, founder shares do not include the representative shares (as defined below));

 

“GAAP” are to United States generally accepted accounting principles;

 

“holder of our founder shares” are to the sponsor and its affiliates and their respective permitted transferees that hold founder shares in accordance with the terms of the sponsor IPO letter agreement;

 

“IT” are to information technology;

 

“IPO” or “initial public offering” are to LIVK’s initial public offering of units, which closed on December 13, 2019;

 

“Legacy AT” are to AgileThought, Inc., a Delaware corporation, prior to the consummation of the business combination;

 

“Legacy AT equity holders” are to holders of shares of Legacy AT common stock and Legacy AT preferred stock immediately prior to the closing;

 

“Legacy AT lender conversion” are to the conversion of all amounts outstanding under the Second Lien Facility into Legacy AT common stock in accordance with the conversion agreement;

 

“LIVK” are to LIV Capital Acquisition Corp., an exempted company incorporated under the laws of the Cayman Islands;

 

“management” or our “management team” are to our officers and directors;

 

“merger” are to the merger evidenced by a certificate of merger between LIVK and Legacy AT pursuant to which Legacy AT merged with and into LIVK, whereupon the separate corporate existence of Legacy AT ceased and LIVK became the surviving corporation and changed its name to “AgileThought, Inc.”;

 

“merger agreement” are to the agreement and plan of merger, dated as of May 9, 2021 as amended or modified from time to time, by and between LIVK and Legacy AT;

 

“Nasdaq” are to The Nasdaq Capital Market;

 

“warrants” are to the warrants to acquire shares of Class A Common Stock;

 

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“Nexxus” are to Nexxus Capital, S.C.;

 

“Nexxus Funds” are to collectively, (i) Banco Nacional de México, S.A., Member of Grupo Financiero Banamex, División Fiduciaria, in its capacity as trustee of the irrevocable trust No. F/173183 and (ii) Nexxus Capital Private Equity Fund VI, L.P.

 

“ordinary shares” are to LIVK’s Class A ordinary shares and Class B ordinary shares prior to the domestication in connection with the business combination;

 

“PIPE subscription financing” are to the aggregate $27,600,000 of proceeds from the issuance of the subscription shares;

 

“private warrants” are to the warrants issued to the sponsor in a private placement simultaneously with the closing of LIVK’s IPO (which from time to time may be transferred to certain of the sponsor’s permitted transferees in accordance with the terms of the sponsor IPO letter agreement);

 

“organizational documents” are to our charter and bylaws;

 

“public shareholders” are to the holders of our public shares;

 

“public shares” are to our Class A ordinary shares sold as part of the units in LIVK’s IPO (whether they were purchased in LIVK’s IPO or thereafter in the open market);

 

“public warrants” are to our redeemable warrants sold as part of the units in the LIVK IPO (whether they were purchased in LIVK’s IPO or thereafter in the open market), with each whole warrant exercisable for one share of Class A Common Stock at an exercise price of $11.50;

 

“registration rights agreement” are to the Registration Rights Agreement, dated December 10, 2019, between LIVK and the sponsor;

 

“related party” are to each of our directors, officers and substantial security holders;

 

“representative shares” are to the 70,000 Class B ordinary shares that we have issued to EarlyBirdCapital, Inc. (and/or its designees), which representative shares automatically converted into Class A Common Stock at the time of consummation of the business combination;

 

“Second Lien Facility” are to the amended and restated credit agreement, dated as of July 18, 2019 and as amended, by and among Legacy AT, AN Extend, S.A. de C.V., AN Global LLC, GLAS USA LLC, as administrative agent, GLAS AMERICAS LLC, as collateral agent, and the Second Lien Lenders;

 

“Second Lien Lenders” are to Nexxus Capital Private Equity Fund VI, L.P., Banco Nacional de México, S.A., Member of Grupo Financiero Banamex, Division Fiduciaria, in its capacity as trustee of the trust “Nexxus Capital VI” and identified with number No. F-173183, as Tranche B Lender and Tranche B-2 Lender and Banco Nacional de México, S.A., Integrante del Grupo Financiero Banamex, División Fiduciaria, como fiduciario del fideicomiso irrevocable F/17937-8, as Tranche A Lender and Tranche A-2 Lender;

 

“Securities Act” are to the Securities Act of 1933, as amended;

 

“sponsor” are to LIV Capital Acquisition Sponsor, L.P., a Delaware limited liability company;

 

“sponsor IPO letter agreement” are to the letter agreement entered into between us and the sponsor on December 9, 2019;

 

“sponsor letter agreement” are to the letter agreement entered into between us, the sponsor, Alex Rossi, Humberto Zesati, Miguel Ángel Dávila and Legacy AT on May 9, 2021;

 

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“subscription agreements” are to the subscription agreements by and among LIVK and the subscription investors, pursuant to which the subscription investors will purchase subscription shares in a privately negotiated transaction in connection with the consummation of the business combination;

 

“subscription investors” are to the accredited investors with whom LIVK entered into the subscription agreements, pursuant to which the subscription investors will purchase subscription shares in a privately negotiated transaction in connection with the consummation of the business combination;

 

“subscription shares” are to the shares issued to the subscription investors pursuant to the subscription agreements;

 

“Transaction Proposals” are to the Business Combination Proposal, the Nasdaq Proposal, the Domestication Proposal, the Charter Amendment Proposal, the Organizational Documents Proposals, the Director Election Proposal, the Equity Incentive Plan Proposal, the Employee Stock Purchase Plan Proposal and the Adjournment Proposal;

 

“transfer agent” are to Continental Stock Transfer & Trust Company, as transfer agent of LIVK;

 

“trust account” are to the U.S.-based trust account at J.P. Morgan Chase Bank, N.A., maintained by the trustee, established to hold a portion of the net proceeds from the IPO and the sale of the private warrants;

 

“trust agreement” are to the Investment Management Trust Agreement, dated as of December 10, 2019, by and between LIVK and the trustee;

 

“trustee” are to Continental Stock Transfer & Trust Company, a New York corporation;

 

“units” are to LIVK’s units sold in the IPO, each of which consists of one Class A ordinary share and one warrant;

 

“warrant agent” are to Continental Stock Transfer & Trust Company, a New York corporation, as warrant agent;

 

“warrant agreement” are to the Warrant Agreement, dated as of December 10, 2019, by and between LIVK and the warrant agent;

 

“warrants” are to the public warrants and the private warrants; and

 

“voting and support agreements” are to those certain Voting and Support Agreements, each dated as of May 9, 2021, by and among LIVK, Legacy AT and certain Legacy AT equity holders, certain of whom are employees of Legacy AT.

 

 

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PROSPECTUS SUMMARY

 

This summary highlights information contained elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. Before investing in our securities, you should carefully read this entire prospectus, including our consolidated financial statements and the related notes thereto and the information set forth in the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Unless the context otherwise requires, we use the terms “AgileThought,” “company,” “we,” “us” and “our” in this prospectus to refer to AgileThought, Inc. and our wholly owned subsidiaries.

 

Overview

 

We are a pure-play leading provider of agile-first, end-to-end, digital technology solutions in the North American market using onshore and nearshore delivery. Our mission is to fundamentally change the way people and organizations view, approach and achieve digital transformation. We help our clients transform their businesses by innovating, building, continually improving and running new technology solutions at scale. Our services enable our clients to more effectively leverage technology, optimize cost, grow, and compete.

 

In recent years, technological advances have altered business and competitive landscapes at a pace and scale that are unprecedented in modern industry. The proliferation of new digital technologies, such as cloud computing, mobile, social media, artificial intelligence, machine learning, advanced analytics and automation delivered in an omni-channel way, and the ability to rent them as-a-service instead of acquiring them outright at significant upfront cost, have diminished the scale and infrastructure advantages of incumbent businesses. This, in turn, has enabled the rise of a new breed of companies, known as digital disruptors, across different industries. Digital disruptors build technology platforms by deploying an agile methodology, which is user-driven and focuses on continuous delivery of small upgrades with multi-disciplinary software development teams rapidly designing, developing, testing, delivering and continually monitoring updates to software. The agile method also enables enterprises to innovate and improve products and processes continuously with greater speed than ever before. The traditional waterfall method, premised on a sequential and siloed approach to building software, results in long development cycles, fails to quickly integrate user feedback and is often more expensive than the agile method. Due to these factors, incumbent enterprises have a critical need to digitally transform their businesses in order to compete with new entrants in their markets, enhance customer experiences, drive differentiation, optimize operations and regain their competitive advantages.

 

Incumbent enterprises face numerous challenges in attempting to digitally transform their businesses. These challenges include significant existing investment in legacy technology infrastructure, lack of expertise in next-generation technologies, inexperience with agile development and an inability to find sufficient talent to drive innovation and execution. Incumbent enterprises have invested in core technology infrastructure over the last several decades and typically rely on it for running their day-to-day operations. This can result in engrained methods, data silos and high levels of complexity, which can hinder innovation and impair organizational agility and efficiency. Implementing an agile methodology at scale requires intense collaboration, transparency and communication among cross-functional teams of both technology and business users. Many enterprises lack the knowledge and understanding of next-generation technologies necessary to sufficiently evaluate new technologies through pilot and proof-of-concept programs, implement them at scale and maintain and use them once an investment has been made. Professionals with significant experience in agile development and next generation technologies are valued by our management and, accordingly, enterprises can struggle to acquire talent at scale and at a reasonable cost.

 

We combine our agile-first approach with expertise in next-generation technologies to help our clients overcome the challenges of digital transformation to innovate, build, run and continually improve solutions at scale using DevOps tools and methodologies. We offer client-centric, onshore and nearshore digital transformation services that include consulting, design and user experience, custom enterprise application development, DevOps, cloud computing, mobile, data management, advanced analytics and automation expertise. Our professionals have direct industry operating expertise that allows them to understand the business context and the technology pain points that enterprises encounter. We leverage this expertise to create customized frameworks and solutions throughout clients’ digital transformation journeys. We invest in understanding the specific needs and requirements of our clients and tailor our services for them. We believe our personalized, hands-on approach allows us to demonstrate our differentiated capabilities and build trust and confidence with new clients and strengthen relationships with current ones, which enables a trusted client advisor relationship. By leveraging our AgileThought Scaled Framework and our industry expertise, we rapidly and predictably deliver enterprise-level software solutions at scale. Our deep expertise in next-generation technologies facilitates our ability to provide enterprise-class capabilities in key areas of digital transformation.

 

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We strive to foster a culture of empowerment that allows employees to be entrepreneurial and nimble. We provide services from onshore and nearshore delivery locations to facilitate increased interaction, responsiveness and close-proximity collaboration, which are necessary to deliver agile services.

 

Background

 

LIVK was a blank check company incorporated on October 2, 2019 in the Cayman Islands for the purpose of effecting a merger, amalgamation, share exchange, asset acquisition, share purchase, reorganization, or similar business combination with one or more businesses.

 

On August 23, 2021 (the “Closing Date”), AgileThought, Inc., a Delaware corporation (the “Company” or “AgileThought”) (f/k/a LIV Capital Acquisition Corp. (“LIVK”)), consummated the previously announced merger (the “Closing”) pursuant to that certain Agreement and Plan of Merger, dated May 9, 2021 (the “Merger Agreement”), by and among LIVK and AgileThought, Inc., a Delaware corporation (when referred to in its pre-Business Combination (as defined below) capacity, “Legacy AT”). The Company’s shareholders approved the business combination (the “Business Combination”) and the change of LIVK’s jurisdiction of incorporation from the Cayman Islands to the State of Delaware by deregistering as an exempted company in the Cayman Islands and domesticating and continuing as a corporation formed under the laws of the State of Delaware (the “Domestication”) at a special meeting of stockholders held on August 18, 2021 (the “Special Meeting”). In connection with the Special Meeting and the Business Combination, holders of 7,479,065 of LIVK’s Class A ordinary shares (“Class A Ordinary Shares”), or 93% of the shares with redemption rights, exercised their right to redeem their shares for cash at a redemption price of approximately $10.07 per share, for an aggregate redemption amount of $75,310,929.45.

 

On August 20, 2021, the business day prior to the Closing Date, LIVK effectuated the Domestication, pursuant to which each of LIVK’s currently issued and outstanding Class A Ordinary Shares and Class B ordinary shares (“Class B Ordinary Shares”) automatically converted by operation of law, on a one-for-one basis, into shares of Class A Common Stock. Similarly, all of LIVK’s outstanding warrants became warrants to acquire shares of Class A Common Stock, and no other changes were made to the terms of any outstanding warrants.

 

Pursuant to the terms of the Merger Agreement, the Business Combination was effected through the merger (the “Merger”) of Legacy AT with and into LIVK, whereupon the separate corporate existence of Legacy AT ceased and LIVK was the surviving corporation. On the Closing Date, the Company changed its name from LIV Capital Acquisition Corp. to AgileThought, Inc. Pursuant to the Merger Agreement, an aggregate of 34,557,480 shares of Class A Common Stock were issued to holders of Legacy AT common stock and 2,000,000 shares of Class A Common Stock were issued to holders of Legacy AT preferred stock as merger consideration.

 

On the Closing Date, a number of purchasers subscribed to purchase from the Company an aggregate of 2,760,000 shares of the Company’s Class A Common Stock (the “PIPE Shares”), for a purchase price of $10.00 per share and an aggregate purchase price of $27,600,000, pursuant to separate subscription agreements (each, a “Subscription Agreement”). The sale of PIPE Shares was consummated immediately prior to the Closing.

 

Recent Developments

 

On April 30, 2022, the board of directors appointed Amit Singh as Chief Financial Officer, effective May 2, 2022. Mr. Singh, age 44, served as Head of Finance and U.S. and Global Head of Investor Relations at Globant S.A. from September 2019 to April 2022. Prior to that, Mr. Singh served as Equity Research Analyst at Bank of America Merrill Lynch from May 2017 to August 2019, and before that he was in various leadership roles serving the investment community and corporate clients. Mr. Singh has over 15 years of experience in the IT Services industry in his capacity as an advisor to his clients.

 

Mr. Singh holds a master’s degree in business administration from Northwestern University – Kellogg School of Management and a master’s of science degree in aerospace engineering from University of Maryland. He also completed an executive education program for CFOs at Harvard’s Business School Executive Education program.

 

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The employment agreement between the Company and Mr. Singh provides that Mr. Singh will have an annual base salary of $350,000 and a target bonus of $200,000, prorated in 2022 for the period of his employment. He will receive a restricted stock unit award covering 250,000 shares of the Company’s Class A common stock. 150,000 shares vest over a four year period, and of the remaining 100,000, 20% vest upon the Company’s Class A common stock achieving a market price of $8 per share, 30% vest upon achieving a market price of $10 per share, and 50% vest upon achieving a market price of $12 per share.

 

In connection with the appointment of Mr. Singh effective May 2, 2022, Ana Cecilia Hernández, who has been serving as Chief Financial Officer on an interim basis, will assume the position of Chief Operations Finance Officer of the Company.

 

Emerging Growth Company Status

 

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”). As an emerging growth company, it is exempt from certain requirements related to executive compensation, including the requirements to hold a nonbinding advisory vote on executive compensation and to provide information relating to the ratio of total compensation of its Chief Executive Officer to the median of the annual total compensation of all of its employees, each as required by the Investor Protection and Securities Reform Act of 2010, which is part of the Dodd-Frank Act.

 

Section 102(b)(1) of the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”) exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can choose not to take advantage of the extended transition period and comply with the requirements that apply to non-emerging growth companies, and any such election to not take advantage of the extended transition period is irrevocable. LIVK previously elected to avail itself of the extended transition period, and following the consummation of the Business Combination, AgileThought is an emerging growth company at least until December 31, 2021 and is taking advantage of the benefits of the extended transition period emerging growth company status permits. During the extended transition period, it may be difficult or impossible to compare AgileThought’s financial results with the financial results of another public company that complies with public company effective dates for accounting standard updates because of the potential differences in accounting standards used.

 

AgileThought will remain an emerging growth company under the JOBS Act until the earliest of (a) December 31, 2024, (b) the last date of our fiscal year in which we have a total annual gross revenue of at least $1.07 billion, (c) the date on which we are deemed to be a “large accelerated filer” under the rules of the SEC with at least $700.0 million of outstanding securities held by non-affiliates or (d) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the previous three years.

 

Summary Risk Factors

 

The following is a summary of select risks and uncertainties that could materially adversely affect AgileThought and its business, financial condition and results of operations. Before you invest in our common stock, you should carefully consider all the information in this prospectus, including matters set forth under the heading “Risk Factors.”

 

We have a substantial amount of indebtedness under our First Lien Facility and we may not have sufficient cash flows from operating activities to service such indebtedness and other obligations which could have a material adverse effect on our business, financial condition, results of operations and prospects;

 

We may not be able to comply with the financial covenants in our credit agreements which could result in an event of default and therefore adversely affect our business, financial condition, results of operations and prospects.

 

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We may need additional capital, and failure to raise additional capital on terms favorable to us, or at all, could limit our ability to meet our debt and other obligations, grow our business or develop or enhance our service offerings to respond to market demand or competitive challenges.

 

We may not have sufficient cash flows from operating activities, cash on hand and available borrowings under current or new credit arrangements to finance required capital expenditures and other costs under new contracts and meet other cash needs, including earnout obligations in connection with prior acquisitions.

 

We have significant fixed costs related to lease facilities.

 

The currently evolving outbreak of the novel coronavirus disease, or COVID-19, pandemic, has impacted demand for our services and disrupted our operations and may continue to do so.

 

We are dependent on our largest clients, and if we fail to maintain these relationships or successfully obtain new engagements, we may not achieve our revenue growth and other financial goals.

 

We generally do not have long-term contractual commitments from our clients, and our clients may terminate engagements before completion or choose not to enter into new engagements with us.

 

Recent acquisitions and potential future acquisitions could prove difficult to integrate, disrupt our business, dilute stockholder value and strain our resources, which may adversely affect our business, financial condition, results of operations and prospects.

 

We must attract and retain highly skilled IT professionals. Failure to hire, train and retain IT professionals in sufficient numbers could have a material adverse effect on our business, financial condition, results of operations and prospects.

 

Our revenue is dependent on a limited number of industry verticals, and any decrease in demand for IT services in these verticals or our failure to effectively penetrate new verticals could adversely affect our revenue, business, financial condition, results of operations and prospects.

 

Our operating results could suffer if we are not able to maintain favorable pricing.

 

If we do not maintain adequate employee utilization rates and productivity levels, our operating results may suffer and our business, financial condition, results of operations and prospects may be adversely affected.

 

We are focused on growing our client base in the United States and may not be successful.

 

We face intense competition.

 

We are dependent on members of our senior management team.

 

Forecasts of our market size may prove to be inaccurate, and even if the markets in which we compete achieve the forecasted growth, there can be no assurance that our business will grow at similar rates, or at all.

 

Our business, financial condition, results of operations and prospects will suffer if we are not successful in delivering contracted services.

 

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If we do not successfully manage and develop our relationships with key partners or if we fail to anticipate and establish new partnerships in new technologies, our business, financial condition, results of operations and prospects could be adversely affected.

 

We are subject to stringent and changing regulatory, legislative and industry standard developments regarding privacy and data security matters, which could adversely affect our ability to conduct our business.

 

Cybersecurity attacks, breaches or other technological failures or security incidents, and changes in laws and regulations related to the internet or changes in the internet infrastructure itself, may diminish the demand for our services and could have a negative impact on our business.

 

We may not secure sufficient intellectual property rights or obtain, maintain, protect, defend or enforce such rights sufficiently to comply with our obligations to our clients or protect our brand and we may not be able to prevent unauthorized use of or otherwise protect our intellectual property, thereby eroding our competitive advantages and harming our business.

 

If we are unable to protect the confidentiality of our proprietary information, our business and competitive position may be harmed.

 

General economic conditions in Mexico may have an adverse effect on our operations and business.

 

Our business, financial condition, results of operations and prospects may be adversely affected by the various conflicting legal and regulatory requirements imposed on us by the countries where we operate.

 

Corporate Information

 

Our principal executive offices are located at 222 W. Las Colinas Blvd. Suite 1650E, Irving, Texas 75039, and our telephone number is (971) 501-1440. Our corporate website address is www.agilethought.com. Information contained on or accessible through our website is not a part of this prospectus, and the inclusion of our website address in this prospectus is an inactive textual reference only.

 

“AgileThought” and our other registered and common law trade names, trademarks and service marks are property of AgileThought, Inc. This prospectus contains additional trade names, trademarks and service marks of others, which are the property of their respective owners. Solely for convenience, trademarks and trade names referred to in this prospectus may appear without the ® or ™ symbols.

 

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THE OFFERING

 

Issuer   AgileThought, Inc. (f/k/a LIV Capital Acquisition Corp.).
     
Issuance of Class A Common Stock    
     
Shares of Class A Common Stock offered by us   Up to 10,861,250 shares of our Class A Common Stock consisting of (i) 2,811,250 shares of Class A Common Stock issuable upon exercise of the private warrants by holders thereof and (ii) 8,050,000 shares of Class A Common Stock issuable upon exercise of the public warrants by holders thereof.
     
Shares of Class A Common Stock
outstanding prior to exercise of all
warrants
  50,473,423 shares (as of March 31, 2022).
     
Shares of Class A Common Stock
outstanding assuming exercise of all
warrants
  61,334,673 shares (based on total number of outstanding shares of Class A Common Stock as of March 31, 2022).
     
Exercise price of warrants   $11.50 per share, subject to adjustment as described herein.
     
Use of proceeds   We will receive up to an aggregate of approximately $124.9 million from the exercise of the Warrants, assuming the exercise in full of all of the Warrants for cash. We expect to use the net proceeds from the exercise of the Warrants for general corporate purposes. See the section entitled “Use of Proceeds.”
     
Resale of Class A Common Stock and warrants    
     
Shares of Class A Common Stock offered by the selling securityholders   We are registering the resale by the selling securityholders named in this prospectus, or their permitted transferees, and aggregate of up to 38,532,805 shares of common stock, consisting of: (i) up to 2,760,000 PIPE Shares; (ii) up to 2,811,250 shares of Class A Common Stock issuable upon the exercise of the private warrants; and (iii) up to 32,961,555 shares of Class A Common Stock pursuant to the Registration Rights Agreement.
     
Warrants offered by the selling security
holders
  Up to 2,811,250 private warrants
     
Redemption   The warrants are redeemable in certain circumstances. See the section entitled “Description of Securities — Warrants” for further discussion.
     
Use of proceeds   We will not receive any of the proceeds from the sale of the shares of Class A Common Stock or warrants by the selling securityholders.
     
Lock-up agreements   Certain of our securityholders are subject to certain restrictions on transfer until the termination of applicable lock-up periods. See the section titled “Certain Relationships and Related Party Transactions — Voting and Support Agreements” for further discussion.
     
Market for Class A Common Stock and warrants   Our Class A Common Stock and public warrants are currently traded on Nasdaq under the symbols “AGIL” and “AGILW,” respectively.
     
Risk factors   Before investing in our securities, you should carefully read and consider the information set forth in “Risk Factors” beginning on page 7.

 

For additional information concerning the offering, see “Plan of Distribution” beginning on page 144.

 

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Risk Factors

 

Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below together with all of the other information contained in this prospectus, including our financial statements and related notes appearing at the end of this prospectus and in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” before deciding to invest in our common stock. If any of the events or developments described below were to occur, our business, prospects, operating results and financial condition could suffer materially, the trading price of our common stock could decline, and you could lose all or part of your investment. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business.

 

Risks Related to Our Financial Position and Need for Additional Capital

 

We have a substantial amount of indebtedness under our First Lien Facility. We may not have sufficient cash flows from operating activities to service such indebtedness and other obligations which could have a material adverse effect on our business, financial condition, results of operations and prospects.

 

In November 2018, in connection with the acquisition of 4th Source, we entered into a credit agreement with Monroe Capital Management Advisors, LLC, or Monroe, as administrative agent and the financial institutions listed therein, as lenders. The credit agreement provided for a $5.0 million credit facility and $75.0 million term loan facility. In July 2019, in connection with the acquisition of AgileThought, we amended and restated the credit agreement and entered into the First Lien Facility, whereby we incurred an additional $23.0 million term loan facility, to a total of $98.0 million of term loan borrowings.

 

As of December 31, 2021, reflecting total repayments of $68.9 million during the year ended 2021, principal and interest outstanding under the First Lien Facility was $31.9 million, plus $6.9 million in total fees, for an aggregate amount owning under the credit agreement of $38.8 million. We continue to be required to make scheduled payments of principal and interest under the First Lien Facility. Our ability to make payments on our indebtedness and other obligations and our ability to comply with the applicable covenants thereto depends on our results of operations, cash flows and financial condition, which in turn are subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond its control. We may not be able to maintain a level of cash flows from operating activities sufficient to pay the principal, premium, if any, and interest on our indebtedness and other obligations. If we are unable to repay, refinance or restructure our indebtedness when payment is due, the lenders could proceed against any collateral granted to them to secure such indebtedness or force us into bankruptcy or liquidation, and our business, financial condition, results of operations and prospects will be materially adversely affected.

 

In addition, our level of indebtedness could affect our ability to obtain financing or refinance existing indebtedness, require us to dedicate a significant portion of our cash flow from operations to interest and principal payments on indebtedness, thereby reducing the availability of cash flow to fund working capital, capital expenditures, growth initiatives and other general corporate purposes, increase our vulnerability to adverse general economic, industry or competitive developments or conditions and limit our flexibility in planning for, or reacting to, changes in its businesses and the industries in which we operate or in pursuing our strategic objectives.

 

The First Lien Facility is secured by substantially all of our assets and will require us, and any debt instruments we may enter into in the future may require us, to comply with various covenants that limit our ability to, among other things:

 

dispose of assets;

 

complete mergers or acquisitions;

 

incur or guarantee indebtedness;

 

sell or encumber certain assets;

 

pay dividends or make other distributions to holders of our shares;

 

make specified investments;

 

engage in different lines of business; and

 

engage in certain transactions with affiliates.

 

We have entered into three amendments to the First Lien Facility since September 30, 2021 to extend the due date of a $4 million dollar amortization payment originally due on September 30, 2021. On November 15, 2021, the Company entered into an amendment to reset the First Lien Facility’s Total Leverage Ratio for the quarterly periods of September 30, 2021 to June 30, 2022 and Fixed Charge Coverage Ratio covenants for the quarterly periods of September 30, 2021 to December 31, 2022.

 

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On November 29, 2021, the Company made a $20 million principal prepayment, which included the $4 million principal payment that was originally due September 30, 2021. The Company made this payment with proceeds from the New Second Lien Facility. Furthermore, on December 29, 2021, the Company issued approximately 4.4 million shares of Class A Common Stock to the administrative agent for the First Lien Facility (the “First Lien Shares”), which subject to certain terms and regulatory restrictions, may sell the First Lien Shares upon the earlier of August 29, 2022 and an event of default and apply the proceeds to the outstanding balance of the loan. Subject to regulatory restrictions, the Company may issue additional First Lien Shares from time to time to reduce the amount of debt for purposes of the Total Leverage Ratio to the extent necessary to comply with such financial ratio. See “We may not be able to comply with the financial covenants in our credit agreements which could result in an event of default and therefore adversely affect our business, financial condition, results of operations and prospects,” below. In addition, the Company agreed to issue warrants to the administrative agent to purchase $7 million worth of the Company’s Class A Common Stock for nominal consideration. The warrants will be issued on the date that all amounts under the First Lien Facility have been paid in full. The exercise of such warrants will cause further dilution to our existing shareholders. In addition, we may be required to pay Monroe cash to the extent that we cannot issue some or all of the warrants due to regulatory restrictions. The First Lien lenders charged an additional $2.9 million fee paid upon the end of the term loan in exchange for the amended terms. As of December 31, 2021, total fees payable at the end of the term loan, including fees recognized from prior amendments, totaled $6.9 million. To date, none of the indebtedness under the First Lien Facility has been accelerated, although we can provide no assurances that the lenders will not elect to accelerate any indebtedness if we were to be in default again in the future. If any indebtedness under our First Lien Facility were to be accelerated, our business, financial condition, results of operations and prospects will be materially adversely affected.

 

We may not be able to comply with the financial covenants in our credit agreements which could result in an event of default and therefore adversely affect our business, financial condition, results of operations and prospects.

 

Under the terms of the First Lien Facility, we are also required to comply with net leverage ratio and fixed charge coverage covenants and other covenants, including providing financial information to our lenders at the times specified in the First Lien Facility. Our ability to meet these ratios and covenants can be affected by events beyond our control. We have not always met these ratios and covenants in the past and have had to obtain consents from the lenders under and amend the First Lien Facility to adjust the ratios and covenants so that we could remain in compliance.

 

As noted above, on November 15, 2021, the Company entered into an amendment to reset the First Lien Facility’s Total Leverage Ratio for the quarterly periods of September 30, 2021 to June 30, 2022 and Fixed Charge Coverage Ratio covenants for the quarterly periods of September 30, 2021 to December 31, 2022. For purposes of calculating compliance with the Company’s maximum Total Leverage Ratio for the quarters ended December 31, 2021, March 31, 2022 and June 30, 2022 (but not for any quarter thereafter), the amount of the Company’s debt will be deemed to be reduced by the market value of the First Lien Shares at the applicable quarter-end. The Company may issue additional First Lien Shares from time to time to reduce the amount of debt for purposes of the maximum Total Leverage Ratio to the extent necessary to comply with such financial ratio; however, such issuance may not be possible due to regulatory restrictions.

 

We may not meet these ratios and covenants in the future, including if we are unable to issue additional First Lien Shares for the quarters ended March 31, 2022 and June 30, 2022 or if we are unable to reduce our Total Leverage Ratio after June 30, 2022 when the First Lien Shares will no longer be used to reduce our debt for purposes of calculating compliance with such ratio. A failure by us to comply with the ratios or covenants contained in the First Lien Facility could result in an event of default, which could adversely affect our ability to respond to changes in our business and manage our operations. Upon the occurrence of an event of default under the terms of the First Lien Facility, including the occurrence of a material adverse change, the lenders could elect to declare any amounts outstanding to be due and payable and exercise other remedies as set forth in the First Lien Facility.

 

Under the terms of the New Second Lien Facility, we are also required to comply with net leverage ratio and fixed charge covenants and other covenants, including providing financial information to our lenders at the times specified in the New Second Lien Facility. Our ability to meet these ratios and covenants can be affected by events beyond our control. A failure by us to comply with the ratios or covenants contained in the New Second Lien Facility could result in an event of default, which could adversely affect our ability to respond to changes in our business and manage our operations. Upon the occurrence of an event of default under the terms of the New Second Lien Facility, including the occurrence of a material adverse change, the lenders could elect to declare any amounts outstanding to be due and payable and exercise other remedies as set forth in the New Second Lien Facility.

 

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On March 30, 2022, the Company entered into an amendment with the First Lien and Second Lien Facility Lenders to waive the Fixed Charge Coverage Ratio for March 31, 2022. In addition, the Total Leverage Ratio covenant for the quarterly period of March 31, 2022 was reset. As consideration for entering into this amendment, the Company agrees to pay the First Lien Facility’s administrative agent a fee equal to $500,000. The fee shall be fully earned as of March 30, 2022 and shall be due and payable upon the end of the term loan. However, the fee shall be waived in its entirety if final payment in full occurs prior to or on May 30, 2022.

 

We may need additional capital, and failure to raise additional capital on terms favorable to us, or at all, could limit our ability to meet our debt and other obligations, grow our business or develop or enhance our service offerings to respond to market demand or competitive challenges.

 

If we are unable to generate sufficient cash flow in the future to meet commitments, we may be required to adopt one or more alternatives, such as refinancing or restructuring indebtedness, selling material assets or operations or seeking to raise additional debt or equity capital. If we need to refinance all or part of our indebtedness at or before maturity, there can be no assurance that we will be able to obtain new financing or to refinance any of our indebtedness on commercially reasonable terms or at all. We have at times entered into informal arrangements with suppliers under which we paid our suppliers later than the terms of our agreements required to manage our cash flows. If we are not able to meet our commitments in the future for any reason, our creditors could seek to enforce remedies against us, including actions to put us into bankruptcy proceedings or receivership, any of which could have a material adverse effect on our business, financial condition, results of operations and prospects.

 

We may also require additional cash resources due to changed business conditions or other future developments, including our growth initiatives and any investments or acquisitions we may decide to pursue, or to refinance our existing indebtedness. If these resources are insufficient to satisfy our cash requirements, we may seek to sell additional equity or debt securities, or obtain another credit facility. If we raise additional capital through the issuance of equity or debt securities, those securities may have rights, preferences, or privileges senior to the rights of our common stock. If we raise additional capital through equity, our existing stockholders may experience dilution. The incurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financing covenants that would further restrict our operations, and the instruments governing such indebtedness could contain provisions that are as, or more, restrictive than our existing debt instruments. Our ability to obtain additional capital on acceptable terms is subject to a variety of uncertainties, including investors’ perception of, and demand for, securities of IT services companies, conditions in the capital markets in which we may seek to raise funds, our future results of operations and financial condition, the terms of our credit facilities and general economic and political conditions. Financing may not be available in amounts or on terms acceptable to us, or at all, and could limit our ability to grow our business and develop or enhance our service offerings to respond to market demand or competitive challenges.

 

We may not have sufficient cash flows from operating activities, cash on hand and available borrowings under current or new credit arrangements to finance required capital expenditures and other costs under new contracts and meet other cash needs, including earnout obligations in connection with prior acquisitions.

 

Our business generally requires significant upfront working capital and/or capital expenditures for software customization and implementation, systems and equipment installation and telecommunications configuration. In connection with the signing or renewal of a service contract, a customer may seek to obtain new equipment or impose new service requirements, which may require additional capital expenditures or other costs in order to enter into or retain the contract. Historically, we have funded these upfront costs through cash flows generated from operations, available cash on hand and borrowings under the First Lien Facility.

 

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In addition, since we currently utilize third-party consultants to deliver a large portion of our services, we may incur upfront costs (which may be significant) prior to receipt of any revenue under such arrangements. Our ability to generate revenue and to continue to procure new contracts will depend on, among other things, our then present liquidity levels or our ability to obtain additional financing on commercially reasonable terms.

 

In connection with prior acquisitions, we are required to make earnout payments to the sellers if certain metrics relating to the acquired businesses have been achieved. As of December 31, 2021, we had accrued $8.8 million in earnout payments as liabilities that we owe in connection with prior acquisitions. The $8.8 million balance accrues interest at an annual interest rate of 12%. The contingent earnout liability accrued is measured to fair value by an independent third-party expert. In order for us to make those earnout payments, in addition to having sufficient cash resources to make the payments themselves, we must be in pro forma compliance after giving effect to the earnout payments with liquidity and other financial and other covenants included in the First Lien Facility. We have not been able to satisfy those covenants to date in connection with the accrued earnout payments. If we are unable to satisfy those covenants and the First Lien Facility remains outstanding, or if we otherwise have insufficient cash flows from operating activities, cash on hand or access to borrowed funds, we will be unable to make the accrued earnout payments as well as future earnout payments that may accrue. There can be no assurance that in the event we are unable to make any such earnout payments, the sellers will not seek legal action against us, which could materially adversely affect our business, financial condition, results of operations and prospects.

 

In addition, on June 24, 2021, the Company entered into a credit agreement with AGS Group LLC for a principal amount of $0.7 million. The principal amount outstanding under this agreement matured on December 20, 2021 (“Original Maturity Date”) but was extended until May 19, 2022 (“Extended Maturity Date”). Interest is due and payable in arrears on the Original Maturity Date at a 14.0 percent per annum until and including December 20, 2021 and at 20 percent per annum from the Original Maturity Date to the Extended Maturity Date calculated on the actual number of days elapsed. As of December 31, 2021, the net loan balance under the AGS Group loan totaled $0.7 million. Separately, on July 26, 2021, the Company agreed with existing lenders and Exitus Capital to enter into a zero-coupon subordinated loan agreement with Exitus Capital in an aggregate principal amount equal to $3.7 million. No periodic interest payments are made and the loan was due on January 26, 2022, but was extended for an additional six month term with an option to extend up to one additional six month term. As of December 31, 2021, the net loan balance under the Exitus Capital loan totaled $3.6 million, net of $0.1 million in debt issuance costs. The loan is subject to a 36 percent annual interest moratorium if full payment is not paid upon the maturity date. Although we have extended the maturity dates for both debt instruments, but may be unable to do so in the future.

 

If we do not have adequate liquidity or are unable to obtain financing for these upfront costs and other cash needs on favorable terms or at all, we may not be able to pursue certain contracts, which could result in the loss of business or restrict the ability to grow. Moreover, we may not realize the return on investment that we anticipate on new or renewed contracts due to a variety of factors, including lower than anticipated scope of or expansion in the services we provide to the applicable clients under the contracts, higher than anticipated capital or operating expenses and unanticipated regulatory developments or litigation. We may not have adequate liquidity to pursue other aspects of our strategy, including increasing our sales activities directed at the U.S. market or pursuing acquisitions. In the event we pursue significant acquisitions or other expansion opportunities or refinancing or repaying existing debt or other obligations, we may need to raise additional capital either through the public or private issuance of equity or debt securities, by entering into new credit facilities, which sources of funds may not necessarily be available on acceptable terms, if at all.

 

We have significant fixed costs related to lease facilities.

 

We have made and continue to make significant contractual commitments related to our leased facilities. Our operating lease expense related to land and buildings for the year ended December 31, 2021 was $2.2 million, and for the year ended December 31, 2020 was $2.5 million, net of reimbursements. These expenses will have a significant impact on our fixed costs, and if we are unable to grow our business and revenue proportionately, our operating results may be negatively affected.

 

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Risks Related to Our Business and Industry

 

The currently evolving outbreak of the novel coronavirus disease, or COVID-19, pandemic, has impacted demand for our services and disrupted our operations and may continue to do so.

 

The COVID-19 outbreak is as a serious threat to the health and economic well-being of our customers, employees, and the overall economy. Since the beginning of the outbreak, many countries and states have taken dramatic action including, without limitation, ordering all non-essential workers to stay home, mandating the closure of schools and non-essential business premises and imposing isolation measures on large portions of the population. These measures, while intended to protect human life, have had serious adverse impacts on domestic and foreign economies and the severity and the duration of these is highly uncertain. The effectiveness of economic stabilization efforts, including proposed government payments to affected citizens and industries, continue to be uncertain and many economists are predicting extended local or global recessions. The accelerating number of deaths and hospitalizations resulting from this disease are further exacerbating the uncertainties and challenges facing our business.

 

The ongoing COVID-19 pandemic had a significant impact on several of our customers during 2021, as several larger customers either postponed projects or developed or undertook internally technology initiatives instead of using our services to do so. This has adversely affected and may continue to adversely affect our opportunities for growth, whether through an increase in business or through acquisitions. The effects of the ongoing COVID-19 pandemic in the global financial markets may also reduce our ability to access capital and could negatively affect our liquidity in the future. The financial uncertainty arising from the COVID-19 pandemic may also negatively impact pricing for our services or cause our clients to again reduce or postpone their technology spending significantly and/or in the long-term, which may, in turn, lower the demand for our services and negatively affect our revenue, profitability and cash flows, and our business, financial condition, results of operations and prospects may be adversely affected.

 

Furthermore, if any of our employees become ill with COVID-19 and are unable to work, then our ability to deliver for our clients and run our business could be negatively affected, which may in turn adversely affect our business, financial condition, results of operations and prospects.

 

In addition, to the extent the ongoing COVID-19 pandemic adversely affects our business, financial condition, results of operations and prospects, it may also have the effect of heightening many of the other risks and uncertainties described in this “Risk Factors” section which may materially and adversely affect our business, financial condition, results of operations and prospects.

 

We have taken certain precautions due to the ongoing COVID-19 pandemic that could harm our business.

 

From the beginning of the ongoing COVID-19 pandemic, we have taken precautionary measures intended to help minimize the risk of the virus to our employees, our customers, and the communities in which we participate, which we intend to continue and could negatively impact our business. As a company with employees, customers, partners and investors in many countries, we believe in upholding our company value of being good citizens by doing our part to help slow the spread of the virus. To this end, we have enabled substantially all of our employees to work remotely in compliance with relevant government advice and have generally suspended all non-essential travel worldwide for our employees. In addition, we have cancelled or postponed company-sponsored events, including employee attendance at industry events and non-essential in-person work-related meetings. While we have a distributed workforce and our employees are accustomed to working remotely or working with other remote employees, our workforce is not fully remote. Our employees travel frequently to establish and maintain relationships with one another and with our customers, and many of our business processes assume that employees can meet with customers and prospective customers in person. Although we continue to monitor the situation and may adjust our current policies and practices as more information and guidance become available, temporarily suspending travel and doing business in-person could negatively impact our marketing efforts, challenge our ability to enter into customer contracts in a timely manner, slow down our recruiting efforts, or create operational or other challenges, including decreased productivity, as we adjust to a fully-remote workforce, any of which could harm our business. There is no guarantee that any of these precautions will fully protect our employees and/or customers or enable us to maintain our productivity. The full extent to which the ongoing COVID-19 pandemic and our precautionary measures related thereto may adversely impact our business, financial condition, results of operations and prospects will depend on future developments, which are still uncertain and cannot be fully predicted at this time.

 

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We are dependent on our largest clients, and if we fail to maintain these relationships or successfully obtain new engagements, we may not achieve our revenue growth and other financial goals.

 

Historically, a significant percentage of our annual revenue has come from our existing client base. For example, during 2020 and 2019, 92.5% and 77.5% of our revenue came from clients from whom we also generated revenue during the prior fiscal year, respectively. On a pro forma basis, giving effect of the AgileThought LLC acquisition as if it had occurred since January 1, 2018, 93.5% and 97.1% of our revenue during 2020 and 2019 came from clients from whom we also generated revenue during the prior fiscal year respectively. 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 contractual commitments from our clients and are often not our clients’ exclusive IT services provider. A major 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 to the same degree as previously, if at all. Our largest client for each of the years ended December 31, 2021 and 2020 accounted for 13.0% and 17.6% of our revenue, respectively, and our ten largest clients for the years ended December 31, 2021 and 2020 accounted for 65.1% and 67.0% of our revenue, respectively.

 

In addition, the services we provide to our clients, and the revenue 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 revenue may give that client a certain degree of pricing leverage against us when re-negotiating contracts and terms of service. In order to successfully perform and market our services, we must establish and maintain multi-year, close relationships with our clients and develop a thorough understanding of their businesses. Our ability to maintain these close relationships is essential to the growth and profitability of our business. If we fail to maintain these relationships or successfully obtain new engagements from our existing clients, we may not achieve our revenue growth and other financial goals.

 

We generally do not have long-term contractual commitments from our clients, and our clients may terminate engagements before completion or choose not to enter into new engagements with us.

 

We generally do not have long-term contractual commitments with our clients. Our clients can terminate many of our master services agreements and work orders with or without cause, in some cases subject only to 30 days’ prior notice in the case of termination without cause. Although a substantial majority of our revenue is typically generated from existing clients, our engagements with our clients are typically for projects that are singular in nature. Large and complex projects may involve multiple engagements or stages, and a client may choose not to retain us for additional stages or may cancel or delay additional planned engagements.

 

Even if we successfully deliver on contracted services and maintain close relationships with our clients, a number of factors outside of our control could cause the loss of or reduction in business or revenue from our existing clients. These factors include, among other things:

 

the business or financial condition of that client or the economy generally;

 

a change in strategic priorities of that client, resulting in a reduced level of spending on IT services;

 

changes in the personnel at our clients who are responsible for procurement of IT services or with whom we primarily interact;

 

a demand for price reductions by that client;

 

mergers, acquisitions or significant corporate restructurings involving that client; and

 

a decision by that client to move work in-house or to one or more of our competitors.

 

The loss or diminution in business from any of our major clients could have a material adverse effect on our business, financial condition, results of operations and prospects. The ability of our clients to terminate agreements exacerbates the uncertainty of our future revenue. We may not be able to replace any client that elects to terminate or not renew its contract with us. Further, terminations or delays in engagements may make it difficult to plan our project resource requirements.

 

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We may not be able to recover our revenue growth rate consistent with the rate prior to COVID-19 pandemic.

 

Prior to the COVID-19 pandemic, our revenue increased by 57.2% from $110.5 million in the year ended December 31, 2018 to $173.7 million in the year ended December 31, 2019. Our business was adversely affected by the COVID-19 pandemic, and we experienced a decline in our revenue from $173.7 million in the year ended December 31, 2019 to $164.0 million in the year ended December 31, 2020 to $158.7 million in the year ended December 31, 2021. We may not be able to recover our revenue growth consistent with the rate prior to the COVID-19 pandemic or at all. You should not consider our revenue growth in periods prior to the COVID-19 pandemic as indicative of our future performance. As we seek to grow our business, our future revenue growth rate may be impacted by a number of factors, such as the ongoing impact of COVID-19 pandemic fluctuations in demand for our services, increasing competition, difficulties in integrating acquired companies, decreasing growth of our overall market, our inability to engage and retain a sufficient number of information technology, or IT, professionals or otherwise scale our business, rising wages in the markets in which we operate or our failure, for any reason, to capitalize on growth opportunities, and our business, financial condition, results of operations and prospects may be adversely affected.

 

Recent acquisitions and potential future acquisitions could prove difficult to integrate, disrupt our business, dilute stockholder value and strain our resources, which may adversely affect our business, financial condition, results of operations and prospects.

 

In July 2019 we (under our previous corporate name AN Global Inc.) completed our acquisition of AgileThought, LLC, or AgileThought, and in November 2018 we completed our acquisition of 4th Source, Inc., or 4th Source, both of which expanded our client base and business operations in the United States. In addition, we have completed nine other acquisitions during the last five fiscal years. In the future, we plan to acquire additional businesses that we believe could complement or expand our business. Integrating the operations of acquired businesses successfully or otherwise realizing any of the anticipated benefits of acquisitions, including anticipated cost savings and additional revenue opportunities, involves a number of potential challenges. In addition, we have previously and may in the future use earn-out arrangements in connection with acquisitions. Using earn-out arrangements to consummate an acquisition, pursuant to which we agree to pay additional amounts of contingent consideration based on the achievement of a predetermined metric, has at times and may continue to make our integration efforts more complicated. We have also previously and may in the future negotiate restructured earn-out arrangements following the closing of acquisitions, which causes a diversion of management attention from ongoing business concerns and may result in additional cost in connection with the applicable acquisitions.

 

The failure to meet the integration challenges stemming from our acquisitions could seriously harm our financial condition and results of operations. Realizing the benefits of acquisitions depends in part on the integration of operations and personnel. These integration activities are complex and time-consuming, and we may encounter unexpected difficulties or incur unexpected costs, including:

 

our inability to achieve the operating synergies anticipated in the acquisitions;

 

diversion of management attention from ongoing business concerns to integration matters or earn-out calculations, restructurings or disputes;

 

challenges in consolidating and rationalizing IT platforms and administrative infrastructures;

 

complexities associated with managing the geographic separation of the combined businesses and consolidating multiple physical locations;

 

difficulties in retaining IT professionals and other key employees and achieving minimal unplanned attrition;

 

difficulties in integrating personnel from different corporate cultures while maintaining focus on providing consistent, high quality service;

 

our inability to exert control of acquired businesses that include earn-out payments or the risk that actions incentivized by earn-out payments will hinder integration efforts;

 

our inability to demonstrate to our clients and to clients of acquired businesses that the acquisition will not result in adverse changes in client service standards or business focus;

 

possible cash flow interruption or loss of revenue as a result of transitional matters; and

 

inability to generate sufficient revenue to offset acquisition costs.

 

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Acquired businesses may have liabilities or adverse operating issues that we fail to discover through due diligence prior to the acquisition. In particular, to the extent that prior owners of any acquired businesses or properties failed to comply with or otherwise violated applicable laws or regulations, or failed to fulfill their contractual obligations to clients, we, as the successor owner, may be financially responsible for these violations and failures and may suffer financial or reputational harm or otherwise be adversely affected. Our acquisition targets may not have as robust internal controls over financial reporting as would be expected of a public company. Acquisitions also frequently result in the recording of goodwill and other intangible assets which are subject to potential impairment in the future that could harm our financial results. We took impairment charges of $16.7 million in 2020, primarily related to prior acquisitions in Latin America, and we may take material impairment charges in the future related to acquisitions. We may also become subject to new regulations as a result of an acquisition, including if we acquire a business serving clients in a regulated industry or acquire a business with clients or operations in a country in which we do not already operate. In addition, if we finance acquisitions by incurring debt under credit facilities or issuing notes and are unable to realize the expected benefits of those acquisitions for any reason, we may be unable to repay, refinance or restructure that indebtedness when payment is due, and the lenders of that indebtedness could proceed against any collateral granted to secure such indebtedness or force us into bankruptcy or liquidation. If we finance acquisitions by issuing convertible debt or equity securities, our existing stockholders may also be diluted, which could affect the market price of our common stock. As a result, if we fail to properly evaluate acquisitions or investments, we may not achieve the anticipated benefits of any such acquisitions, and we may incur costs in excess of what we anticipate. Acquisitions frequently involve benefits related to the integration of operations of the acquired business. The failure to successfully integrate the operations or otherwise to realize any of the anticipated benefits of the acquisition could seriously harm our results of operations.

 

Strategic acquisitions to complement and expand our business have been and will likely remain an important part of our competitive strategy. If we fail to acquire companies whose prospects, when combined with our company, would increase our value, then our business, financial condition, results of operations and prospects may be adversely affected.

 

We have expanded, and may continue to expand, our operations through strategically targeted acquisitions of additional businesses. On occasion, selective acquisitions have expanded our service capabilities, geographic presence, or client base. There can be no assurance that we will be able to identify, acquire or profitably manage additional businesses or successfully integrate any acquired businesses without substantial expense, delays or other operational or financial risks and problems. In addition, any client satisfaction or performance problems within an acquired business could have a material adverse impact on our corporate reputation and brand. We cannot assure you that any acquired businesses will achieve anticipated revenues and earnings. Any failure to manage our acquisition strategy successfully could have a material adverse effect on our business, financial condition, results of operations and prospects.

 

We must attract and retain highly skilled IT professionals. Failure to hire, train and retain IT professionals in sufficient numbers could have a material adverse effect on our business, financial condition, results of operations and prospects.

 

In order to sustain our growth, we must attract and retain a large number of highly skilled and talented IT professionals. While our headcount decreased from December 31, 2019 to December 31, 2020, the decrease was primarily attributable to actions implemented in response to the COVID-19 pandemic, and our headcount increased in 2021 and we anticipate that we will need to significantly increase our headcount as our business grows. Our business is driven by people and, accordingly, our success depends upon our ability to attract, train, motivate, retain and effectively utilize highly skilled IT professionals in our delivery locations, which currently are principally located in Mexico and the United States. We believe that there is significant competition for technology professionals in the geographic regions in which our offices are located and in locations in which we intend to establish future offices and that such competition is likely to continue for the foreseeable future. Additionally, given our delivery locations in the United States, we must attract and retain a growing number of IT professionals with English language proficiency, which could further limit the talent base from which we can hire. Increased hiring by technology companies and increasing worldwide competition for skilled IT professionals may lead to a shortage in the availability of suitable personnel in the locations where we operate and hire. Our ability to properly staff projects, maintain and renew existing engagements and win new business depends, in large part, on our ability to recruit, train and retain IT professionals. We are currently focused on growing our workforce through university recruiting; however, this strategy and any other strategies we employ to hire, train and retain our IT professionals may be inadequate or may fail to achieve our objectives. Failure to hire, train and retain IT professionals in sufficient numbers could have a material adverse effect on our business, financial condition, results of operations and prospects.

 

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Furthermore, the technology industry generally experiences a significant rate of turnover of its workforce. There is a limited pool of individuals who have the skills and training needed to help us grow our company. We compete for such talented individuals not only with other companies in our industry but also with companies in other industries, such as healthcare, financial services and technology generally. High attrition rates of IT personnel would increase our hiring and training costs, reduce our revenues and could have an adverse effect on our ability to complete existing contracts in a timely manner, meet client objectives and expand our business.

 

We may not be successful in building a university recruiting and hiring program, which could hamper our ability to scale our business and grow revenue.

 

As part of our growth strategy, we are focused on growing our workforce through university recruiting. In particular, we intend to focus our university recruitment efforts on Mexico and the United States. We cannot guarantee that we will be able to recruit and train a sufficient number of qualified university hires or that we will be successful in retaining these future employees. We may not be successful in building a reputable brand on college campuses or deepening and sustaining relationships with university administrations which could hinder our ability to grow our workforce through university hiring. Increased university hiring by technology companies, particularly in Latin America and the United States, and increasing worldwide competition for skilled technology professionals may lead to a shortage in the availability of qualified university personnel in the locations where we operate and hire. Failure to hire and train or retain qualified university graduates in sufficient numbers could have a material adverse effect on our business, financial condition, results of operations and prospects.

 

Increases in our current levels of attrition may increase our operating costs and adversely affect our business, financial condition, results of operations and prospects.

 

The technology industry generally experiences a significant rate of turnover of its workforce. Excluding resignations occurring within the first year of employment and adjusting for business dispositions or discontinued business and non-core projects, our total adjusted attrition rate of billable employees for the twelve months ended December 31, 2021 was 36.1% and for the year ended December 31, 2020 it was 20.8%. If our attrition rate were to increase, our operating efficiency and productivity may decrease. We compete for talented individuals not only with other companies in our industry but also with companies in other industries, such as software services, engineering services and financial services companies, among others. High attrition rates of IT personnel could have an adverse effect on our ability to expand our business, may cause us to incur greater personnel expenses and training costs, and may otherwise adversely affect our business, financial condition, results of operations and prospects.

 

Our revenue is dependent on a limited number of industry verticals, and any decrease in demand for IT services in these verticals or our failure to effectively penetrate new verticals could adversely affect our revenue, business, financial condition, results of operations and prospects.

 

Historically, we have focused on developing industry expertise and deep client relationships in a limited number of industry verticals. As a result, a substantial portion of our revenue has been generated by clients operating in financial services, healthcare and professional services industries. Our business growth largely depends on continued demand for our services from clients in the financial services, healthcare and professional services industries, and any slowdown or reversal of the trend to spend on IT services in these verticals could result in a decrease in the demand for our services and materially adversely affect our revenue, business, financial condition, results of operations and prospects.

 

In the verticals in which we operate, there are numerous competitors that may be entrenched with potential clients we target and which may be difficult to dislodge. As a result of these and other factors, our efforts to expand our client base may be expensive and may not succeed, and we therefore may be unable to grow our revenue. If we fail to further penetrate our existing industry verticals or expand our client base into new verticals, we may be unable to grow our revenue and our business, financial condition, results of operations and prospects may be harmed.

 

15

 

 

Other developments in the verticals in which we operate may also lead to a decline in the demand for our services, and we may not be able to successfully anticipate and prepare for any such changes. For example, consolidation or acquisitions, particularly involving our clients, may adversely affect our business. Our clients and potential clients may experience rapid changes in their prospects, substantial price competition and pressure on their profitability. This, in turn, may result in increasing pressure on us from clients and potential clients to lower our prices, which could adversely affect our revenue, business, financial condition, results of operations and prospects.

 

Our contracts could be unprofitable, and any failure by us to accurately estimate the resources required to complete a contract on time and on budget could have a material adverse effect on our business, financial condition, results of operations and prospects.

 

We perform our services primarily on a time-and-materials basis. Revenue from our time-and-materials contracts represented 88.2% and 82.3%, respectively, of total revenue for the years ended December 31, 2020 and 2021. We charge out the services performed by our employees under these contracts at daily or hourly rates that are specified in the contract. The rates and other pricing terms negotiated with our clients are highly dependent on our internal forecasts of our operating costs and predictions of increases in those costs influenced by wage inflation and other marketplace factors, as well as the volume of work provided by the client. Our predictions are based on limited data and could turn out to be inaccurate, resulting in contracts that may not be profitable. Typically, we do not have the ability to increase the rates established at the outset of a client project other than on an annual basis and often subject to caps. Independent of our right to increase our rates on an annual basis, client expectations regarding the anticipated cost of a project may limit our practical ability to increase our rates for ongoing work.

 

In addition to time-and-materials contracts, we also perform our services under fixed-price and managed services contracts. Revenue from our fixed-price and managed services contracts represented 11.8% and 17.7%, respectively, of total revenue for the year ended December 31, 2020 and 2021. Our pricing in fixed-price and managed services contracts is highly dependent on our assumptions and forecasts about the costs we expect to incur to complete the related project, which are based on limited data and could turn out to be inaccurate. Any failure by us to accurately estimate the resources, including the skills and seniority of our employees, required to complete a fixed-price or managed services contract on time and on budget or meet a service level on a managed services contract, or any unexpected increase in the cost of our employees assigned to the related project, office space or materials could expose us to risks associated with cost overruns and could have a material adverse effect on our business, financial condition, results of operations and prospects. Customers may be unable or unwilling to recognize phases or partial delivery of our services, thereby delaying their recognition of our work, which would impact our cash collection cycles. Customers may also not be able or willing to recognize phases or partial delivery of our services, which may delay payment for work we delivery, and which could negatively impact our cash collection cycles. In addition, any unexpected changes in economic conditions that affect any of our assumptions and predictions could render contracts that would have been favorable to us when signed unfavorable.

 

Our operating results could suffer if we are not able to maintain favorable pricing.

 

Our operating results are dependent, in part, on the rates we are able to charge for our services. Our rates are affected by a number of factors, including:

 

our clients’ perception of our ability to add value through our services;

 

our competitors’ pricing policies;

 

bid practices of clients and their use of third-party advisors;

 

the ability of large clients to exert pricing pressure;

 

employee wage levels and increases in compensation costs;

 

employee utilization levels;

 

our ability to charge premium prices when justified by market demand or the type of service; and

 

general economic conditions.

 

If we are not able to maintain favorable pricing for our services, our operating results could suffer.

 

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If we do not maintain adequate employee utilization rates and productivity levels, our operating results may suffer and our business, financial condition, results of operations and prospects may be adversely affected.

 

Our operating results and the cost of providing our services are affected by the utilization rates of our employees in our delivery locations. If we are not able to maintain appropriate utilization rates for our employees involved in delivery of our services, our operating results may suffer. Our utilization rates are affected by a number of factors, including:

 

our ability to promptly transition our employees from completed projects to new assignments and to hire and integrate new employees;

 

our ability to forecast demand for our services and maintain an appropriate number of employees in each of our delivery locations;

 

our ability to deploy employees with appropriate skills and seniority to projects;

 

our ability to maintain continuity of existing resources on existing projects;

 

our ability to manage the attrition of our employees; and

 

our need to devote time and resources to training, including language training, professional development and other activities that cannot be billed to our clients.

 

Our revenue could also suffer if we misjudge demand patterns and do not recruit sufficient employees to satisfy demand. Employee shortages could prevent us from completing our contractual commitments in a timely manner and cause us to lose contracts or clients. Further, to the extent that we lack a sufficient number of employees with lower levels of seniority and daily or hourly rates, we may be required to deploy more senior employees with higher rates on projects without the ability to pass such higher rates along to our clients, which could adversely affect our operating results.

 

Additionally, our revenue could suffer if we experience a slowdown or stoppage of service for any clients or on any project for which we have dedicated employees and we are not be able to efficiently reallocate these employees to other clients to keep their utilization and productivity levels high. If we are not able to maintain high resource utilization levels without corresponding cost reductions or price increases, our operating results will suffer and our business, financial condition, results of operations and prospects may be adversely affected.

 

We are focused on growing our client base in the United States and may not be successful.

 

We are focused on geographic expansion, particularly in the United States. In 2020 and 2021, 69.0% and 65.2% of our revenue came from clients in the United States, respectively.

 

We have made significant investments to expand our business in the United States, including our acquisitions of 4th Source in November 2018 and of AgileThought in July 2019, which increased our sales presence in the United States and added onshore and nearshore delivery capacity in Latin America and in the United States. However, our ability to acquire new clients will depend on a number of factors, including market perception of our services, our ability to successfully add nearshore capacity and pricing, competition and overall economic conditions. If we are unable to retain existing clients and attract new clients in the United States or if our expansion plans take longer to implement than expected or their costs exceed our expectations, we may be unable to grow our revenue and our business, financial condition, results of operations and prospects could be adversely affected.

 

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We may be unable to effectively manage our growth or achieve anticipated growth, which could place significant strain on our management personnel, systems and resources.

 

We have experienced growth and significantly expanded our business over the past several years, both organically and through acquisitions. We intend to continue to grow our business in the foreseeable future and to pursue existing and potential market opportunities. We have also increased the size and complexity of the projects that we undertake for our clients and hope to continue being engaged for larger and more complex projects in the future. As we add new delivery sites, introduce new services or enter into new markets, we may face new market, technological and operational risks and challenges with which we are unfamiliar, and we may not be able to mitigate these risks and challenges to successfully grow those services or markets. We may not be able to achieve our anticipated growth or successfully execute large and complex projects, which could materially adversely affect our revenue, business, financial condition, results of operations and prospects.

 

Our future growth depends on us successfully recruiting, hiring and training IT professionals, expanding our delivery capabilities, adding effective sales staff and management personnel, adding service offerings, maintaining and expanding our engagements with existing clients and winning new business. Effective management of these and other growth initiatives will require us to continue to improve our infrastructure, execution standards and ability to expand services.

 

If we cannot maintain our culture as we grow, we could lose the innovation, creativity and teamwork fostered by our culture, and our business, financial condition, results of operations and prospects may be adversely affected.

 

We believe that a critical contributor to our success has been our culture, which is the foundation that supports and facilitates our distinctive approach. As we grow and are required to add more employees and infrastructure to support our growth, we may find it increasingly difficult to maintain our corporate culture. If we fail to maintain a culture that fosters career development, innovation, creativity and teamwork, we could experience difficulty in hiring and retaining IT professionals and other valuable employees. Failure to manage growth effectively could adversely affect the quality of the execution of our engagements, our ability to attract and retain IT professionals and other valuable employees, and our business, financial condition, results of operations and prospects. In addition, as we continue to integrate and acquire business as part of our growth strategy we risk preserving our culture, values and our entrepreneurial environment. Integrating acquisitions into our business can be particularly difficult due to different corporate cultures and values, geographic distance and other intangible factors.

 

We face intense competition.

 

The market for IT services is intensely competitive, highly fragmented and subject to rapid change and evolving industry standards and we expect competition to intensify. We believe that the principal competitive factors that we face are the ability to innovate; technical expertise and industry knowledge; end-to-end solution offerings; delivery location; price; reputation and track record for high-quality and on-time delivery of work; effective employee recruiting; training and retention; and responsiveness to clients’ business needs.

 

Our primary competitors include next-generation IT service providers, such as EPAM Systems, Inc., Endava Plc, Infosys Limited and Globant S.A., global consulting and traditional global IT service companies such as Accenture plc, Capgemini SE, Cognizant Technology Solutions Corporation and International Business Machines Corporation, or IBM; and in-house IT and development departments of our existing and potential clients. Many of our competitors have substantially greater financial, technical and marketing resources and greater name recognition than we do. As a result, they may be able to compete more aggressively on pricing or devote greater resources to the development and promotion of IT services. Companies based in some emerging markets also present significant price competition due to their competitive cost structures and tax advantages.

 

In addition, there are relatively few barriers to entry into our markets and we have faced, and expect to continue to face, competition from new market entrants. Further, there is a risk that our clients may elect to increase their internal resources to satisfy their IT service needs as opposed to relying on third-party service providers. The IT services industry may also undergo consolidation, which may result in increased competition in our target markets from larger firms that may have substantially greater financial, marketing or technical resources, may be able to respond more quickly to new technologies or processes and changes in client demands, and may be able to devote greater resources to the development, promotion and sale of their services than we can. Increased competition could also result in price reductions, reduced operating margins and loss of our market share. We cannot assure you that we will be able to compete successfully with existing or new competitors or that competitive pressures will not materially adversely affect our business, financial condition, results of operations and prospects.

 

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We are dependent on members of our senior management team.

 

Our future success heavily depends upon the continued services of our senior management team. We currently do not maintain key person life insurance for any of the members of our senior management team. In addition, we do not have employment agreements with all of the members of our senior management team. Even those employees with whom we have employment agreements or other arrangements may terminate their employment with us with or without cause, often with limited notice. If one or more of our senior executives are unable or unwilling to continue in their present positions, it could disrupt our business operations, and we may not be able to replace them easily, on a timely basis or at all. In addition, competition for senior executives in our industry is intense, and we may be unable to retain our senior executives or attract and retain new senior executives in the future, in which case our business may be severely disrupted, and our financial condition, results of operations and prospects may be adversely affected. For example, our Chief Financial Officer retired effective March 15, 2022 and we have only recently hired a new Chief Financial Officer.

 

If any of our senior management team joins a competitor or forms a competing company, we may lose clients, suppliers, know-how and IT professionals and staff members to them. Also, if any of our sales executives or other sales personnel, who generally maintain close relationships with our clients, joins a competitor or forms a competing company, we may lose clients to that company, and our revenue, business, financial condition, results of operations and prospects may be materially adversely affected. Additionally, there could be unauthorized disclosure or use of our technical knowledge, business practices or procedures by such personnel. Any non-competition, non-solicitation or non-disclosure agreements we have with our senior executives or key employees might not provide effective protection to us in light of legal uncertainties associated with the enforceability of such agreements.

 

Forecasts of our market size may prove to be inaccurate, and even if the markets in which we compete achieve the forecasted growth, there can be no assurance that our business will grow at similar rates, or at all.

 

Growth forecasts included in this prospectus relating to our market opportunity and the expected growth in the market for our services are subject to significant uncertainty and are based on both internal and third-party assumptions and estimates which may prove to be inaccurate. Even if these markets meet our size estimates and experience the forecasted growth, we may not grow our business at similar rates, or at all. Our growth is subject to many risks and uncertainties, including our success in implementing our business strategy. Accordingly, the forecasts of market growth included in this prospectus should not be taken as indicative of our future growth.

 

Our business, financial condition, results of operations and prospects will suffer if we are not successful in delivering contracted services.

 

Our operating results are dependent on our ability to successfully deliver contracted services in a timely manner. We must consistently build, deliver and support challenging and complex projects and managed services. Failure to perform or observe any contractual obligations could damage our relationships with our clients and could result in cancellation or non-renewal of a contract. Some of the challenges we face in delivering contracted services to our clients include:

 

maintaining high-quality control and process execution standards;

 

maintaining planned resource utilization rates on a consistent basis;

 

maintaining employee productivity and implementing necessary process improvements;

 

controlling costs;

 

maintaining close client contact and high levels of client satisfaction;

 

maintaining physical and data security standards required by our clients;

 

recruiting and retaining sufficient numbers of skilled IT professionals; and

 

maintaining effective client relationships.

 

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If we are unable to deliver contracted services, our relationships with our clients will suffer and we may be unable to obtain new engagements. In addition, it could damage our reputation, cause us to lose business, impact our operating margins and adversely affect our business, financial condition, results of operations and prospects, as well as subject us to breach of contract claims.

 

If we do not successfully manage and develop our relationships with key partners or if we fail to anticipate and establish new partnerships in new technologies, our business, financial condition, results of operations and prospects could be adversely affected.

 

We have partnerships with companies whose capabilities complement our own. A significant portion of our revenue and services and solutions are based on technology or software provided by a few major partners.

 

The business that we conduct through these partnerships could decrease or fail to grow for a variety of reasons. The priorities and objectives of our partners may differ from ours, and our partners are not prohibited from competing with us or forming closer or preferred arrangements with our competitors. In addition, some of our partners are also large clients or suppliers of technology to us. The decisions we make vis-à-vis a partner may impact our ongoing relationship. In addition, our partners could experience reduced demand for their technology or software, including, for example, in response to changes in technology, which could lessen related demand for our services and solutions.

 

We must anticipate and respond to continuous changes in technology and develop relationships with new providers of relevant technology. We must secure meaningful partnerships with these providers early in their life cycle so that we can develop the right number of certified people with skills in new technologies. If we are unable to maintain our relationships with current partners and identify new and emerging providers of relevant technology to expand our network of partners, we may not be able to differentiate our services or compete effectively in the market.

 

If we do not obtain the expected benefits from our partnerships for any reason, we may be less competitive, our ability to offer attractive solutions to our clients may be negatively affected, and our business, financial condition, results of operations and prospects could be adversely affected.

 

Our sales of services and operating results may experience significant variability and our past results may not be indicative of our future performance.

 

Our operating results may fluctuate due to a variety of factors, many of which are outside of our control. As a result, comparing our operating results on a period-to-period basis may not be meaningful. You should not rely on our past results as an indication of our future performance.

 

Factors that are likely to cause these variations include:

 

the number, timing, scope and contractual terms of projects in which we are engaged;

 

delays in project commencement or staffing delays due to difficulty in assigning appropriately skilled or experienced professionals;

 

the accuracy of estimates on the resources, time and fees required to complete projects and costs incurred in the performance of each project;

 

inability to retain employees or maintain employee utilization levels;

 

changes in pricing in response to client demand and competitive pressures;

 

the business decisions of our clients regarding the use of our services or spending on technology;

 

the ability to further grow sales of services from existing clients and the ability to substitute revenue from engagements with governmental clients as we discontinue new engagements with governmental entities;

 

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seasonal trends and the budget and work cycles of our clients;

 

delays or difficulties in expanding our operational facilities or infrastructure;

 

our ability to estimate costs under fixed price or managed services contracts;

 

employee wage levels and increases in compensation costs;

 

unanticipated contract or project terminations;

 

the timing of collection of accounts receivable;

 

our ability to manage risk through our contracts;

 

the continuing financial stability of our clients;

 

changes in our effective tax rate or unanticipated tax assessments;

 

impacts of any acquisitions and our ability to successfully integrate any acquisitions;

 

the implementation of new laws or regulations and/or changes to current applicable laws or regulations or their interpretation or application;

 

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

 

fluctuations in currency exchange rates; and

 

general economic conditions.

 

As a result of these factors, our operating results may from time to time fall below our estimates or the expectations of public market analysts and investors.

 

We operate in a rapidly evolving industry, which makes it difficult to evaluate our future prospects and may increase the risk that we will not continue to be successful.

 

The IT services industry is competitive and continuously evolving, subject to rapidly changing demands and constant technological developments. As a result, success and performance metrics are difficult to predict and measure in our industry. Because 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. Neither our past financial performance nor the past financial performance of any other company in the IT 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 an 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 financial condition, results of operations and prospects could be adversely affected.

 

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We have in the past experienced, and may in the future experience, a long selling and implementation cycle with respect to certain projects that require us to make significant resource commitments prior to realizing revenue for our services.

 

We have experienced, and may in the future experience, a long selling cycle with respect to certain projects that require significant investment of human resources and time by both our clients and us. Before committing to use our services, potential clients may require us to allocate 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 choose alternatives to our services (such as other IT service providers or in-house resources) and the timing of our clients’ budget cycles and approval processes. If our sales cycle unexpectedly lengthens for one or more projects, it could affect the timing of our recognition of revenue and hinder or delay our revenue growth. For certain clients, we may begin work and incur costs prior to executing the contract. A delay in our ability to obtain a signed agreement or other persuasive evidence of an arrangement, or to complete certain contract requirements in a particular financial period, could reduce our revenue in that financial period or render us entirely unable to collect payment for work already performed.

 

Implementing our services also involves a significant commitment of resources over an extended period of time from both our clients and us. Our clients may experience delays in obtaining internal approvals or delays associated with technology, thereby further delaying the implementation process. 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 to which we have devoted significant time and resources. Any significant failure to generate revenue or delays in recognizing revenue after incurring costs related to our sales or services process could materially adversely affect our business, financial condition, results of operations and prospects.

 

If we provide inadequate service or cause disruptions in our clients’ businesses, it could result in significant costs to us, the loss of our clients and damage to our corporate reputation, and our business, financial condition, results of operations and prospects may be adversely affected.

 

Any defects or errors or failure to meet clients’ expectations in the performance of our contracts could result in claims for substantial damages against us. In addition, certain liabilities, such as claims of third parties for intellectual property infringement and breaches of data protection and security requirements, for which we may be required to indemnify our clients, could be substantial. The successful assertion of one or more large claims against us in amounts greater than those covered by our then-current insurance policies could materially adversely affect our business, financial condition, results of operations and prospects. Even if such assertions against us are unsuccessful, we may incur reputational harm and substantial legal fees. In addition, a failure or inability to meet a contractual requirement, in addition to subjecting us to breach of contract claims, could seriously damage our corporate reputation and limit our ability to attract new business.

 

In certain contracts, we agree to complete a project by a scheduled date or maintain certain service levels. We may suffer reputational harm and loss of future business if we do not meet our contractual commitments. In addition, if the project experiences a performance problem, we may not be able to recover the additional costs we will incur to remediate the problem, which could exceed revenue realized from a project. Under our managed services contracts, we may be required to pay liquidated damages if we are unable to maintain agreed-upon service levels, and our business, financial condition, results of operations and prospects may be adversely affected.

 

Our business depends on a strong brand and corporate reputation. Damage to our reputation could be difficult and time-consuming to repair, could make potential or existing clients reluctant to select us for new engagements resulting in a loss of business and could adversely affect our employee recruitment and retention efforts, which in turn could adversely affect our business, financial condition, results of operations and prospects.

 

Since many of our specific client engagements involve highly tailored solutions, our corporate reputation is a significant factor in our clients’ and prospective clients’ determination of whether to engage us. We believe our brand name and our reputation are important corporate assets that help distinguish our services from those of our competitors and also contribute to our efforts to recruit and retain talented IT professionals. Successfully maintaining and enhancing our brand will depend largely on the effectiveness of our marketing efforts, our ability to provide reliable services that continue to meet the needs of our clients at competitive prices, our ability to maintain our clients’ trust, our ability to continue to develop new services, and our ability to successfully differentiate our services and capabilities from those of our competitors. Our brand promotion activities may not generate client awareness or yield increased revenue, and even if they do, any increased revenue may not offset the expenses we incur in building our brand. If we fail to successfully promote and maintain our brand, our business, financial condition, results of operations and prospects may suffer.

 

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Our corporate reputation is susceptible to damage by actions or statements made by current or former employees or clients, competitors, vendors and adversaries in legal proceedings, as well as members of the investment community and the media. In addition, if errors are discovered in our historical financial data, we could suffer reputational damage. There is a risk that negative information about our company, even if based on false rumor or misunderstanding, could adversely affect our business. In particular, damage to our reputation could be difficult and time-consuming to repair, could make potential or existing clients reluctant to select us for new engagements, resulting in a loss of business, and could adversely affect our employee recruitment and retention efforts. Damage to our reputation could also reduce the value and effectiveness of our brand name and could reduce investor confidence in us and adversely affect our business, financial condition, results of operations and prospects.

 

If we do not continue to innovate and remain at the forefront of next-generation technologies and related market trends, we may lose clients and not remain competitive, and our business, financial condition, results of operations and prospects may be adversely affected.

 

Our success depends on delivering innovative solutions that leverage emerging next-generation technologies and emerging market trends to drive increased revenue. Technological advances and innovation are constant in the IT services industry. As a result, we must continue to invest significant resources to stay abreast of technology developments so that we may continue to deliver solutions that our clients will wish to purchase. 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 revenue, business, financial condition, results of operations and prospects could suffer. Our results of operations would also suffer if our employees are not responsive to the needs of our clients, not able to help clients in driving innovation and not able to help our clients in effectively bringing innovative ideas to market. Our competitors may be able to offer design and innovation services that are, or that are perceived to be, substantially similar or better than those we offer. This may force us to reduce our prices and to allocate significant resources in order to remain competitive, which we may be unable to do profitably or at all. Because many of our clients and potential clients regularly contract with other IT service providers, these competitive pressures may be more acute than in other industries.

 

Our ability to expand our business and procure new contracts or enter into beneficial business arrangements could be affected to the extent we enter into agreements with clients containing non-competition clauses.

 

We have in the past and may in the future enter into agreements with clients that restrict our ability to accept assignments from, or render similar services to, those clients’ customers, require us to obtain our clients’ prior written consent to provide services to their customers or restrict our ability to compete with our clients, or bid for or accept any assignment for which those clients are bidding or negotiating. These restrictions could hamper our ability to compete for and provide services to other clients in a specific industry in which we have expertise and could materially adversely affect our business, financial condition, results of operations and prospects.

 

Our cash flows and results of operations may be adversely affected if we are unable to collect on billed and unbilled receivables from clients, which may in turn adversely affect our business, financial condition and prospects.

 

Our business depends on our ability to successfully obtain payment from our clients of the amounts they owe us for work performed. We evaluate the financial condition of our clients and usually bill and collect on relatively short cycles. 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, 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 our cash flows. In addition, if we experience an increase in the time required to bill and collect for our services, our cash flows and results of operations could be adversely affected, which in turn could adversely affect our business, financial condition and prospects.

 

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If we are unable to comply with our security obligations or our computer systems are or become vulnerable to security breaches, we could face reputational damage and lose clients and revenue, and our business, financial condition, results of operations and prospects could be adversely affected.

 

The services we provide are often critical to our clients’ businesses. Certain of our client contracts require us to comply with security obligations, which could include breach notification and remediation obligations, maintaining network security and backup data, ensuring our network is virus-free, maintaining business continuity planning procedures, and verifying the integrity of employees that work with our clients by conducting background checks. Any failure in a client’s system, whether or not a result of or related to the services we provide, or breach of security relating to the services we provide to the client, could adversely affect our business, including by damaging our reputation or resulting in a claim for substantial damages against us. Our liability for security breaches of our or a client’s systems or breaches of data security requirements, for which we may be required to indemnify our clients, may be extensive. Any failure of our equipment or systems, or any disruption to basic infrastructure like power and telecommunications in the locations in which we operate, could impede our ability to provide services to our clients, have a negative impact on our reputation, cause us to lose clients, and adversely affect our business, financial condition, results of operations and prospects. Additionally, our failure to continuously upgrade or increase the reliability and redundancy of our infrastructure to meet the demands of our customers could adversely affect the functioning and performance of our services and could in turn affect our results of operations. Any steps we take to increase the security, reliability and redundancy of our systems may be expensive and may not be successful in preventing system failures.

 

In addition, we often have access to or are required to collect, store and otherwise process confidential client data. If any person, including any of our employees or former employees, accidentally or intentionally, penetrates our network security, exposes our data or code, or misappropriates data or code that belongs to us, our clients, or our clients’ customers, we could be subject to significant liability from our clients or our clients’ customers for breaching contractual obligations or applicable privacy laws, rules and regulations. Unauthorized disclosure of sensitive or confidential client and customer data, including personal data, whether through breach of our computer systems, systems failure, loss or theft of confidential information or intellectual property belonging to our clients or our clients’ customers, or otherwise, could damage our brand and reputation, cause us to lose clients and revenue, and result in financial and other potential losses by us. For more information, see “Risk Factors — We are subject to stringent and changing regulatory, legislative and industry standard developments regarding privacy and data security matters, which could adversely affect our ability to conduct our business.”

 

We are also subject to numerous commitments in our contracts with our clients. Significant unavailability of our services due to attacks could cause users to claim breach of contract and cease using our services, which could materially and adversely affect our business, financial condition, results of operations and prospects. We also may be subject to liability claims if we breach our contracts, including as a result of any accidental or intentional breach of our security.

 

Despite the procedures, systems and internal controls we have implemented to comply with our contracts, we may breach these commitments, whether through a weakness in these procedures, systems and internal controls, the negligence or the willful act of an employee or contractor. Our insurance policies, including our errors and omissions insurance, which we only maintain in select jurisdictions, may be inadequate to compensate us for the potentially significant losses that may result from claims arising from breaches of our contracts, disruptions in our services, failures of or disruptions to our infrastructure, catastrophic events and disasters or otherwise. In addition, such insurance may not be available to us in the future on economically reasonable terms, or at all, or our insurance could undergo a change in policy including premium increases or the imposition of large deductible or co-insurance requirements. Further, our insurance may not cover all claims made against us and defending a suit, regardless of its merit, could be costly and divert management’s attention.

 

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We are subject to stringent and changing regulatory, legislative and industry standard developments regarding privacy and data security matters, which could adversely affect our ability to conduct our business.

 

We, along with a significant number of our clients, are subject to a variety of federal, state, local and international laws, rules, regulations and industry standards related to data privacy and cybersecurity, and restrictions or technological requirements regarding the processing, collection, use, storage, protection, retention or transfer of data. The regulatory framework for privacy and security issues worldwide is rapidly evolving and, as a result, implementation standards and enforcement practices are likely to remain uncertain for the foreseeable future.

 

For example, the European Union General Data Protection Regulation, or the GDPR, came into force in May 2018 and contains numerous requirements and changes from prior EU law, including more robust obligations on data processors and data controllers, heavier documentation requirements for data protection compliance programs, greater control over personal data by data subjects (e.g., the “right to be forgotten”), increased data portability for data subjects, data breach notification requirements and increased fines. In particular, under the GDPR, fines of up to €20 million or up to 4% of the annual global revenue of the noncompliant company, whichever is greater, could be imposed for violations of certain of the GDPR’s requirements. The GDPR requirements apply not only to third-party transactions, but also to transfers of information between us and our subsidiaries, including employee information.

 

If our efforts to comply with GDPR or other applicable EU laws and regulations are not successful, or are perceived to be unsuccessful, it could adversely affect our business in the EU. Further, in July 2020, the European Court of Justice, or the ECJ, invalidated the EU-U.S. Privacy Shield, which had enabled the transfer of personal data from the EU to the U.S. for companies that had self-certified to the Privacy Shield. The ECJ decision also raised questions about the continued validity of one of the primary alternatives to the EU-U.S. Privacy Shield, namely the European Commission’s Standard Contractual Clauses, and EU regulators have issued additional guidance regarding considerations and requirements that we and other companies must consider and undertake when using the Standard Contractual Clauses. Although the EU has presented a new draft set of contractual clauses, at present, there are few, if any, viable alternatives to the EU-U.S. Privacy Shield and the Standard Contractual Clauses. To the extent that we were to rely on the EU-U.S. or Swiss-U.S. Privacy Shield programs, we will not be able to do so in the future, and the ECJ’s decision and other regulatory guidance or developments may impose additional obligations with respect to the transfer of personal data from the EU and Switzerland to the U.S., each of which could restrict our activities in those jurisdictions, limit our ability to provide our products and services in those jurisdictions, or increase our costs and obligations and impose limitations upon our ability to efficiently transfer personal data from the EU and Switzerland to the U.S.

 

Further, the exit of the United Kingdom, or the UK, from the EU, often referred to as Brexit, has created uncertainty with regard to data protection regulation in the UK. Specifically, the UK exited the EU on January 31, 2020, subject to a transition period that ended December 31, 2020. As of January 1, 2021, following the expiry of such transition period, data processing in the UK is governed by a UK version of the GDPR (combining the GDPR and the UK’s Data Protection Act 2018), exposing us to two parallel regimes, each of which authorizes similar fines and other potentially divergent enforcement actions for certain violations. With respect to transfers of personal data from the EEA to the UK, the European Commission has published a decision finding that the UK ensures an adequate level of data protection, although such decision is subject to renewal and may be revised or revoked in the interim, resulting in uncertainty and the potential for increasing scope for divergence in application, interpretation and enforcement of the data protection law as between the UK and EEA.

 

Another example is the recently adopted the California Consumer Privacy Act of 2018, or the CCPA, in the United States, which became effective on January 1, 2020. The CCPA establishes a new privacy framework for covered businesses by creating an expanded definition of personal information, establishing new data privacy rights for California residents, imposing special rules on the collection of data from minors, and creating a new and potentially severe statutory damages framework for violations of the CCPA and for businesses that fail to implement reasonable security procedures and practices to prevent data breaches. The CCPA provides for severe civil penalties for violations, as well as a private right of action for data breaches that is expected to increase data breach litigation. The CCPA may increase our compliance costs and potential liability. In addition, it is anticipated the CCPA will be expanded on January 1, 2023, when the California Privacy Rights Act of 2020, or the CPRA, becomes operative. The CPRA will, among other things, give California residents the ability to limit use of certain sensitive personal information, further restrict the use of cross-contextual advertising, establish restrictions on the retention of personal information, expand the types of data breaches subject to the CCPA’s private right of action, provide for increased penalties for CPRA violations concerning California residents under the age of 16, and establish a new California Privacy Protection Agency to implement and enforce the CCPA and the CPRA. While aspects of the CPRA and its interpretation remain to be determined in practice, they create further uncertainty and may result in additional costs and expenses in an effort to comply. Additionally, on March 2, 2021, the Virginia Consumer Data Protection Act, or the CDPA, was signed into law. The CDPA becomes effective beginning January 1, 2023, and contains provisions that require businesses to conduct data protection assessments in certain circumstances, and that require opt-in consent from consumers to process certain sensitive personal information. These laws could mark the beginning of a trend toward more stringent privacy legislation in the United States, which could increase our potential liability and adversely affect our business. Additionally, all 50 states now have data breach laws that require timely notification to individuals, and at times regulators, the media or credit reporting agencies, if a company has experienced the unauthorized access or acquisition of personal information. More than a dozen states require that reasonable information security protections be used to protect personal information. If we fail to comply with any applicable privacy laws, rules, regulations, industry standards and other legal obligations, we may be subject to the aforementioned penalties, our business, financial condition, results of operations and prospects could be adversely affected.

 

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Also, in the United States, further laws, rules and regulations to which we may be subject include those promulgated under the authority of the Federal Trade Commission, the Gramm Leach Bliley Act and state cybersecurity and breach notification laws, as well as regulator enforcement positions and expectations. Globally, governments and agencies have adopted and could in the future adopt, modify, apply or enforce laws, rules, policies, regulations and standards covering user privacy, data security, technologies such as cookies that are used to collect, store or process data, marketing online, the use of data to inform marketing, the taxation of products and services, unfair and deceptive practices, and the collection, including the collection, use, processing, transfer, storage or disclosure of data associated with unique individual internet users. New regulation or legislative actions regarding data privacy and security, together with applicable industry standards, may increase the costs of doing business and could have a material adverse effect on our business, financial condition, results of operations and prospects.

 

While we have taken steps to mitigate the impact of the GDPR and other laws, rules, regulations and standards on us, including by implementing certain security measures and mechanisms, the efficacy and longevity of these mechanisms remains uncertain. Despite our ongoing efforts to bring practices into compliance, we may not be successful either due to various factors within our control, such as limited financial or human resources, or other factors outside our control. Our efforts could fail and result in unauthorized access to or disclosure, modification, misuse, loss or destruction of data. It is also possible that local data protection authorities may have different interpretations of the GDPR and other laws, rules, regulations and standards to which we are subject, leading to potential inconsistencies amongst various EU member states. Because the interpretation and application of many privacy and data protection laws, rules and regulations along with contractually imposed industry standards are uncertain, it is possible that these laws may be interpreted and applied in a manner that is inconsistent with our existing data management practices or the features of our services and platform capabilities. If so, in addition to the possibility of fines, lawsuits, regulatory investigations, imprisonment of company officials and public censure, other claims and penalties, significant costs for remediation and damage to our reputation, we could be required to fundamentally change our business activities and practices or modify our services and platform capabilities, any of which could have an adverse effect on our business, financial condition, results of operations and prospects.

 

Certain of our clients require solutions that ensure security given the nature of the content being distributed and associated applicable regulatory requirements. In particular, our U.S. healthcare industry clients may rely on our solutions to protect information in compliance with the requirements of the Health Insurance Portability and Accountability Act of 1996, the 2009 Health Information Technology for Economic and Clinical Health Act, the Final Omnibus Rule of January 25, 2013, and related regulations, which are collectively referred to as HIPAA, and which impose privacy and data security standards that protect individually identifiable health information by limiting the uses and disclosures of individually identifiable health information and requiring that certain data security standards be implemented to protect this information. As a “business associate” to “covered entities” that are subject to HIPAA, such as certain healthcare providers, health plans and healthcare clearinghouses, we also have our own compliance obligations directly under HIPAA and pursuant to the business associate agreements that we are required to enter into with our clients that are HIPAA-covered entities and any vendors we engage that access, use, transmit or store individually identifiable health information in connection with our business operations. Compliance efforts can be expensive and burdensome, and if we fail to comply with our obligations under HIPAA, our required business associate agreements or applicable state data privacy laws and regulations, we could be subject to regulatory investigations and orders, significant fines and penalties, mitigation and breach notification expenses, private litigation and contractual damages, corrective action plans and related regulatory oversight and reputational harm.

 

We make public statements about our use and disclosure of personal information through our privacy policies, information provided on our website and press statements. Although we endeavor to comply with our public statements and documentation, we may at times fail to do so or be alleged to have failed to do so. The publication of our privacy policies and other statements that provide promises and assurances about data privacy and security can subject us to potential government or legal action if they are found to be deceptive, unfair or misrepresentative of our actual practices. Any concerns about our data privacy and security practices, even if unfounded, could damage the reputation of our business and harm our business, financial condition and results of operations.

 

Any failure or perceived failure, including as a result of deficiencies in our policies, procedures, or measures relating to privacy, data protection, marketing, client communications or information security, by us to comply with laws, rules, regulations, policies, legal or contractual obligations, industry standards, or regulatory guidance relating to data privacy or security, may result in governmental investigations and enforcement actions, litigation, significant fines and penalties or adverse publicity, and could cause our clients and partners to lose trust in us, which could have an adverse effect on our reputation and business. We expect that there will continue to be new proposed laws, rules, regulations and industry standards relating to privacy, data protection, marketing, client communications and information security in the United States, the EU and other jurisdictions, and we cannot determine the impact such future laws, rules, regulations and standards may have on our business. Current and future laws, rules, regulations, standards and other obligations or any changed interpretation of existing laws, rules, regulations or standards could impair our ability to develop and market new services and maintain and grow our client base and increase revenue.

 

Our client relationships, revenue, business, financial condition, results of operations and prospects may be adversely affected if we experience disruptions in our internet infrastructure, telecommunications or IT systems.

 

Disruptions in telecommunications, system failures, internet infrastructure issues, computer attacks, natural disasters, terrorism and loss of adequate power could damage our reputation and harm our ability to deliver services to our clients, which could result in client dissatisfaction, a loss of business, damage to our brand and reputation and related reduction of our revenue. We may not be able to consistently maintain active voice and data communications between our various global operations and with our clients due to disruptions in telecommunication networks and power supply, system failures or computer attacks. Any failure in our ability to communicate could result in a disruption in business, which could hinder our performance and our ability to complete projects on time. Such failure to perform our client contracts could have a material adverse effect on our revenue, business, financial condition, results of operations and prospects.

 

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Our business, financial condition, results of operations and prospects could be adversely affected by negative publicity about offshore outsourcing or anti-outsourcing legislation in the countries in which our clients operate.

 

Concerns that offshore outsourcing has resulted in a loss of jobs, sensitive technologies and information to foreign countries have led to negative publicity concerning outsourcing in some countries. Many organizations and public figures in the United States have publicly expressed concern about a perceived association between offshore outsourcing IT service providers and the loss of jobs. Current or prospective clients may elect to perform services that we offer, or may be discouraged from transferring these services to offshore providers, to avoid any negative perceptions that may be associated with using an offshore provider or for data privacy and security concerns. As a result, our ability to compete effectively with competitors that operate primarily out of facilities located in the United States could be harmed. Legislation enacted in the United States and certain other jurisdictions in which we operate and any future legislation in countries in which we have clients that restricts the performance of services from an offshore location could also materially adversely affect our business, financial condition, results of operations and prospects.

 

Cybersecurity attacks, breaches or other technological failures or security incidents, and changes in laws and regulations related to the internet or changes in the internet infrastructure itself, may diminish the demand for our services and could have a negative impact on our business.

 

The future success of our business depends upon the continued use of the internet as a primary medium for commerce, communication and business applications. International, federal state and foreign government bodies or agencies have in the past adopted, and may in the future adopt, laws, rules, regulations and standards affecting the use of the internet as a commercial medium. Changes in these laws, rules, regulations and standards could adversely affect the demand for our services or require us to modify our solutions in order to comply with these changes. In addition, government agencies or private organizations may begin to impose taxes, fees or other charges for accessing the internet or commerce conducted via the internet. These laws or charges could limit the growth of internet-related commerce or communications generally, resulting in reductions in the demand for IT services.

 

We and our vendors and outsourced data center operations are subject to cybersecurity attacks, breaches or other technological failures which can include ransomware, viruses, worms, malware, phishing attacks, data breaches, denial or degradation of service attacks, social engineering attacks, terrorism, service disruptions, failures during the process of upgrading or replacing software, unauthorized access attempts, including third parties gaining access to systems or client accounts using stolen or inferred credentials and similar malicious programs, behavior, and events. Our systems and our vendors’ systems are also subject to compromise from internal threats, such as theft, misuse, unauthorized access or other improper actions by employees and other third parties with otherwise legitimate access. In addition, we have experienced outages and other delays. In response to the COVID-19 pandemic, a majority of our office employees are working remotely, which may increase the risk of cyber incidents or data breaches. We could experience a security breach resulting in the unauthorized use or disclosure of certain types of data, including client data, and personal information, that could put individuals at risk of identity theft and financial or other harm, resulting in costs to us, including as related to loss of business, severe reputational damage, reduced demand for our services, regulatory investigations or inquiries, remediation costs, indemnity obligations, legal defense costs and liability to parties who are financially harmed, any of which could have an adverse effect on our business, financial condition, results of operations or prospects. Such events could also compromise our trade secrets or other confidential, proprietary or sensitive information and result in such information being disclosed to third parties and becoming less valuable. A cybersecurity attack could also result in significant degradation or failure of our computer systems, communications systems or any other systems in the performance of our services, which could cause our clients or their employees to suffer delays in their receipt of our services. These delays could cause substantial losses for our clients and their employees, and we could be liable to parties who are financially harmed by those failures. In addition, such failures could cause us to lose revenues, lose clients or damage our reputation, which could have an adverse effect on our business, financial condition, results of operations and prospects.

 

The frequency and impact of cybersecurity attacks and other malicious internet-based activity continue to increase and evolve in nature. Given the unpredictability of the timing, nature and scope of data security-related incidents and fraudulent activity, there can be no assurance that our efforts will prevent, detect or mitigate system failures, breaches in our systems or other cyber incidents or that we can remediate any such incidents in an effective or timely manner. Furthermore, because the methods of attack and deception change frequently, are increasingly complex and sophisticated, and can originate from a wide variety of sources, including third parties such as vendors and even nation-state actors, despite our reasonable efforts to ensure the integrity of our systems and website, it is possible that we may not be able to anticipate, detect, appropriately react and respond to, or implement effective preventative measures against, all security breaches and failures and fraudulent activity. In the event we experience significant disruptions, we may be unable to repair our systems in an efficient and timely manner. If our services or security measures are perceived as weak or are actually compromised as a result of third-party action, employee or client error, malfeasance, or otherwise, our clients may curtail or stop using our services, our brand and reputation could be damaged, our business may be harmed, and we could incur significant liability. As we increase our client adoption and our brand becomes more widely known and recognized, we may become more of a target for third parties seeking to compromise our security systems or gain unauthorized access to our or our clients’ data.

 

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We also cannot ensure that insurance coverage will be available on acceptable terms or will be available in sufficient amounts to cover one or more large claims related to a security incident or breach, or that the insurer will not deny coverage as to any future claim. 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 reputation and our business, financial condition, results of operations and prospects.

 

We did not receive full forgiveness of our PPP Loans, and our application for the PPP Loans could in the future be determined to have been impermissible or could adversely affect our reputation and our business, financial condition, results of operations and prospects.

 

In May 2020, we received aggregate proceeds of approximately $9.3 million from loans under the Paycheck Protection Program of the CARES Act, or the PPP Loans, some of which have been forgiven, which we used to retain current employees, maintain payroll and make lease and utility payments. The PPP Loans mature in May 2022 and bear annual interest at a rate of 1%. We submitted forgiveness applications on our four PPP Loans in November 2020 and January 2021, and in 2021 received $1.4 million in forgiveness on three PPP Loans that had an original loan value of $1.7 million, including the forgiveness in full of one of the PPP Loans. In January 2022, we received partial forgiveness of $7.3 million of the remaining $7.6 million remaining PPP loan. The remaining balance must be paid in monthly installments until May 2025.

 

In order to apply for the PPP Loans, we were required to certify, among other things, that the current economic uncertainty made the PPP Loan request necessary to support our ongoing operations. We made this certification in good faith after analyzing, among other things, our financial situation and access to alternative forms of capital, and believe that we satisfied all eligibility criteria for the PPP Loans, and that our receipt of the PPP Loans is consistent with the broad objectives of the Paycheck Protection Program of the CARES Act, as amended by the Flexibility Act. The certification described above does not contain any objective criteria and is subject to interpretation. The lack of clarity regarding loan eligibility under the Paycheck Protection Program has resulted in significant media coverage and controversy, particularly with respect to large or public companies applying for and receiving loans. If, despite our good-faith belief that given our circumstances we satisfied all eligible requirements for the PPP Loans, we are later determined to have violated any of the laws or governmental regulations that apply to us in connection with the PPP Loans, such as the False Claims Act, or it is otherwise determined that we were ineligible to receive the PPP Loans, we may be subject to penalties, including significant civil, criminal and administrative penalties and could be required to repay the PPP Loans in their entirety. In addition, receipt of the PPP Loans may result in adverse publicity and damage to reputation, and a review or audit by the SBA or other government entity or claims under the False Claims Act could consume significant financial and management resources. Should we be audited or reviewed by federal or state regulatory authorities as a result of filing an application for forgiveness of the PPP Loan or otherwise, such audit or review could result in the diversion of management’s time and attention and legal and reputational costs. If we were to be audited or reviewed and receive an adverse determination or finding in such audit or review, we could be required to return the full amount of the PPP Loans. Any of these events could have a material adverse effect on our business, results of operations, financial condition and prospects.

 

Risks Related to Our Intellectual Property

 

We may not secure sufficient intellectual property rights or obtain, maintain, protect, defend or enforce such rights sufficiently to comply with our obligations to our clients or protect our brand and we may not be able to prevent unauthorized use of or otherwise protect our intellectual property, thereby eroding our competitive advantages and harming our business.

 

Our contracts generally require, and our clients typically expect, that we will assign to them all intellectual property rights associated with the deliverables that we create in connection with our engagements. In order to validly assign these rights to our clients, we must ensure that we obtain all intellectual property rights that our employees and contractors may have in such deliverables. We endeavor to enter into agreements with our employees and contractors in order to limit access to and disclosure of our proprietary information, as well as to assign to us all intellectual property rights they develop in connection with their work for us. However, we cannot ensure that all employees and independent contractors — or any other party who has access to our confidential information or contributes to the development of our intellectual property — have signed assignment of inventions agreements with us validly assigning such rights to us or that we will be able to enforce our rights under any such agreements. Such agreements may not be self-executing or may be breached, and we may not have adequate remedies for any such breach. Given that we operate in a variety of jurisdictions with different and evolving legal regimes, particularly in Latin America and the United States, we face increased uncertainty regarding whether we fully own all intellectual property rights in such deliverables and whether we will be able to avail ourselves of the remedies provided for by applicable law.

 

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Further, our current and former employees could challenge our exclusive rights to the software they have developed in the course of their employment. In certain countries in which we operate, an employer is deemed to own the copyrightable work created by its employees during the course, and within the scope, of their employment, but the employer may be required to satisfy additional legal requirements in order to make further use and dispose of such works. We cannot ensure that we have complied with all such requirements or fulfilled all requirements necessary to acquire all rights in software developed by our employees and independent contractors. These requirements are often ambiguously defined and enforced. As a result, we may not be successful in defending against any claim by our current or former employees or independent contractors challenging our exclusive rights over the use and transfer of works those employees or independent contractors created or requesting additional compensation for such works. Protecting our intellectual property is thus a challenge, especially after our employees or our contractors end their relationships with us, and, in some cases, decide to work for our competitors.

 

Our success also depends in part on our ability to obtain, maintain, protect defend and enforce our intellectual property rights, including our trademarks and certain methodologies, practices, tools and technical expertise we utilize in designing, developing, implementing and maintaining applications and other intellectual property rights. In order to protect our intellectual property rights, we rely upon a combination of nondisclosure and other contractual arrangements as well as trade secret, copyright and trademark laws, though we have not sought patent protection for any of our proprietary technology. However, the steps we take to obtain, maintain, protect, defend and enforce our intellectual property rights may be inadequate. We will not be able to protect our intellectual property rights if we are unable to enforce our rights, detect unauthorized use of our intellectual property rights or, with respect to our trademarks and brand name, obtain registered trademarks in the jurisdictions in which we operate. Other parties, including our competitors, may independently develop similar technology, duplicate our services or design around our intellectual property and, in such cases, we may not be able to assert our intellectual property rights against such parties and our business, financial condition, results of operation or prospects may be harmed. Any trademarks or other intellectual property rights that we have or may obtain may be challenged or circumvented by others or invalidated, narrowed in scope or held unenforceable through administrative process or litigation. Furthermore, legal standards relating to the validity, enforceability and scope of protection of intellectual property rights are uncertain. Trademark, trade secret and other intellectual property protection may not be available to us in every country in which our services are available. In addition, the laws of some foreign countries may not be as protective of intellectual property rights as those in the United States, and mechanisms for enforcement of intellectual property rights may be inadequate. Moreover, policing unauthorized use of our technologies, trade secrets and intellectual property may be difficult, expensive and time-consuming, particularly in foreign countries where the laws may not be as protective of intellectual property rights as those in the United States and where mechanisms for enforcement of intellectual property rights may be weak. Accordingly, despite our efforts, we may be unable to prevent third parties from infringing, misappropriating or otherwise violating our intellectual property rights.

 

We regard our intellectual property, including our trademarks, trade names and service marks, as having significant value, and our brand is an important factor in the marketing of our services. We intend to rely on both registration and common law protection for our trademarks. We own trademark registrations for the AGILETHOUGHT trademark and logo in the United States. We also own pending trademark applications and registrations for the AGILETHOUGHT trademark in other jurisdictions in which we operate or may operate in the future; for example, Mexico, Brazil, Canada, Chile, Argentina, Costa Rica and Colombia.

 

We cannot assure you that any future trademark registrations will be issued from pending or future trademark applications or that any registered trademarks will be enforceable or provide adequate protection of our proprietary rights, including with respect to branding. Our trademarks or trade names have in the past and may in the future be opposed, challenged, infringed, circumvented, diluted, declared generic, lapsed or determined to be infringing on other marks. For example, Sistemas Globales S.A. d/b/a Globant has opposed our application for AGILETHOUGHT in Argentina, based on its prior registration for AGILE PODS (Reg. No. 2706379). Opposition proceedings typically take 3-4 years to resolve in Argentina, and we cannot assure you that our application will survive such proceedings. We also own registrations for AGILETHOUGHT INSIGHTFUL SOLUTIONS :: INNOVATIVE TECHNOLOGIES and HUMAN POTENTIAL, DIGITALLY DELIVERED in the United States. During the trademark registration process, we have and may in the future receive Office Actions or other objections from the U.S. Patent and Trademark office, or the USPTO, or equivalent foreign offices objecting to the registration of our trademarks. Although we are given an opportunity to respond to those objections, we may be unable to overcome such objections. Additionally, in the USPTO and equivalent foreign offices in many jurisdictions, third parties are given an opportunity to oppose pending trademark applications and to seek the cancellation of registered trademarks. Opposition or cancellation proceedings may be filed against our trademarks, and our trademarks may not survive such proceedings.

 

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The value of our intellectual property could diminish if others assert rights in or ownership of our trademarks and other intellectual property rights, or trademarks that are similar to our trademarks. We may be unable to successfully resolve these types of conflicts to our satisfaction. In some cases, litigation or other actions may be necessary to protect, defend or enforce our trademarks and other intellectual property rights. We may not be able to protect our rights to our trademarks and trade names, which we need for name recognition by our current and potential clients. We may be subject to liability, required to enter into costly license agreements, required to rebrand our services or prevented from selling some of our services if third parties successfully oppose or challenge our trademarks or successfully claim that we infringe or otherwise violate their trademarks or other intellectual property rights. At times, competitors may adopt trade names or trademarks similar or identical to ours, thereby impeding our ability to build brand identity and possibly leading to market confusion. In addition, there could be potential trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate variations of our registered or unregistered trademarks or trade names. If we are unable to obtain a registered trademark, establish name recognition based on our trademarks and trade names or otherwise enforce or protect our proprietary rights related to our trademarks or other intellectual property, we may not be able to compete effectively, which could result in substantial costs and diversion of resources and could adversely impact our business, financial condition, results of operations and prospects.

 

In order to protect our intellectual property rights, we may be required to spend significant resources to monitor and enforce these rights. Litigation brought to protect and enforce our intellectual property rights could be costly, time-consuming and distracting to management and could result in the impairment or loss of portions of our intellectual property. Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual property rights. An adverse determination of any litigation proceedings could put our intellectual property at risk of being invalidated or interpreted narrowly. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential or sensitive information could be compromised by disclosure in the event of litigation. In addition, during the course of litigation there could be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. Negative publicity related to a decision by us to initiate such enforcement actions against a client or former client, regardless of its accuracy, may adversely impact our other client relationships or prospective client relationships, harm our brand and business and could cause the market price of our common stock to decline. Our failure to obtain, maintain, protect, defend and enforce our intellectual property rights could adversely affect our brand and our business, financial condition, results of operations and prospects.

 

If we are unable to protect the confidentiality of our proprietary information, our business and competitive position may be harmed.

 

We consider proprietary trade secrets and confidential know-how to be important to our business. However, trade secrets and confidential know-how can be difficult to maintain as confidential. We cannot guarantee that we have entered into confidentiality agreements with each party that has or may have had access to our proprietary information, know-how and trade secrets. Moreover, no assurance can be given that any confidentiality agreements will be effective in controlling access to and distribution, use, misuse, misappropriation, reverse engineering or disclosure of our proprietary information, know-how and trade secrets. Such agreements may also be breached, and we may not have adequate remedies, including equitable remedies, for any such breach. We also seek to preserve the integrity and confidentiality of our data, trade secrets and know-how by maintaining physical security of our premises and physical and electronic security of our IT systems. While we have confidence in such systems and tools, agreements or security measures may be breached.

 

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Monitoring unauthorized uses and disclosures is difficult, and we do not know whether the steps we have taken to protect our proprietary technologies will be effective. We cannot guarantee that our trade secrets and other proprietary and confidential information have not or will not be disclosed or that competitors have not or will not otherwise gain access to our trade secrets. Current or former employees, consultants, contractors and advisers may unintentionally or willfully disclose our confidential information to competitors, and confidentiality agreements may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. Enforcing a claim that a third party illegally obtained and used trade secrets or confidential know-how could be expensive, time consuming and unpredictable. Trade secret violations are often a matter of state law, and the enforceability of confidentiality agreements and the criteria for protection of trade secrets may vary from jurisdiction to jurisdiction. In addition, the laws of foreign countries may not protect our intellectual property or other proprietary rights to the same extent as the laws of the United States. Consequently, we may be unable to prevent our trade secrets from being exploited abroad, which could affect our ability to expand to foreign markets or require costly efforts to protect our proprietary rights. Furthermore, if a competitor lawfully obtained or independently developed any of our trade secrets, we would have no right to prevent such competitor from using that technology or information, which could harm our competitive position. If the steps taken to maintain our trade secrets are inadequate, we may have insufficient recourse against third parties for misappropriating our trade secrets.

 

Our failure to secure, protect and enforce our trade secrets and other confidential business information could substantially harm the value of our brand and business. The theft or unauthorized use or publication of our trade secrets and other confidential business information could reduce the differentiation of our services, substantially and adversely impact our commercial operations and harm our business. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our trade secret rights and related confidentiality and nondisclosure provisions. If we fail to obtain or maintain trade secret protection, or if our competitors otherwise obtain our trade secrets, our competitive market position could be materially and adversely affected. In addition, some courts are less willing or unwilling to protect trade secrets and agreement terms that address non-competition are difficult to enforce in many jurisdictions and might not be enforceable in certain cases. Any of the foregoing could materially and adversely affect our business, financial condition and results of operations.

 

We may be subject to claims by third parties asserting that we, our employees or companies we have acquired, have infringed, misappropriated or otherwise violated their intellectual property, or claiming ownership of what we regard as our own intellectual property, which may be costly and time consuming. Unfavorable results of legal and administrative proceedings could have a material adverse effect on our business, financial condition, results of operations and prospects.

 

We may be subject to claims by third parties that we, our employees or companies that we have acquired, have infringed, misappropriated or otherwise violated the intellectual property of such third parties. We cannot assure you that the services and technologies that we have developed, are developing or may develop in the future will not infringe, misappropriate or otherwise violate existing or future intellectual property rights owned by third parties. Our employees may infringe, misappropriate or otherwise violate the intellectual property of their former employers. Many of our employees were previously employed at our competitors or potential competitors. Some of these employees executed proprietary rights, non-disclosure and non-competition agreements in connection with such previous employment. Although we try to ensure that our employees do not use the proprietary information, know-how or trade secrets of others in their work for us, we may be subject to claims that we or these employees have used or disclosed such information of any such employee’s former employer. Time-consuming and expensive litigation may be necessary to defend against these claims. In addition, we are subject to additional risks as a result of our recent acquisitions and any future acquisitions we may complete. The developers of the technology that we have acquired or may acquire may not have appropriately created, obtained, protected, maintained or enforced intellectual property rights in such technology. Indemnification and other rights under acquisition documents may be limited in term and scope and may therefore provide little or no protection from these risks.

 

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If we fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel or sustain damages. Our efforts to enforce our intellectual property rights may be met with defenses, counterclaims, and countersuits attacking the validity and enforceability of our intellectual property rights, and if such defenses, counterclaims, or countersuits are successful, we could lose valuable intellectual property rights. Such intellectual property rights could be awarded to a third party. Regardless, policing unauthorized use of our technology is difficult and we may not detect all such use. Even if we successfully prosecute or defend against such claims, litigation could result in substantial costs, damage to our brand and reputation and distraction of management and key personnel. This type of litigation or proceeding could substantially increase our operating losses and reduce our resources available for development activities. We may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their substantially greater financial resources. Uncertainties resulting from the initiation and continuation of intellectual property-related litigation or proceedings could adversely affect our ability to compete in the marketplace.

 

In addition, we may be unsuccessful in executing intellectual property assignment agreements 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. Such claims could have a material adverse effect on our business, financial condition, results of operations, and prospects.

 

If we are sued for alleged infringement, misappropriation or other violations of the intellectual property rights of others, our reputation, business, financial condition, results of operations and prospects may be adversely affected.

 

Our success largely depends on our ability to use and develop our technology, tools, code, methodologies and services without infringing, misappropriating or otherwise violating the intellectual property rights of third parties, including patents, copyrights, trade secrets and trademarks. However, we may not be aware that our products or services are infringing, misappropriating or otherwise violating third-party intellectual property rights. Third parties may claim that we are infringing, misappropriating or otherwise violating, or have infringed, misappropriated or otherwise violated, their intellectual property rights and we may be subject to litigation involving claims of infringement, misappropriation or other violation of intellectual property rights of third parties. As competition in our market grows, the possibility of infringement, misappropriation and other intellectual property claims against us increases. Parties making infringement claims may be able to obtain an injunction to prevent us from delivering our services or using technology involving the allegedly infringing intellectual property. Even if we were to prevail in such a dispute, intellectual property litigation can be expensive and time-consuming and could divert the attention of our management and key personnel from our business. A successful infringement claim against us, whether with or without merit, could, among others things, require us to pay substantial damages (including treble damages if we are found to have willfully infringed third-party intellectual property), develop substitute non-infringing technology, or rebrand our name or enter into royalty or license agreements that may not be available on favorable or commercially reasonable terms, if at all, and could require us to cease making, licensing or using products that may have infringed, misappropriated or otherwise violated a third party’s intellectual property rights. Protracted litigation could also result in existing or potential clients deferring or limiting their purchase or use of our services until resolution of such litigation, or could require us to indemnify our clients against infringement claims in certain instances. In addition, during the course of litigation there could be public announcements of the results of hearings, motions or other interim proceedings or developments, which could, among other things, distract our management and employees from our business. Additionally, if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. Any intellectual property claim or litigation, whether we ultimately win or lose, could cause us to incur significant expenses, damage our reputation and materially adversely affect our business, financial condition, results of operations and prospects.

 

In addition, we typically indemnify clients who purchase our services and solutions against potential infringement, misappropriation or other violations of intellectual property rights, which subjects us to the risk of indemnification claims. Some of our customer agreements provide for uncapped liability and some indemnity provisions survive termination or expiration of the applicable agreement. These claims may require us to initiate or defend protracted and costly litigation on behalf of our clients, regardless of the merits of these claims, and are often not subject to liability limits or exclusion of consequential, indirect or punitive damages. 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 services or solutions, or obtain licenses for the intellectual property such services or solutions allegedly infringe. Large indemnity payments could harm our business, financial condition, results of operations and prospects. If we cannot obtain all necessary licenses on commercially reasonable terms, our clients may stop using our services or solutions.

 

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We use third-party software, hardware and software-as-a-service, or SaaS, technologies from third parties that may be difficult to replace or that may cause errors or defects in, or failures of, the services or solutions we provide.

 

We rely on software, hardware and both hosted and cloud-based SaaS applications from various third parties to deliver our services and solutions. If any of these software, hardware or SaaS applications become unavailable due to extended outages, interruptions, system failures, cybersecurity attacks, software or hardware errors, financial insolvency or natural disasters or because they are no longer available on commercially reasonable terms, or at all, we could experience delays in the provisioning of our services until equivalent technology is either developed by us, or, if available from a third party, is identified, obtained and integrated, which could increase our expenses or otherwise harm our business. In addition, any errors or defects in or failures of this third-party software, hardware or SaaS applications could result in errors or defects in or failures of our services and solutions, which could harm our business, be costly to correct, and subject us to breach of contract claims with our clients. Many of these providers attempt to impose limitations on their liability for such errors, defects or failures, and if enforceable, we may have additional liability to our clients or third-party providers that could harm our reputation and increase our operating costs.

 

In the future we may identify additional third-party intellectual property we may need to license in order to engage in our business, including to develop or commercialize new products or services. However, such licenses may not be available on acceptable terms or at all. The licensing or acquisition of third-party intellectual property rights is a competitive area, and other companies may pursue strategies to license or acquire third-party intellectual property rights that we may consider attractive or necessary. Other companies may have a competitive advantage over us due to their size, capital resources and greater development or commercialization capabilities. In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us on reasonable pricing terms or at all. If we are unable to enter into the necessary licenses on acceptable terms or at all, it could adversely impact our business, financial condition, and results of operations.

 

We incorporate third-party open source software into our client deliverables and our failure to comply with the terms of the underlying open source software licenses could adversely impact our clients or our ability to sell our services, subject us to litigation or create potential liability.

 

Our client deliverables often contain software licensed by third parties under so-called “open source” licenses, including the GNU General Public License, or GPL, the GNU Lesser General Public License, or LGPL, the BSD License and others, and we expect to continue to incorporate open source software in our services in the future. Moreover, we cannot ensure that we have not incorporated open source software in our services in a manner that is inconsistent with the terms of the applicable license or our current policies and procedures. There have been claims against companies that distribute or use open source software in their products and services asserting that the use of such open source software infringes the claimants’ intellectual property rights. As a result, we and our clients could be subject to suits by third parties claiming that what we believe to be licensed open source software infringes, misappropriates or otherwise violates such third parties’ intellectual property rights, and we are generally required to indemnify our clients against such claims. Additionally, if an author or other third party that distributes such open source software were to allege that we had not complied with the conditions of one or more of these licenses, we or our clients could be required to incur significant legal expenses defending against such allegations and could be subject to significant damages, enjoined from the sale of our services that contain the open source software and required to comply with onerous conditions or restrictions on these services, which could disrupt the distribution and sale of these services. Litigation could be costly for us to defend, have a negative effect on our business, financial condition, results of operations and prospects, or require us to devote additional research and development resources to change our services. Use of open source software may entail greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or other contractual protections regarding infringement claims or the quality of the code, including with respect to security vulnerabilities. In addition, certain open source licenses require that source code for software programs that interact with such open source software be made available to the public at no cost and that any modifications or derivative works to such open source software continue to be licensed under the same terms as the open source software license, and we may be subject to such terms.

 

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We cannot ensure that we have effectively monitored our use of open source software or that we are in compliance with the terms of all applicable open source licenses. The terms of many open source licenses have not been interpreted by courts in relevant jurisdictions, and there is a risk that these licenses could be construed in a way that could impose certain conditions or restrictions on our clients’ ability to use the software that we develop for them and operate their businesses as they intend. The terms of certain open source licenses may require us or our clients to release the source code of the software we develop for our clients and to make such software available under the applicable open source licenses. In the event that portions of client deliverables are determined to be subject to an open source license, we or our clients could be required to publicly release the affected portions of source code or re-engineer all, or a portion of, the applicable software. Disclosing our proprietary source code could allow our clients’ competitors to create similar products with lower development effort and time and ultimately could result in a loss of sales for our clients. Any of these events could create liability for us to our clients and damage our reputation, which could have a material adverse effect on our revenue, business, financial condition, results of operations and prospects and the market price of our shares of common stock.

 

Risks Related to Our International Operations

 

General economic conditions in Mexico may have an adverse effect on our operations and business.

 

We have key facilities and personnel located in Mexico. The Mexican market and economy are influenced by economic and market conditions in other countries. Moreover, financial turmoil in any emerging market country tends to adversely affect prices in capital markets of emerging market countries, including Mexico, as investors move their money to more stable, developed markets. Financial problems or an increase in the perceived risks associated with investing in emerging economies could dampen foreign investment in Mexico and adversely affect the Mexican economy. A loss of investor confidence in the financial systems of other emerging markets may cause volatility in Mexican financial markets and to the Mexican economy in general, which may have an adverse effect on our business and operations. The economy in Mexico remains uncertain. Weak economic conditions could result in lower demand for our services, resulting in lower sales, revenue, earnings and cash flows.

 

Government intervention in the Mexican economy could adversely affect the economy and our results of operations or financial condition.

 

The ability of companies to efficiently conduct their business activities is subject to changes in government policy or shifts in political attitudes within Mexico that are beyond our control. Government policy may change to discourage foreign investment, nationalization of industries may occur or other government limitations, restrictions or requirements not currently foreseen may be implemented. During recent years, the Mexican government has frequently intervened in the Mexican economy, including through discretionary interventions on government spending.

 

For example, in January 2019, Mexico’s president, Andres Manuel Lopez Obrador, officially suspended the construction of the partly-built $13.0 billion dollar Mexico City International Airport. This decision impacted not only the directly involved construction and development companies, advisors and contractors, but also investors and debtholders who had financially supported the project.

 

Interventions by the Mexican government, such as that relating to the new Mexico City International Airport, can have an adverse impact on the level of foreign investment in Mexico, the access of companies with significant Mexican operations to the international capital markets and Mexico’s commercial and diplomatic relations with other countries and, consequently, could adversely affect our business, financial condition, results of operations and prospects.

 

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A significant number of individuals in our workforce in Mexico are employed by third-party service providers. If our third-party service providers fail to comply with applicable Mexican law, or if we are unable to comply with recent changes to Mexican law requiring reclassification of these individuals as our employees, our business, financial condition and results of operations could be materially adversely affected.

 

We historically have generally utilized specialized third-party consulting services to support specific developments within the delivery of our specialized solutions to customers. As of December 31, 2021, approximately 20.8% of the 1,945 personnel in our Mexican workforce were individuals hired by third-party service providers. Although our service providers are legally and contractually required to comply with applicable labor, tax and social security laws, it is a challenge to monitor our service providers’ compliance with such laws given the significant number of individuals employed by our service providers and the administrative complexities involved. Such laws are complex and subject to interpretation, which may vary from time to time, and it is also possible that a governmental authority could ultimately determine that we are subject to liability imposed under former and/or applicable Mexican law and regulations regarding our past and current commercial relationship with third-party consultants if such relationships are found to be non-compliant, and/or to the extent such third-party consultants do not absorb any liabilities imposed for such noncompliance, and our business and financial condition could be materially adversely affected. We also cannot provide any assurance that the service providers’ employees will not initiate legal actions against us seeking indemnification from us as the ultimate beneficiary of their services.

 

In April 2021, the Mexican government passed a new law that will require us to integrate our third-party service structure into our own workforce. The new law allows tax deductions from third-party service expenses only if they meet certain requirements, which are still to be fully defined. As of August 31, 2021, we finalized the conversion of 100% of the third-party consultants in Mexico into full time employees (“FTE´s”) in order to comply with the new law, and as of December 31, 2021 we had 391 service export resources that are not FTEs. We currently expect an increase in payroll costs of approximately $3.4 million per year related to the conversion from third-party consultant to employee status. We cannot assure you that our compliance efforts with respect to the new law or the new law’s interpretation and application by governmental authorities will not result in additional costs or liabilities to us or other adverse impacts on our operating performance or will not make it more difficult for us to establish, maintain and grow client relationships. We also cannot assure you that the Mexican government will not pursue further regulatory changes that may adversely affect our business, financial condition, results of operations and prospects. In addition, we cannot assure the Mexican government will not pursue further labor related laws that can result in further significantly material impact to us, nor that it could not apply retroactive reviews and assess the structure we have used in the past.

 

The Mexican government may order salary increases to be paid to employees in the private sector, which could increase our operating costs and adversely affect our results of operations.

 

In the past, the Mexican government has passed laws, regulations and decrees requiring companies in the private sector to increase wages and provide specified benefits to employees, and may do so again in the future. Mexican employers, both in the public and private sectors, have experienced significant pressure from their employees and labor organizations to increase wages and to provide additional employee benefits. The Mexican government, as a result, increased the minimum salary by 16% in January 2019.

 

If future salary increases in the Mexican peso exceed the pace of the devaluation of the Mexican peso, such salary increases could have a material adverse effect on our expenses and business, financial condition, results of operations and prospects.

 

Corruption in Mexico could have an adverse effect on our business and operations.

 

Corruption could result in our competitors having an unfair advantage over us in securing business. In addition, false accusations of corruption or other alleged wrongdoing by us or our officers or directors may be spread by newspapers, competitors or others to gain a competitive advantage over us or for other reasons. Mexican press reports have also alleged selective investigations and prosecutions by the government to further its interests. In the event we become the target of corruption allegations, we may need to cease or alter certain activities or embark on expensive litigation to protect our business and employees, which could adversely affect our business, financial condition, results of operations and prospects.

 

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Doing business with government clients could negatively impact our reputation, which in turn could adversely affect our business, financial condition, results of operations, and prospects.

 

While our current contracts with governmental entities, including the Mexican federal government and related entities, does not constitute a substantial portion of our revenue, nor do we expect it to constitute a substantial portion of our revenue in the future, there are risks associated with doing business with government clients. Agreements with governmental entities may be subject to periodic funding approval. Funding reductions or delays could adversely impact public sector demand for our products and services. Also, some agreements may contain provisions allowing the client to terminate without cause and providing for higher liability limits for certain losses. In addition, government contracts are generally subject to audits and investigations by government agencies. If the government discovers improper or illegal activities or contractual non-compliance (including improper billing), we may be subject to various civil and criminal penalties and administrative sanctions, which may include termination of contracts, forfeiture of profits, suspension of payments, fines and suspensions or debarment from doing business with the government, which could negatively impact our reputation, which in turn could adversely affect our business, financial condition, results of operations and prospects.

 

If relations between the United States and foreign governments deteriorate, it could cause our business or potential target businesses or their goods and services to become less attractive, and our business, financial condition, results of operations and prospects may be adversely affected.

 

The relationship between the United States and foreign governments, including Mexico, could be subject to sudden fluctuation and periodic tension. For instance, the United States may announce its intention to impose quotas on certain imports. Such import quotas may adversely affect political relations between the two countries and result in retaliatory countermeasures by the foreign government in industries that may affect our ultimate target business. The Biden administration in the United States has recently proposed far-ranging federal tax legislation in the United States that could impact business like ours with substantial presences in Mexico that provide extensive services in the United States .Changes in political conditions in foreign countries and changes in the state of U.S. relations with such countries are difficult to predict and could adversely affect our operations or cause our business or potential target businesses or their goods and services to become less attractive. Because we are not limited to any specific industry, there is no basis for you to evaluate the possible extent of any impact on our ultimate operations if relations are strained between the United States and a foreign country in which we acquire a target business or move our principal manufacturing or service operations.

 

Our business, financial condition, results of operations and prospects may be materially adversely affected if general economic conditions in Latin America and the United States or the global economy worsen.

 

We derive a significant portion of our revenue from clients located in Latin America and the United States. The IT services industry is particularly sensitive to the economic environment, and tends to decline during general economic downturns. If the United States or Latin American economies weaken or slow, pricing for our services may be depressed and our clients may reduce or postpone their technology spending significantly, which may, in turn, lower the demand for our services, negatively affect our revenue and profitability and have an adverse effect on our business, financial condition, results of operations and prospects.

 

Our business is dependent to a certain extent upon the economic conditions prevalent in the United States and Latin American countries in which we operate. Latin American countries have historically experienced uneven periods of economic growth, as well as recession, periods of high inflation and economic instability. As a consequence of adverse economic conditions in global markets and diminishing commodity prices, the economic growth rates of the economies of many Latin American countries have slowed and some have entered mild recessions. Adverse economic conditions in any of these countries could have a material adverse effect on our business, financial condition, results of operations and prospects. To the extent that the prospect of national debt defaults in Latin America and other adverse economic conditions continue or worsen, they would likely have a negative effect on our business. If we are unable to successfully anticipate changing economic and political conditions affecting the markets in which we operate, we may be unable to effectively plan for or respond to those changes, and our business, financial condition, results of operations and prospects could be adversely affected.

 

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Fluctuations in currency exchange rates and increased inflation could materially adversely affect our business, financial condition, results of operations and prospects.

 

We have offices located in Mexico, Costa Rica, Brazil, Argentina and the United States. As a result of the international scope of our operations, fluctuations in exchange rates, particularly between the Mexican peso and the U.S. dollar, may adversely affect us. The value of our common stock may be affected by the foreign exchange rate between the U.S. dollar and the Mexican peso, and between those currencies and other currencies in which our revenues and assets may be denominated. For example, a depreciation of the Mexican peso relative to the U.S. dollar will temporarily impact our operations in the following ways: (i) the operations in the United States that have a nearshore cost component will benefit at the gross margin level from a lower U.S. dollar denominated cost until the point where salary inflation in Mexico offsets that benefit; and (ii) on the Mexico operations side, a depreciation of the Mexican peso will result in an overall reduction of the value of our business in Mexico when translated to U.S. dollars for consolidation purposes, as the same number of Mexican pesos will now represent fewer U.S. dollars. While our current exposure is relatively balanced at the operating profit (loss) level — meaning the benefit on the U.S. operations from a Mexican peso depreciation on operating profit (loss) would largely offset the impact of our operating income (loss) of a reduction in the value of our business in Mexico, this may change in the future as our nearshore operations grow. If our operations in the United States and Mexico grow at different rates, fluctuations in the exchange rate between the Mexican peso and U.S. dollar could have negative impacts on our financial condition and results of operations and could materially adversely affect the market price of our common stock.

 

The banking and financial systems in less developed markets where we hold funds remain less developed than those in some more developed markets, and a banking crisis could place liquidity constraints on our business and materially adversely affect our business, financial condition, results of operations and prospects.

 

We have cash in banks in countries such as Mexico, Brazil, Argentina and Costa Rica, where the banking sector remains subject to periodic instability, banking and other financial systems generally do not meet the banking standards of more developed markets, and bank deposits made by corporate entities are not insured. A banking crisis, or the bankruptcy or insolvency of banks through which we receive or with which we hold funds, particularly in Mexico and Brazil, may result in the loss of our deposits or adversely affect our ability to complete banking transactions in that region, which could materially adversely affect our business, financial condition, results of operations and prospects.

 

Our international operations involve risks that could increase our expenses, adversely affect our results of operations and require increased time and attention from our management.

 

Managing a business, operations, personnel or assets in another country is challenging and costly. As of December 31, 2021, we had 2,670 employees and contractors, approximately 87% of whom work in nearshore offices in Mexico and other Latin American countries. We have operations in a number of countries, including Mexico and the United States, and we serve clients primarily in the United States and Latin America. As a result, we are subject to risks inherently associated with international operations. Our global operations expose us to numerous and sometimes conflicting legal, tax and regulatory requirements, and violations or unfavorable interpretation by the respective authorities of these regulations could harm our business. Risks associated with international operations include difficulties in enforcing contractual rights, potential difficulties in collecting accounts receivable, the burdens of complying with a wide variety of foreign laws, repatriation of earnings or capital and the risk of asset seizures by foreign governments. In addition, we may face competition in other countries from companies that may have more experience with operations in such countries or with international operations. Such companies may have long-standing or well-established relationships with desired clients, which may put us at a competitive disadvantage. We may also face difficulties integrating new facilities in different countries into our existing operations, as well as integrating employees that we hire in different countries into our existing corporate culture. Our international expansion plans may be unsuccessful and we may not be able to compete effectively in other countries. Even with a seasoned and experienced management team, the costs and difficulties inherent in managing cross-border business operations, personnel and assets can be significant (and much higher than in a purely domestic business) and may negatively impact our financial and operational performance. These factors could impede the success of our international expansion plans and limit our ability to compete effectively in other countries.

 

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From time to time, some of our employees and contractors spend significant amounts of time at our clients’ facilities, often located outside our employees’ and contractors’ countries of residence, which exposes us to certain risks.

 

Some of our projects require a portion of the work to be undertaken at our clients’ facilities, which are often located outside our employees’ and contractors’ countries of residence. The ability of our employees and contractors to work in such locations may depend on different countries’ regulations relating to international travel in response to the COVID-19 pandemic, which may eliminate or severely curtail our employees’ and contractors’ ability to work on-site at clients’ facilities, as well as our employees’ and contractors’ ability to obtain the required visas and work permits, which process can be lengthy and difficult. Immigration laws are subject to legislative changes, as well as to variations in standards of application and enforcement due to political forces and economic conditions. In addition, we may become subject to taxation in jurisdictions where we would not otherwise be so subject as a result of the time that our employees spend in any such jurisdiction in any given year. While we seek to monitor the number of days that our employees spend in each country or state to avoid subjecting ourselves to any such taxation, there can be no assurance that we will be successful in these efforts.

 

We also incur risks relating to our employees and contractors working at our clients’ facilities, including: claims of misconduct, negligence or intentional malfeasance on the part of our employees or contractors. Some or all of these claims may lead to litigation and these matters may cause us to incur negative publicity with respect to these alleged problems. It is not possible to predict the outcome of these lawsuits or any other proceeding, and our insurance may not cover all claims that may be asserted against us.

 

If we are faced with immigration or work permit restrictions in any country where we currently have personnel onsite at a client location or would like to expand our delivery footprint, then our business, financial condition, results of operations and prospects may be adversely affected.

 

The success of our business is dependent on our ability to attract and retain talented and experienced professionals and be able to mobilize them to meet our clients’ needs. Immigration laws in the countries we operate in are subject to legislative changes, as well as to variations in the standards of application and enforcement due to political forces and economic conditions. A few countries have introduced new provisions and standards in immigration law which can impact our ability to provide services in those countries due to restrictive policies and additional costs involved. Our and our contractors’ future inability to obtain or renew sufficient work permits and/or visas due to the impact of these regulations, including any changes to immigration, work permit and visa regulations in jurisdictions such as the United States, could have a material adverse effect on our business, financial condition, results of operations and prospects. It is difficult to predict the political and economic events that could affect immigration laws, or the restrictive impact they could have on obtaining or renewing work visas for our employees or contractors.

 

Latin American governments have exercised and continue to exercise significant influence over the economies of the countries where we operate, which could adversely affect our business, financial condition, results of operations and prospects.

 

Historically, governments in Latin America have frequently intervened in the economies of their respective countries and have occasionally made significant changes in policy and regulations. Governmental actions to control inflation and other policies and regulations have often involved price controls, currency devaluations, capital controls and tariffs. Our business, financial condition, results of operations and prospects may be adversely affected by:

 

changes in government policies or regulations, including such factors as exchange rates and exchange control policies;

 

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inflation rates and measures taken by the governments of these countries to control or otherwise address inflation;

 

interest rates;

 

tariff and inflation control policies;

 

price control policies;

 

liquidity of domestic capital and lending markets;

 

electricity rationing;

 

tax policies, royalty and tax increases and retroactive tax claims; and

 

other political, diplomatic, social and economic developments in or affecting the countries where we operate.

 

Our business, financial condition, results of operations and prospects may be adversely affected by the various conflicting legal and regulatory requirements imposed on us by the countries where we operate.

 

Since we maintain operations and provide services to clients throughout the world, we are subject to numerous, and sometimes conflicting, legal requirements on matters as diverse as import/export controls, content requirements, trade restrictions, tariffs, taxation, sanctions, government affairs, anti-bribery, whistle blowing, internal and disclosure control obligations, data protection and privacy and labor relations. Our failure to comply with these regulations in the conduct of our business could result in fines, penalties, criminal sanctions against us or our officers, disgorgement of profits, prohibitions on doing business, unfavorable publicity, adverse impact on our reputation and allegations by our clients that we have not performed our contractual obligations. Due to the varying degree of development of the legal systems of the countries in which we operate, local laws might be insufficient to defend us and preserve our rights.

 

We are also subject to risks relating to compliance with a variety of national and local laws including multiple tax regimes, labor laws, employee health safety and wages and benefits laws. Many of our employees and consultants, including members of our senior management team, perform services for us in multiple jurisdictions, making us subject to multiple, and sometimes conflicting labor law regimes. We may, from time to time, be subject to litigation or administrative actions resulting from claims against us by current or former employees or contractors individually or as part of class actions, including claims of wrongful terminations, discrimination, misclassification, improper income tax or other withholding or other violations of labor law or related tax laws or other alleged conduct. We may also, from time to time, be subject to litigation resulting from claims against us by third parties, including claims of breach of non-compete and confidentiality provisions of our employees’ former employment agreements with such third parties. Our failure to comply with applicable regulatory requirements could have a material adverse effect on our revenue, business, financial condition, results of operations and prospects.

 

Foreign, national and local governments may also adopt new laws, regulations or requirements, or make changes to existing laws or regulations, that could impact the demand for, or value of, our services. If we are unable to adapt the solutions we deliver to our clients to changing legal and regulatory standards or other requirements in a timely manner, or if our solutions fail to allow our clients to comply with applicable laws and regulations, our clients may lose confidence in our services and could switch to services offered by our competitors, or threaten or bring legal actions against us, and our business, financial condition, results of operations and prospects may be adversely affected.

 

Many commercial laws and regulations in Latin America are relatively new and have been subject to limited interpretation. As a result, their application can be unpredictable. Government authorities have a high degree of discretion in certain countries in which we have operations and at times have exercised their discretion in ways that may be perceived as selective or arbitrary, and sometimes in a manner that is seen as being influenced by political or commercial considerations. These governments also have the power, in certain circumstances, to interfere with the performance of, nullify or terminate contracts. Selective or arbitrary actions against others have included withdrawal of licenses, sudden and unexpected tax audits, criminal prosecutions and civil actions. Federal and local government entities have also used common defects in documentation as pretexts for court claims against others and other demands to invalidate and/or to void transactions, possibly for political purposes. In this environment, our competitors could receive preferential treatment from the government, potentially giving them a competitive advantage. Selective or arbitrary government action could materially adversely affect our business, financial condition, results of operations and prospects.

 

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Changes and uncertainties in the tax system in the countries in which we have operations could materially adversely affect our business, financial condition, results of operations and prospects.

 

We conduct business globally and file income tax returns in multiple jurisdictions. Our consolidated effective income tax rate could be materially adversely affected by several factors, including: changing tax laws, regulations and treaties, or the interpretation thereof (including based on advice from our tax advisers); tax policy initiatives and reforms under consideration (such as those related to the Organization for Economic Co-Operation and Development’s, Base Erosion and Profit Shifting Project and other initiatives); the practices of tax authorities in jurisdictions in which we operate; the resolution of issues arising from tax audits or examinations and any related interest or penalties; and our income before taxes being lower than anticipated in countries with lower statutory tax rates and higher than anticipated in countries with higher statutory tax rates. Such changes may include the taxation of operating income, investment income, dividends received or, in the specific context of withholding tax, dividends paid, and changes in deferred tax assets and liabilities.

 

In particular, there have been significant changes to the taxation systems in Latin American countries in recent years as the authorities have gradually replaced or introduced new legislation regulating the application of major taxes such as corporate income tax, value-added tax, corporate property tax, personal income taxes and payroll taxes.

 

There have been significant changes to United States tax laws in recent years, some of which are being reconsidered by Congress and interpretations of which are being considered by the U.S. Internal Revenue Service and the courts. Moreover, legislation in the United States has recently been proposed that may result in additional significant changes to United States tax laws.

 

We are unable to predict what tax reforms may be proposed or enacted in the future or what effect such changes could have on our business, but such changes, to the extent they are brought into tax legislation, regulations, policies or practices in jurisdictions in which we operate, could increase the estimated tax liability that we have expensed to date and paid or accrued on our balance sheets, and otherwise affect our financial position, future results of operations, cash flows in a particular period and overall or effective tax rates in the future in countries where we have operations, reduce post-tax returns to our stockholders and increase the complexity, burden and cost of tax compliance, which may adversely affect our business and prospects.

 

Tax authorities may examine or audit our tax returns, disagree with our positions and conclusions regarding certain tax positions, or may apply existing rules in an unforeseen manner, resulting in unanticipated costs, taxes or non-realization of expected benefits.

 

We are subject to the continuous examination of our tax returns by the United States Internal Revenue Service and other tax authorities around the world. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provisions for taxes. There can be no assurance that the outcomes from these examinations will not have an adverse effect on our business, financial condition, results of operations and prospects. For example, as a result of examinations by applicable tax authorities, we may be subject to an indirect tax liability relating to our previous acquisition of 4th Source and may have a contingent sales tax obligation in Tennessee which in aggregate total approximately $70,000 and each of which, if applicable, we anticipate paying in 2022.

 

In addition, U.S. state and local and foreign jurisdictions have differing rules and regulations governing sales, use, value added and other taxes, and these rules and regulations are subject to varying interpretations that may change over time. Further, these jurisdictions’ rules regarding tax nexus are complex and vary significantly. As a result, we could face the possibility of audits that could result in tax assessments, including associated interest and penalties. A successful assertion that we should be collecting additional sales, use, value added or other taxes in those jurisdictions where we have not historically done so could result in substantial tax liabilities and related penalties for past transactions, discourage customers from using our services or otherwise harm our business, financial condition, results of operations and prospects. For example, Mexican authorities recently issued assessments against us for $1.5 million in additional value added taxes and penalties that we are in the process of reviewing and may challenge, and regularly assess our returns for possible additional value added or other tax liability.

 

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A tax authority may also disagree with tax positions that we have taken, which could result in increased tax liabilities. For example, the U.S. Internal Revenue Service, the Mexican taxing authorities or another tax authority could challenge our allocation of income by tax jurisdiction and the amounts paid between our affiliated companies pursuant to our intercompany arrangements and transfer pricing policies, including methodologies for valuing developed technology and amounts paid with respect to our intellectual property development. Similarly, a tax authority could assert that we are subject to tax in a jurisdiction where we believe we have not established a taxable connection, often referred to as a “permanent establishment” under international tax treaties, and such an assertion, if successful, could increase our expected tax liability in one or more jurisdictions. Due to uncertainty in the application and interpretation of applicable tax laws in various jurisdictions, we may be exposed to sales and use, value added or other transaction tax liability, including with respect to transactions of the businesses we have acquired.

 

Tax authorities may take the position that material income tax liabilities, interest and penalties are payable by us, where there has been a technical violation of contradictory laws and regulations that are relatively new and have not been subject to extensive review or interpretation, in which case we expect that we might contest such assessment. High-profile companies can be particularly vulnerable to aggressive application of unclear requirements. Many companies must negotiate their tax bills with tax inspectors who may demand higher taxes than applicable law appears to provide. Contesting such an assessment may be lengthy and costly and if we were unsuccessful in disputing the assessment, the implications could increase our anticipated effective tax rate, where applicable. These uncertainties with respect to the application of tax laws, as well as the outcomes of tax examinations and audits and related tax assessments and liabilities, could have a material adverse effect on our business, financial condition, results of operations and prospects.

 

Emerging markets are subject to greater risks than more developed markets, and financial turmoil in any emerging market could disrupt our business.

 

Latin American countries are generally considered to be emerging markets, which are subject to rapid change and greater legal, economic and political risks than more established markets. Financial problems or an increase in the perceived risks associated with investing in emerging economies could dampen foreign investment in Latin America and adversely affect the economy of the region. Political instability could result in a worsening overall economic situation, including capital flight and slowdown of investment and business activity. Current and future changes in governments of the countries in which we have or develop operations, as well as major policy shifts or lack of consensus between various branches of the government and powerful economic groups, could lead to political instability and disrupt or reverse political, economic and regulatory reforms, which could adversely affect our business and operations in those countries. In addition, political and economic relations between certain of the countries in which we operate are complex, and recent conflicts have arisen between certain of their governments. Political, ethnic, religious, historical and other differences have, on occasion, given rise to tensions and, in certain cases, military conflicts among Latin American countries which can halt normal economic activity and disrupt the economies of neighboring regions. The emergence of new or escalated tensions in Latin American countries could further exacerbate tensions between such countries and the United States and the European Union, which may have a negative effect on their economy, our ability to develop or maintain our operations in those countries and our ability to attract and retain employees, any of which could materially adversely affect our business, financial condition, results of operations and prospects.

 

In addition, banking and other financial systems in certain countries in which we have operations are less developed and regulated than in some more developed markets, and legislation relating to banks and bank accounts is subject to varying interpretations and inconsistent application. Banks in these regions often do not meet the banking standards of more developed markets, and the transparency of the banking sector lags behind international standards. Furthermore, in certain countries in which we operate, bank deposits made by corporate entities generally either are not insured or are insured only to specified limits. As a result, the banking sector remains subject to periodic instability. A banking crisis, or the bankruptcy or insolvency of banks through which we receive or with which we hold funds may result in the loss of our deposits or adversely affect our ability to complete banking transactions in certain countries in which we have operations, which could materially adversely affect our business, financial condition, results of operations and prospects.

 

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Wage inflation and other compensation expense for our IT professionals could adversely affect our business, financial condition, results of operations and prospects.

 

Wage costs for IT professionals in Latin American countries are lower than comparable wage costs in more developed countries. However, wage costs in the IT services industry in these countries may increase at a faster rate than in the past and wage inflation for the IT industry may be higher than overall wage inflation within these countries. We may need to increase the levels of compensation for our personnel more rapidly than in the past to remain competitive, and we may not be able to pass on these increased costs to our clients. Unless we are able to continue to increase the efficiency and productivity of our personnel as well as the prices we can charge for our services, wage inflation may materially adversely affect our business, financial condition, results of operations and prospects.

 

We are subject to the U.S. Foreign Corrupt Practices Act and other anti-corruption laws in the jurisdictions in which we operate, as well as export control laws, import and customs laws, trade and economic sanctions laws and other laws governing our operations.

 

Our operations are subject to anti-corruption laws, including the U.S. Foreign Corrupt Practices Act of 1977, as amended, or the FCPA, the U.S. domestic bribery statute contained in 18 U.S.C. §201, the U.S. Travel Act, the Ley General de Responsabilidades Administrativas in Mexico and other anti-corruption laws that apply in countries where we do business. The FCPA and these other laws generally prohibit us and our employees and intermediaries from authorizing, promising, offering, or providing, directly or indirectly, improper or prohibited payments, or anything else of value, to government officials or other persons to obtain or retain business or gain some other business advantage. We operate in a number of jurisdictions that pose a high risk of potential FCPA violations, such as Mexico and Brazil. In addition, we cannot predict the nature, scope or effect of future regulatory requirements to which our international operations might be subject or the manner in which existing laws might be administered or interpreted.

 

We are also subject to other laws and regulations governing our international operations, including regulations administered by the governments of the United States and Mexico, including applicable export control regulations, economic sanctions and embargoes on certain countries and persons, anti-money laundering laws, import and customs requirements and currency exchange regulations, collectively referred to as the Trade Control laws. We may not be completely effective in ensuring our compliance with all such applicable laws, which could result in our being subject to criminal and civil penalties, disgorgement and other sanctions and remedial measures, and legal expenses. Likewise, any investigation of any potential violations of such laws by the United States, Mexico, or other authorities could also have an adverse impact on our reputation, our business, financial condition, results of operations and prospects.

 

Because many of our agreements may be governed by laws of jurisdictions other than the United States, we may not be able to enforce our rights within such jurisdictions or elsewhere, which could result in a significant loss of business, business opportunities or capital.

 

Many of our agreements are governed by laws of jurisdictions other than the United States, such as agreements governed under Mexican law. The system of laws and the enforcement of existing laws and contracts in such jurisdictions may not be as certain in implementation and interpretation as in the United States. The judiciaries in Mexico, Brazil and other Latin American countries are relatively inexperienced in enforcing corporate and commercial law, leading to a higher than usual degree of uncertainty as to the outcome of any litigation. As a result, the inability to enforce or obtain a remedy under any of our current or future agreements could result in a significant loss of business and business opportunities and our business, financial condition, results of operations and prospects may be adversely affected.

 

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Our business is subject to the risks of earthquakes, fire, power outages, floods and other catastrophic events, and to interruption by human-made problems such as terrorism.

 

A significant natural disaster, such as an earthquake, fire or flood, or a significant power outage could have a material adverse impact on our business, financial condition, results of operations and prospects. For instance, we have key facilities in Mexico City, which has been the site of numerous earthquakes. In the event we are hindered by any of the events discussed above, our ability to provide our services to clients could be delayed.

 

In addition, our facilities are vulnerable to damage or interruption from human error, intentional bad acts, pandemics, war, terrorist attacks, power losses, hardware failures, systems failures, telecommunications failures and similar events. The occurrence of a natural disaster, power failure or an act of terrorism, vandalism or other misconduct could result in lengthy interruptions in provision of our services and failure to comply with our obligations to our clients. The occurrence of any of the foregoing events could damage our systems and hardware or could cause them to fail completely, and our insurance may not cover such events or may be insufficient to compensate us for the potentially significant losses, including the potential harm to the future growth of our business, that may result from interruptions in the provision of our services to clients as a result of system failures.

 

All of the aforementioned risks may be exacerbated if any of our various disaster recovery plans, which we maintain in select jurisdictions, prove to be inadequate. To the extent that any of the above results in delayed or reduced sales or increase our cost of sales, our business, financial condition, results of operations and prospects could be adversely affected.

 

Our management has limited experience in operating a public company.

 

Our executive officers have limited experience in the management of a publicly traded company subject to significant regulatory oversight and reporting obligations under federal securities laws. Our management team may not successfully or effectively manage our transition to a public company. Their limited experience in dealing with the increasingly complex laws pertaining to public companies could be a significant disadvantage in that it is likely that an increasing amount of their time may be devoted to these activities which will result in less time being devoted to our management and growth. We may not have adequate personnel with the appropriate level of knowledge, experience and training in the accounting policies, practices or internal controls over financial reporting required of public companies in the United States. It is possible that we will be required to expand our employee base and hire additional employees to support our operations as a public company, which will increase our operating costs in future periods.

 

We have identified material weaknesses in our internal control over financial reporting and if our remediation of such material weaknesses is not effective, or if we fail to develop and maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable laws and regulations could be impaired.

 

As a public company, we are required to maintain internal control over financial reporting and to report any material weaknesses in such internal control. In connection with the audit of our financial statements for the year ended December 31, 2020, we identified material weaknesses in our internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis. These material weaknesses identified relate to the timely reconciliation and analysis of certain key accounts (including income taxes), the segregation of duties and review of journal entries, proper application of revenue recognition related to our Latin America business, and information technology general controls specific to logical access. We have taken steps to enhance our internal control environment during the year ended December 31, 2021, including implementing a system of internal processes and controls and creating an internal audit team that tested the design, implementation, and operating effectiveness of our internal controls over financial reporting through the year. As a result of this and through our testing of these implemented processes and controls, as of December 31, 2021, we have concluded that our previously identified material weaknesses related to timely reconciliation and analysis of certain key accounts (including income taxes), the segregation of duties and review of journal entries, and information technology general controls specific to logical access are considered remediated. We have concluded that these material weaknesses in our internal control over financial reporting occurred because we did not have the necessary business processes, systems, personnel, and formalized internal controls necessary to satisfy the accounting and financial reporting requirements of a public company.

 

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While we are currently working to implement a plan to remediate the remaining material weakness related to the proper application of revenue recognition related to our Latin America business, we cannot predict the success of such plan or the outcome of our assessment of this plan at this time, and we can give no assurance that our planned implementation of a new financial system will remediate the deficiencies in internal control or that additional material weaknesses in our internal control over financial reporting will not be identified in the future. Our failure to successfully remediate the material weakness and otherwise establish and maintain an effective system of internal control over financial reporting could result in errors in our financial statements that could result in a restatement of our financial statements, cause covenant breaches under our debt and/or other agreements, cause us to fail to meet our periodic reporting obligations, reduce investor confidence in us, materially and adversely affect the value of our common stock, and have a material adverse effect on our business, financial condition, results of operations and prospects.

 

Our independent registered public accounting firm is not required to formally attest to the effectiveness of our internal control over financial reporting until after we are no longer an “emerging growth company” as defined in the JOBS Act. An independent assessment of the effectiveness of our internal control over financial reporting could detect problems that our management’s assessment might not. Undetected material weaknesses in our internal control over financial reporting could lead to financial statement restatements, cause covenant breaches under our debt and/or other agreements, cause us to fail to meet our periodic reporting obligations, reduce investor confidence in us, materially and adversely affect the value of our common stock, and have a material adverse effect on our business, financial condition, results of operations and prospects.

 

We will incur significantly increased costs as a result of operating as a public company, and our management will be required to devote substantial time to compliance efforts.

 

We will incur significant legal, accounting, insurance and other expenses as a result of being a public company. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), and the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), as well as related rules implemented by the SEC, have required changes in corporate governance practices of public companies. In addition, rules that the SEC is implementing or is required to implement pursuant to the Dodd-Frank Act are expected to require additional changes. We expect that compliance with these and other similar laws, rules and regulations, including compliance with Section 404 of the Sarbanes-Oxley Act, will substantially increase our expenses, including legal and accounting costs, and make some activities more time-consuming and costly. We also expect these laws, rules and regulations to make it more expensive for us to maintain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage, which may make it more difficult for us to attract and retain qualified persons to serve on our board of directors or as officers. Although the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) may, for a limited period of time, somewhat lessen the cost of complying with these additional regulatory and other requirements, we nonetheless expect a substantial increase in legal, accounting, insurance and certain other expenses in the future, which will negatively impact our results of operations and financial condition.

 

Risks Related to Investing in Our Securities

 

The market price and trading volume of our Class A Common Stock and warrants has been and will likely continue to be volatile and could decline significantly.

 

Our Class A Common Stock and our warrants have from time to time experienced significant price and volume fluctuations. Even if an active, liquid and orderly trading market is sustained for our securities, the market price of our securities is likely to continue to be volatile and could decline significantly. In addition, the trading volume in our securities may fluctuate and cause significant price variations to occur. If the market price of our securities declines significantly, you may be unable to resell your shares at or above the market price of our securities at which your purchased our securities. We cannot assure you that the market price of our securities will not fluctuate widely or decline significantly in the future in response to a number of factors, including, among others, the following:

 

the realization of any of the risk factors presented in this prospectus;

 

actual or anticipated fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be similar to us;

 

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changes in the market’s expectations about our operating results;

 

our operating results failing to meet the expectation of securities analysts of investors in a particular period;

 

operating and share price performance of other companies that investors deem comparable to us;

 

the volume of shares of Class A Common Stock available for public sale;

 

future issuances, sales, resales or repurchases or anticipated issuances, sales, resales or repurchases of our securities;

 

our ability to effectively service any current and future outstanding debt obligations;

 

the announcement of new services or enhancements by us or our competitors;

 

developments concerning intellectual property rights;

 

changes in legal, regulatory and enforcement frameworks impacting our business;

 

changes in the prices of our services;

 

announcements by us or our competitors of significant business developments, acquisitions or new offerings;

 

our involvement in any litigation;

 

changes in senior management or key personnel;

 

changes in the anticipated future size and growth rate of our market;

 

actual or perceived data security incidents or breaches;

 

any delisting of our common stock or warrants from NASDAQ due to any failure to meet listing requirements;

 

actual or anticipated variations in quarterly operating results;

 

our failure to meet the estimates and projections of the investment community or that we may otherwise provide to the public;

 

publication of research reports about us or our industry or positive or negative recommendations or withdrawal of research coverage by securities analysts;

 

changes in the market valuations of similar companies;

 

overall performance of the equity markets;

 

speculation in the press or investment community;

 

sales of Class A Common Stock by us or our stockholders in the future;

 

the effectiveness of our internal control over financial reporting;

 

general political and economic conditions, including health pandemics, such as COVID-19; and

 

other events or factors, many of which are beyond our control.

 

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In the past, securities class-action litigation has often been instituted against companies following periods of volatility in the market price of their securities. This type of litigation could result in substantial costs and divert our management’s attention and resources, which could have a material adverse effect on us.

 

There can be no assurance that we will be able to comply with the continued listing standards of Nasdaq.

 

Our Class A Common Stock and public warrants are currently listed on Nasdaq. However, we cannot assure you that our securities will continue to be listed on Nasdaq in the future. It is possible that our Class A Common Stock and public warrants will cease to meet the Nasdaq listing requirements in the future.

 

If Nasdaq delists our securities from trading on its exchange and we are unable to list our securities on another national securities exchange, we expect that our securities could be quoted on an over-the-counter market. If this were to occur, we could face significant material adverse consequences, including:

 

a limited availability of market quotations for its securities;

 

reduced liquidity for its securities;

 

a determination that our Class A Common Stock is a “penny stock” which will require brokers trading in the Class A Common Stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities;

 

a limited amount of news and analyst coverage; and

 

a decreased ability to issue additional securities or obtain additional financing in the future.

 

The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as “covered securities.” Because the Class A Common Stock and public warrants are listed on Nasdaq, they are covered securities. Although the states are preempted from regulating the sale of our securities, the federal statute does allow the states to investigate companies if there is a suspicion of fraud, and, if there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular case. While we are not aware of a state, other than the State of Idaho, having used these powers to prohibit or restrict the sale of securities issued by blank check companies, certain state securities regulators view blank check companies unfavorably and might use these powers, or threaten to use these powers, to hinder the sale of securities of blank check companies in their states. Further, if we were no longer listed on Nasdaq, our securities would not be covered securities and we would be subject to regulation in each state in which we offer our securities.

 

Our failure to meet the continued listing requirements of Nasdaq could result in a delisting of our securities.

 

If we fail to satisfy the continued listing requirements of Nasdaq such as the corporate governance requirements or the minimum share price requirement, Nasdaq may take steps to delist our securities. Such a delisting would likely have a negative effect on the price of the securities and would impair your ability to sell or purchase the securities when you wish to do so. In the event of a delisting, we can provide no assurance that any action taken by us to restore compliance with listing requirements would allow our securities to become listed again, stabilize the market price or improve the liquidity of our securities, prevent our securities from dropping below the Nasdaq minimum share price requirement or prevent future non-compliance with Nasdaq’s listing requirements. Additionally, if our securities are not listed on, or become delisted from, Nasdaq for any reason, and are quoted on the OTC Bulletin Board, an inter-dealer automated quotation system for equity securities that is not a national securities exchange, the liquidity and price of our securities may be more limited than if we were quoted or listed on Nasdaq or another national securities exchange. You may be unable to sell your securities unless a market can be established or sustained.

 

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We do not intend to pay cash dividends for the foreseeable future.

 

We currently intend to retain our future earnings, if any, to finance the further development and expansion of our business and do not intend to pay cash dividends in the foreseeable future. Any future determination to pay dividends will be at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements, restrictions contained in future agreements and financing instruments, business prospects and such other factors as our board of directors deems relevant.

 

We may be subject to securities litigation, which is expensive and could divert management attention.

 

The market price of our Class A Common Stock has been volatile and may continue to be volatile in the future and, in the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert management’s attention from other business concerns, which could seriously harm our business.

 

The Legacy AT equity holders and the sponsor own a significant portion of our outstanding voting shares, and representatives of the sponsor and two of Legacy AT’s largest stockholders occupy a total of five of the eleven seats on our board of directors. Concentration of ownership among the Legacy AT equity investors and the sponsor may prevent new investors from influencing significant corporate decisions.

 

As of the Closing Date, the Legacy AT equity holders, including LIV Fund IV with respect to its shares held as a Legacy AT equity holder, held approximately 87.1% of our Class A Common Stock, the subscription investors held approximately 6.6% of our Class A Common Stock, the sponsor and its affiliates (excluding LIV Fund IV solely with respect to its shares held as a Legacy AT equity holder) and its and their respective permitted transferees held approximately 4.8% of our Class A Common Stock and the holders of representative shares and their permitted transferees held approximately 0.2% of our Class A Common Stock. Furthermore, the Legacy AT equity holders, which include the new second lien lenders, could increase their ownership percentage to the extent that they choose to convert all or a portion of the New Second Lien facility into Class A Common Stock.

 

In addition, upon completion of the business combination, our board of directors included one representative from the sponsor, and two from each of the Nexxus Funds and CS Investors, each of which hold large amounts of Class A Common Stock following the business combination, for a total of five directors out of a total of 11 directors. Pursuant to the sponsor letter agreement, for so long as the sponsor and its affiliates and its and their respective permitted transferees continue to own, directly or indirectly, our securities representing more than 4% of the combined voting power of our then outstanding voting securities, the sponsor will be entitled to nominate one director designee to serve on our board of directors. As long as the Legacy AT equity holders (including the Nexxus Funds and CS Investors), LIV Fund IV and the sponsor own or control a significant percentage of outstanding voting power, they will have the ability to strongly influence all corporate actions requiring stockholder approval, including the election and removal of directors and the size of our board of directors, any amendment of our organizational documents, or the approval of any merger or other significant corporate transaction, including a sale of substantially all of our assets. In addition, as long as the sponsor, the Nexxus Funds and CS Investors retain five of the 11 seats on our board of directors, they will have the ability to strongly influence all corporate action requiring approval of our board of directors, including calling special meetings of stockholders, any amendment of our organizational documents, or the approval of any merger or other significant corporate transaction, including financing transactions and a sale of substantially all of our assets.

 

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The interests of the Legacy AT equity holders, including the Nexxus Funds and CS Investors, LIV Fund IV and the sponsor and affiliates and their respective permitted transferees may not align with the interests of our other stockholders. Certain of the Legacy AT equity holders, including the Nexxus Funds and CS Investors, LIV Fund IV and the sponsor are in the business of making investments in companies and may acquire and hold interests in businesses that compete directly or indirectly with us. Certain of the Legacy AT equity holders, including the Nexxus Funds and CS Investors, LIV Fund IV and the sponsor may also pursue acquisition opportunities that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us.

 

Certain of our executive officers and directors have received waivers from our insider trading policy in order to pledge shares of our common stock as collateral for loans, which may cause their interests to conflict with the interests of our other stockholders and may adversely affect the trading price of our common stock.

 

Manuel Senderos, our Chief Executive Officer and Chairman of the Board of Directors, has pledged certain of his shares of our Class A Common Stock to lenders to obtain a loan in the amounts of $4.5 million, used by him to provide the Company with his portion of the New Second Lien Facility. In addition, Mauricio Garduño, our Vice President, Business Development and a Director, has pledged certain of his shares of our Class A Common Stock to a lender as security for indebtedness.

 

We are not a party to these loans, which are full recourse against Messrs. Senderos and Garduño and are secured by pledges of a portion of our Class A Common Stock currently beneficially owned by them. The terms of these loans were negotiated directly between Messrs. Senderos and Garduño and the lender. In order for Messrs. Senderos and Garduño to pledge their securities, our board of directors had to approve a waiver to our insider trading policy, which provides for a prohibition on pledging securities, restrictions on trading securities during blackout periods, and a requirement that all trades made by Messrs. Senderos and Garduño be pre-cleared in advance of trading.

 

Because of these pledges made by Messrs. Senderos and Garduño, their interests may not align with the interests of other stockholders, and they may act in a manner that advances their interests and not necessarily those of our other stockholders. The occurrence of certain events under these loan agreements could result in the future sales of such shares and significantly reduce Messrs. Senderos’s and Garduño’s ownership in us. Such sales could occur while Messrs. Senderos and Garduño are in possession of material non-public information without prior permission from the Company. Such sales could expose Messrs. Senderos and Garduño to an investigation or litigation for insider trading, which could, among other things, distract our management and employees from our business. Such sales could also adversely affect the market and trading price of our common stock. In addition, if the value of our common stock declines, the lender may require additional collateral for the loans, which could cause Messrs. Senderos and Garduño to pledge additional shares of our common stock. We can give no assurances that Messrs. Senderos and Garduño will not pledge additional shares of our common stock in the future, as a result of lender calls requiring additional collateral.

 

Future resales of Class A Common Stock may cause the market price of our securities to drop significantly, even if our business is doing well.

 

Pursuant to the sponsor letter agreement, subject to certain exceptions, the sponsor, its permitted transferees and the insiders are contractually restricted from selling or transferring any of its shares of Class A Common Stock for a period ending on the earlier of (a) the date that is 180 days from the Closing Date and (b) the date on which the closing price of shares of Class A Common Stock on Nasdaq equals or exceeds $12.50 per share for any 20 trading days within a 30-trading day period following 150 days following the Closing Date, with respect to any securities of the Company that they held as of immediately following the Closing. In addition, pursuant to the voting and support agreements, subject to certain exceptions, certain Legacy AT equity holders will be contractually restricted from selling or transferring any of their respective shares of Class A Common Stock for a period ending on the earlier of (a) the date that is 180 days from the Closing Date and (b) the date on which the closing price of shares of Class A common stock on Nasdaq equals or exceeds $12.50 per share for any 20 trading days within a 30-trading day period following 150 days following the Closing Date, with respect to any securities of the Company that they receive as merger consideration under the merger agreement.

 

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The applicable lockups described in the preceding paragraph recently expired, and the sponsor and the restricted Legacy AT equity holders are no longer restricted from selling shares of our Class A Common Stock held by them, other than by applicable securities laws and in lock-up extension agreements entered into by the Nexxus Funds, the CS Investors and certain of our management. The other restricted Legacy AT equity holders may sell those shares, when allowed to do so under applicable securities laws. Upon expiration of the lock-up extensions agreed to by the Nexxus Funds and CS Investors and certain of our management, they may sell their shares, in block trades or other large dispositions, the timing for which may be influenced for each of the Nexxus Funds and CS Investors by considerations particular to its specific fund, for example end of fund life considerations. Additionally, the subscription investors and LIV Fund IV with respect to its shares held as a pre-merger Legacy AT equity holder are not be restricted from selling any of their shares of our Class A Common Stock, other than by applicable securities laws. As such, sales of a substantial number of shares of our Class A 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 Class A Common Stock.

 

In addition, we issued $30 million worth of Class A Common Stock (the “First Lien Shares”) to the administrative agent for the First Lien Facility on December 29, 2021 who, subject to certain regulatory restrictions, may sell the First Lien Shares upon the earlier of August 29, 2022 and an event of default and apply the proceeds to the outstanding balance of the loan. In addition, we will issue warrants (the “First Lien Warrants”) to the administrative agent to purchase $7 million worth of our Class A Common Stock for nominal consideration. The warrants will be issued on the date that all amounts under the First Lien Facility have been paid in full. Furthermore, each New Second Lien Lender under the Second Lien Facility has the right, but not the obligation, to convert all or any portion of its outstanding loans into our Class A Common Stock on the maturity date or earlier, upon our request. We entered into registration rights agreements with respect to the resale of the First Lien Shares, the shares underlying the First Lien Warrants and shares issuable upon conversion of the New Second Lien Facility.

 

As such, sales of a substantial number of shares of our Class A 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 Class A Common Stock.

 

The shares held by the sponsor and the restricted Legacy AT equity holders may be sold after the expiration of the applicable lockup period under registration statements filed pursuant to the amended and restated registration rights agreement. As restrictions on resale end and registration statements are available for use, the sale or possibility of sale of these shares could have the effect of increasing the volatility in our share price or the market price of our Class A Common Stock could decline if the holders of currently restricted shares sell them or are perceived by the market as intending to sell them.

 

Substantial future sales of shares of our Class A Common Stock could cause the market price of our Class A Common Stock to decline.

 

We expect that significant additional capital will be needed in the near future to continue our planned operations. Sales of a substantial number of shares of our Class A Common Stock in the public market following the completion of this offering, or the perception that these sales might occur, could depress the market price of our Class A Common Stock and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that such sales may have on the prevailing market price of our Class A Common Stock.

 

As noted in the prior risk factor, we agreed issued the First Lien Shares to the administrative agent for the First Lien Facility on December 29, 2021 who, subject to certain regulatory restrictions, may sell the First Lien Shares upon the earlier of August 29, 2022 and an event of default and apply the proceeds to the outstanding balance of the loan. Moreover, to the extent our warrants and the First Lien Warrants are exercised or the New Second Lien Lenders chose to convert some or all of the New Second Lien Facility into shares of Class A Common Stock, additional shares of our Class A Common Stock will be issued. The issuance of these shares will result in dilution to the holders of our Class A Common Stock and increase the number of shares eligible for resale in the public market. Pursuant to the amended and restated registration rights agreement and the subscription agreements, on September 14, 2021 we filed a resale shelf registration statement covering the resale of all registrable securities and PIPE Shares, which was declared effective on September 27, 2021. We have also agreed to register the First Lien Shares, the shares underlying the First Lien Warrants and the shares issuable upon conversion of the New Second Lien Facility for resale by the holders thereof.

 

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Furthermore, the shares of our Class A Common Stock held by certain insiders have been registered for resale and such insiders will be able to sell their shares beginning in the next open trading window.

 

We may issue additional shares of Class A Common Stock, including under the 2021 Equity Incentive Plan and the 2021 Employee Stock Purchase Plan. Any such issuances would dilute the interest of our shareholders and likely present other risks.

 

We may issue a substantial number of shares of Class A Common Stock, including under the 2021 Equity Incentive Plan and the 2021 Employee Stock Purchase Plan, or preferred stock.

 

Any such issuances of additional shares of Class A Common Stock or preferred stock:

 

may significantly dilute the equity interests of our investors;

 

may subordinate the rights of holders of Class A Common Stock if preferred stock is issued with rights senior to those afforded our Class A Common Stock;

 

could cause a change in control if a substantial number of shares of our Class A Common Stock are issued, which may affect, among other things, our ability to use our net operating loss carry forwards, if any, and could result in the resignation or removal of our present officers and directors; and

 

may adversely affect prevailing market prices for our Class A Common Stock and/or warrants.

 

There is no guarantee that the warrants will be in the money prior to their expiration, and they may expire worthless.

 

The exercise price for our warrants is $11.50 per share of Class A Common Stock. There is no guarantee that the warrants will be in the money prior to their expiration, and as such, the warrants may expire worthless.

 

We may amend the terms of the warrants in a manner that may be adverse to holders with the approval by the holders of at least a majority of then outstanding public warrants. As a result, the exercise price of your warrants could be increased, the exercise period could be shortened and the number of Class A ordinary shares (or shares of Class A Common Stock into which such shares will convert in connection with the domestication) purchasable upon exercise of a warrant could be decreased, all without your approval.

 

Our warrants were issued in registered form under the warrant agreement between Continental Stock Transfer & Trust Company, as warrant agent, and us. The warrant agreement provides that the terms of the warrants may be amended without the consent of any holder for the purpose of curing any ambiguity or curing, correcting or supplementing any defective provision or adding or changing any other provisions with respect to matters or questions arising under the warrant agreement, but requires the approval by the holders of at least a majority of then outstanding public warrants to make any change that adversely affects the interests of the registered holders. Accordingly, we may amend the terms of the public warrants in a manner adverse to a holder if holders of at least a majority of then outstanding public warrants approve of such amendment. Examples of such amendments could be amendments to, among other things, increase the exercise price of the warrants, shorten the exercise period or decrease the number of shares of Class A Common Stock purchasable upon exercise of a warrant.

 

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We may redeem unexpired warrants prior to their exercise at a time that is disadvantageous to warrant holders, thereby making their warrants worthless.

 

We have the ability to redeem outstanding warrants at any time after they become exercisable and prior to their expiration, at a price of $0.01 per warrant; provided that the last reported sales price of our shares of Class A Common Stock equals or exceeds $18.00 per share (as adjusted for share splits, share dividends, rights issuances, subdivisions, reorganizations, recapitalizations and the like) for any 20 trading days within a 30 trading-day period ending on the third trading day prior to the date we send the notice of redemption to the warrant holders. If and when the warrants become redeemable by us, we may exercise our redemption right even if we are unable to register or qualify the underlying securities for sale under all applicable state securities laws. Redemption of the outstanding warrants could force you to: (1) exercise your warrants and pay the exercise price therefor at a time when it may be disadvantageous for you to do so; (2) sell your warrants at then-current market price when you might otherwise wish to hold your warrants; or (3) accept the nominal redemption price which, at the time the outstanding warrants are called for redemption, is likely to be substantially less than the market value of your warrants. None of the private warrants will be redeemable by us so long as they are held by the sponsor and its affiliates and its and their respective permitted transferees.

 

Anti-takeover provisions contained in our charter and our bylaws, as well as provisions of Delaware law, could impair a takeover attempt.

 

Our charter and our bylaws contain provisions that could have the effect of delaying or preventing changes in control or changes in our management without the consent of our board of directors. These provisions include:

 

no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;

 

the exclusive right of the board of directors to elect a director to fill a vacancy created by the expansion of the board of directors or the resignation, death, or removal of a director by stockholders, which prevents stockholders from being able to fill vacancies on the board of directors;

 

the ability of the board of directors to determine whether to issue shares of our preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer;

 

a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders;

 

the requirement that a special meeting of stockholders may be called only by the chairperson of the board of directors, the chief executive officer or the board of directors, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors;

 

limiting the liability of, and providing indemnification to, our directors and officers;

 

controlling the procedures for the conduct and scheduling of stockholder meetings;

 

providing for a classified board, in which the members of the board of directors are divided into three classes to serve for a period of three years from the date of their respective appointment or election;

 

granting the ability to remove directors with cause by the affirmative vote of 66 2⁄3% in voting power of the then outstanding shares of capital stock of the Company entitled to vote at an election of directors;

 

requiring the affirmative vote of at least 66 2⁄3% of the voting power of the outstanding shares of our capital stock entitled to vote generally in the election of directors, voting together as a single class, to amend the bylaws or Articles V, VI, VII and VIII of the charter; and

 

advance notice procedures that stockholders must comply with in order to nominate candidates to the board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us.

 

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These provisions, alone or together, could delay hostile takeovers and changes in control of us or changes in our board of directors and our management.

 

As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the DGCL, which prevents some stockholders holding more than 15% of our outstanding Class A Common Stock from engaging in certain business combinations without approval of the holders of substantially all of the Class A Common Stock. Any provision of the charter, bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of Class A Common Stock and could also affect the price that some investors are willing to pay for Class A Common Stock.

 

Our charter designates the Court of Chancery of the State of Delaware and the federal district courts of the United States as the exclusive forums for substantially all disputes between us and our stockholders, to the fullest extent permitted by law, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, stockholders, employees or agents.

 

Our charter provides that, to the fullest extent permitted by law, and subject to the court’s having personal jurisdiction over the indispensable parties named as defendants, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for:

 

any derivative claim or cause of action brought on behalf of us;

 

any claim or cause of action for breach of a fiduciary duty owed by any current or former director, officer or other employee of the Company to us or our stockholders;

 

any claim or cause of action against us or any current or former director, officer or other employee of the Company arising out of or pursuant to any provision of the DGCL, our charter or our bylaws (as each may be amended from time to time);

 

any claim or cause of action seeking to interpret, apply, enforce or determine the validity of our charter or our bylaws (including any right, obligation or remedy thereunder);

 

any claim or cause of action as to which the DGCL confers jurisdiction to the Court of Chancery of the State of Delaware; or

 

any claim or cause of action asserting a claim against us, or any director, officer or other employee of the Company governed by the internal affairs doctrine.

 

This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our directors, officers, or other employees, which may discourage lawsuits with respect to such claims. However, stockholders will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder and this provision would not apply to suits brought to enforce a duty or liability created by the Securities Act or the Exchange Act.

 

Our charter also provides that the federal district courts of the United States will be the exclusive forum for any complaint asserting a cause of action under the Securities Act. Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. Accordingly, there is uncertainty as to whether a court would enforce this forum provision providing for exclusive jurisdiction of federal district courts with respect to suits brought to enforce any duty or liability created by the Securities Act.

 

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If a court were to find the choice of forum provisions contained in our charter to be inapplicable or unenforceable in an action, We may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, results of operations and financial condition.

 

If securities or industry analysts do not publish or cease publishing research or reports about us, our business, or our market, or if they change their recommendations regarding our common stock adversely, the price and trading volume of our Class A Common Stock could decline.

 

The trading market for our Class A Common Stock will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market, or our competitors. If any of the analysts who may cover us change their recommendation regarding our stock adversely, or provide more favorable relative recommendations about our competitors, the price of our Class A Common Stock would likely decline. If any analyst who may cover us were to cease their coverage or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our stock price or trading volume to decline.

 

We are an emerging growth company and the reduced disclosure requirements applicable to emerging growth companies may make our Class A Common Stock less attractive to investors.

 

We are an emerging growth company, as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced financial disclosure obligations, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and any golden parachute payments not previously approved. Pursuant to Section 107 of the JOBS Act, as an emerging growth company, we have elected to use the extended transition period for complying with new or revised accounting standards until those standards would otherwise apply to private companies. As a result, our consolidated financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective dates for new or revised accounting standards that are applicable to public companies.

 

We are permitted to take advantage of these provisions until we are no longer an emerging growth company. We would cease to be an emerging growth company until the earliest of: (a) December 31, 2024, (b) the last date of our fiscal year in which we have a total annual gross revenue of at least $1.07 billion, (c) the date on which we are deemed to be a “large accelerated filer” under the rules of the SEC with at least $700.0 million of outstanding securities held by non- affiliates or (d) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the previous three years.

 

We may choose to take advantage of some but not all of these reduced reporting requirements. If we take advantage of any of these reduced reporting requirements in future filings, the information that we provide our security holders may be different than the information you might get from other public companies in which you hold equity interests. We cannot predict if investors will find our Class A Common Stock less attractive because we may rely on these exemptions.

 

Financial Industry Regulatory Authority, Inc. (“FINRA”) sales practice requirements may limit a stockholder’s ability to buy and sell our shares of Class A Common Stock.

 

FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for certain customers.

 

FINRA requirements will likely make it more difficult for broker-dealers to recommend that their customers buy our shares of Class A Common Stock, which may have the effect of reducing the level of trading activity in our common stock. As a result, fewer broker-dealers may be willing to make a market in our Class A Common Stock, reducing a stockholder’s ability to resell shares of our Class A Common Stock.

 

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Use of Proceeds

 

All of the Class A Common Stock and warrants offered by the selling securityholders pursuant to this prospectus will be sold by the selling securityholders for their respective accounts. We will not receive any of the proceeds from these sales.

 

We will receive up to an aggregate of approximately $124.9 million from the exercise of the warrants, assuming the exercise in full of all of the warrants for cash. We expect to use the net proceeds from the exercise of the warrants for the repayment of indebtedness under the First Lien Facility and for general corporate purposes. We will have broad discretion over the use of proceeds from the exercise of the warrants. There is no assurance that the holders of the warrants will elect to exercise any or all of such warrants. To the extent that the warrants are exercised on a “cashless basis,” the amount of cash we would receive from the exercise of the warrants will decrease.

 

DETERMINATION OF OFFERING PRICE

 

The offering price of the shares of Class A Common Stock underlying the warrants offered hereby is determined by reference to the exercise price of the warrants of $11.50 per share. The public warrants are listed on Nasdaq under the symbol “AGILW.”

 

We cannot currently determine the price or prices at which shares of our Class A Common Stock or warrants may be sold by the selling securityholders under this prospectus.

 

MARKET INFORMATION FOR SECURITIES AND DIVIDEND POLICY

 

Market Information

 

Our common stock and public warrants are currently listed on Nasdaq under the symbols “AGIL” and “AGILW,” respectively. Prior to the consummation of the business combination, our Class A Common Stock and our public warrants were listed on Nasdaq under the symbols “LIVK” and “LIVKW,” respectively. As of March 31, 2022, there were 281 holders of record of the Class A Common Stock and 15 holders of record of our warrants. We currently do not intend to list the private warrants offered hereby on any stock exchange or stock market.

 

Dividend Policy

 

We have never declared or paid any dividends on shares of our common stock. We anticipate that we will retain all of our future earnings, if any, for use in the operation and expansion of our business and do not anticipate paying cash dividends in the foreseeable future. Any decision to declare and pay dividends in the future will be made at the sole discretion of our board of directors and will depend on, among other things, our results of operations, cash requirements, financial condition, contractual restrictions and other factors that our board of directors may deem relevant.

 

Equity Compensation Plan

 

In connection with the business combination, our stockholders approved AgileThought, Inc. 2021 Equity Incentive Plan (the “2021 Plan”) on August 18, 2021, which became effective immediately upon the Closing.

 

On January 27, 2022, we filed a registration statement on Form S-8 under the Securities Act covering shares of Class A Common Stock underlying the 2021 Plan. Shares issued under the Form S-8 can be sold in the public market upon issuance, subject to applicable restrictions.

 

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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 financial statements and related notes included 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. As a result of many factors, including those factors set forth in the section titled “Risk Factors,” our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Please also see the section titled “Cautionary Note Regarding Forward-Looking Statements.”

 

Overview

 

We are a leading provider of agile-first, end-to-end digital transformation services in the North American market using onshore and nearshore delivery. We offer client-centric, onshore and nearshore agile-first digital transformation services that help our clients transform by building, improving and running new solutions at scale. Our services enable our clients to leverage technology more effectively to focus on better business outcomes. From consulting to application development and cloud services to data management and automation, we strive to create a transparent, collaborative, and responsive experience for our clients.

 

For the year ended December 31, 2021, we had 191 active clients, and for the year ended December 31, 2020, we had 250 active clients.

 

As of December 31, 2021, we had delivery centers across the United States, Mexico, Brazil, Argentina and Costa Rica from which we deliver services to our clients. As of December 31, 2021, we had 2,258 billable employees providing services remotely, from our talent centers or directly at client locations in the United States and Latin America. The breakdown of our employees by geography is as follows for the dates presented:

 

 

  As of December 31, 
Employees by Geography  2021   2020 
United States   355    409 
Latin America   2,315    1,873 
Total   2,670    2,282 

 

Total headcount increased by 388 people from December 31, 2020 to December 31, 2021. The increase is related mainly to the hiring of 298 billable employees as a result of the increasing demand observed during 2021. Our Latin America based headcount increased by 442 people from December 31, 2020 to December 31, 2021 whereas our United States based headcount decreased by 54 people from December 31, 2020 to December 31, 2021, mainly as a result of our strategy to hire nearshore resources to staff new sold contracts during 2021.

 

The following table presents our revenue by geography for the periods presented:

 

   Year Ended December 31, 
Revenue by Geography (in thousands)  2021   2020 
United States  $103,436   $113,073 
Latin America   55,232    50,914 
Total  $158,668   $163,987 

 

For the year ended December 31 2021, our revenue was $158.7 million, as compared to $164.0 million for the year ended December 31, 2020. We generated 65.2% and 69.0% of our revenue from clients located in the United States and 34.8% and 31.0% of our revenue from clients located in Latin America for the years ended December 31, 2021 and 2020, respectively.

 

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The following table presents our income (loss) before income tax for the periods presented:

 

   Year Ended December 31, 
   2021   2020 
   (in thousands) 
Loss before income taxes  $(19,588)  $(23,991)

 

Our loss before income taxes was $19.6 million and $24.0 million for the years ended December 31, 2021, and 2020, respectively, and, for the same periods, our loss as a percentage of revenue was 12.3% and 14.6%, respectively.

 

Impact of COVID-19

 

In December 2019, a novel coronavirus COVID-19 was reported in China, and in March 2020, the World Health Organization declared it a pandemic. This contagious disease has continued to spread across the globe, including extensively within the United States, and is impacting worldwide economic activity and financial markets, significantly increasing economic volatility and uncertainty. In response to this global pandemic, several local, state, and federal governments have been prompted to take unprecedented steps that include, but are not limited to, travel restrictions, closure of businesses, social distancing, and quarantines.

 

Starting in March 2020, headwinds to our business related to the pandemic were largely centered around our U.S. customers operating in the professional services industry, as two of our largest customers reduced their IT spending as a result of the negative impacts of the COVID-19 pandemic. After witnessing a low point in December 2020, our business with these two customers started to recover, although recovery to pre-COVID levels is still uncertain. We continue to take precautionary measures intended to minimize the health risk to our employees, customers, and the communities in which we operate. A significant proportion of our employees continue to work remotely while a few are serving customers directly at their locations. Even as certain local governments in the countries in which we operate are beginning to lift restrictions, we have not yet declared a generalized return to our facilities as the safety and health of our team is our top priority. As vaccines and therapeutics become available, we will evaluate a gradual return to our U.S. and Latin America facilities. We continue to deliver services to our customers in this hybrid model and this has resulted in minimal disruption in our operational and delivery capabilities.

 

The COVID-19 pandemic continued to cause substantial global public health and economic challenges during 2021 and our employees, communities and business operations, as well as 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 on the markets we serve are rapidly evolving and highly uncertain.

 

To the extent that the remainder of this Management’s Discussion and Analysis of Financial Condition and Results of Operations, refers to a financial or performance metric that has been affected by a trend or activity, that reference is in addition to any impact of the COVID-19 pandemic disclosed in and supplemented by this section. The information contained in this section is accurate as of the date hereof but may become outdated due to changing circumstances beyond our present awareness or control.

 

Our COVID-19 Pandemic Response

 

Since the beginning of the COVID-19 pandemic, we have made the safety and well-being of our employees our top priority. As governments lift and re-impose restrictions on group gatherings, commercial operations, and travel, and as vaccines and therapeutics become available, we have applied those changing requirements to our business to maintain the health and safety of our employees and serve our customers in a manner consistent with appropriate public health considerations.

 

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Our Employees

 

The vast majority of our employees can productively and securely work from a remote location. Our remaining personnel are providing services from our offices or our customers’ facilities. We therefore do not expect that COVID-19 related restrictions on group gatherings and non-essential businesses will have a material adverse effect on our ability to operate our business or productively deliver services to our customers, nor on our financial reporting systems, internal control over financial reporting, or disclosure controls and procedures. In addition, with the increase in remote access to our systems and networks, we have accelerated some ongoing security initiatives and programs.

 

Many countries where our personnel regularly conduct business have extended or expanded restrictions on travel and immigration from other countries, including a suspension of most immigration and non-immigration visas issued by the United States. Further extensions or tightening of these travel and immigration restrictions may continue to impact our operations. However, we do not believe that the current travel and immigration restrictions will have a material adverse effect on our business or financial condition.

 

Our Customers

 

Our adaptive global delivery model enables us to deliver our services and solutions to our customers from remote locations. We continue to provide our customers with the products, services, and solutions they seek to deliver their business results. In addition, we continually assess our customers’ current and future needs for our personnel to work at their facilities and our global delivery centers so that we can deploy resources safely and in accordance with COVID-19 mitigation efforts.

 

The prolonged deterioration of economic conditions for some of our customers could materially reduce our revenue and profitability. Reduced demand from our customers, persistent financial distress in our customer base, and the continued volatility in macroeconomic conditions have and could continue to adversely impact revenues and decrease the collectability of our trade receivables. Any or all of these factors could negatively impact our results of operations. Depending on the duration of the COVID-19 pandemic and the timing and speed of economic recovery, reduced revenue growth relative to prior years could extend beyond 2021.

 

During the year ended December 31, 2021, we did not recognize any material allowances to doubtful accounts due to risks posed by the COVID-19 pandemic on our customers’ ability to make payments. We continue to be engaged with all our customers regarding their ability to fulfill their payment obligations. A non-significant number of customers requested extended payment terms during the second and third quarters of 2020, however they have already reverted to their original payment terms. We continue to review our accounts receivable on a regular basis and established processes to ensure payments from our customers.

 

We expect continued uncertainty around the pandemic’s impact on our business, results of operations and financial condition. We actively monitor our business and the needs of our employees, customers, and communities to determine the appropriate actions to protect their health and safety and our ongoing operations. This includes actions informed by the requirements and recommendations of public health authorities. Economic and demand uncertainty in the current environment may impact our future results. We continue to monitor the demand for our services including the duration and degree to which we see declines or delays in new customer projects and payment for services performed. Although signs of recovery are starting to be observed during 2021, the demand for our services mainly in our U.S. operations, our ability to staff such demand and build capacity are key factors that continue to impact our business and results of operations.

 

We continue to assess how the effects of COVID-19 on the economy may impact human capital allocation, revenues, profitability, and operating expenses.

 

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Acquisitions

 

We have historically pursued acquisitions that expanded our services capabilities, industry-specific expertise and onshore and nearshore footprint. We plan to selectively pursue “tuck-in” transactions in the future that will help us augment our capabilities, establish new and deeper client relationships and expand our cross-selling opportunities.

 

In November 2018, we acquired 4th Source, Inc., or 4th Source, headquartered in Tampa, Florida, for a total consideration of $52.8 million. In connection with the acquisition, we agreed to pay certain continuing employees of 4th Source, Inc., up to an aggregate of 8,394 shares of our common stock based on the achievement of certain EBITDA-based performance metrics during each of the following fiscal years: up to 3,222 shares for 2018, up to 4,528 shares for 2019, and up to 644 shares for 2020. The EBITDA-based performance metric was not met in 2020 and the related PSUs were cancelled. The grant date fair value of these performance stock units was approximately $2.9 million. The acquisition of 4th Source enhanced our offerings for our healthcare and retail clients and supported our transition into the U.S. market. The acquisition of 4th Source also provided us with more than 500 highly trained bi-lingual consultants located in Merida, Colima, and Mexico City, Mexico, who provide nearshore services to clients in the U.S.

 

In July 2019, we acquired AgileThought, LLC, headquartered in Tampa, Florida. The fair value of the aggregate consideration on the acquisition date was $60.8 million. In addition, in connection with the acquisition, we have agreed to pay certain continuing employees of AgileThought, LLC up to an aggregate of 3,150 shares of our common stock based on the achievement of certain EBITDA -based performance metrics during each of the following fiscal years: up to 1,050 shares for 2020, up to 1,050 shares for 2021, and up to 1,050 shares for 2022. The EBITDA-based performance metric was not met in 2020 and the related awards were cancelled. The grant date fair value of these performance stock units was approximately $1.2 million. The acquisition of AgileThought, LLC enhanced our delivery capabilities to clients in the professional services industry and further supported our transition into the U.S. market. The acquisition of AgileThought, LLC also provided us with approximately 330 employees based primarily across Florida. Following the acquisition, we changed our name from AN Global Inc. to AgileThought, Inc.

 

Factors Affecting Our Performance

 

We believe that the key factors affecting our performance and results of operations include our ability to:

 

Expand Our Client Footprint in the United States

 

We are focused on growing our client footprint in the United States and furthering the application of our proven business capabilities in the U.S. market. We acquired 4th Source in 2018 and AgileThought, LLC in 2019, both of which are U.S. headquartered and operated companies. These acquisitions have strengthen our presence in the U.S. market. For the year ended December 31, 2021 we had 80 active clients in the United States as compared to 92 active clients in the United States for the year ended December 31, 2020. We define an active client at a specific date as a client with whom we have recognized revenue for our services during the preceding 12-month period. As of December 31, 2021, we had 355 employees located in the United States. We believe we have a significant opportunity to penetrate the U.S. market further and expand our U.S. client base. Our ability to expand our footprint in the United States will depend on several factors, including the U.S. market perception of our services, our ability to increase nearshore delivery successfully, our ability to successfully integrate acquisitions, as well as pricing, competition and overall economic conditions, and to a lesser extent our ability to complete future complementary acquisitions.

 

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Penetrate Existing Clients via Cross-Selling

 

We seek to strengthen our relationships with existing clients by cross-selling additional services. We have a proven track record of expanding our relationship with clients by offering a wide range of complementary services. Our ten largest active clients based on revenue accounted for $103.3 million, or 65.1%, and $109.9 million, or 67.0%, of our total revenue during the years ended December, 2021 and 2020, respectively. The following table shows the active clients concentration from the top client to the top twenty clients, for the periods presented:

 

 

  Percent of Revenue for the Year Ended December 31, 
Client Concentration  2021   2020 
Top client   13.0%   17.6%
Top five clients   43.7%   54.5%
Top ten clients   65.1%   67.0%
Top twenty clients   78.9%   79.8%

 

The following table shows the number of our active clients by revenue for the periods presented:

 

   For the Year Ended
December 31,
 
Active Clients by Revenue  2021   2020 
Over $5 Million   9    6 
$2 – $5 Million   7    10 
$1 – $2 Million   13    13 
Less than $1 Million   162    2 222 
Total   191    1 251 

 

The decrease in the total number of active clients from December 31, 2020 to December 31, 2021 is mainly related to the completion of smaller customer projects and maintenance engagements in 2020 that were not subsequently renewed as a result of COVID-19 pandemic effects.

 

We believe we have the opportunity to further cross-sell our clients with additional services that we have enhanced through recent acquisitions. However, our ability to increase sales to existing clients will depend on several factors, including the level of client satisfaction with our services, changes in clients’ strategic priorities and changes in key client personnel or strategic transactions involving clients, as well as pricing, competition and overall economic conditions.

 

Attract, Develop, Retain and Utilize Highly Skilled Employees

 

We believe that attracting, training, retaining and utilizing highly skilled employees with capabilities in next-generation technologies will be key to our success. As of December 31, 2021, we had 2,670 employees. From December 31, 2018 to December 31, 2020, our number of employees decreased from 2,743 to 2,282. The decline is related to COVID-19 pandemic effects on our business, as two of our largest customers in the U.S. reduced their IT spending, combined with the contract transition with our largest client in Latin America that prompted certain cost-saving actions such as a headcount reduction. We continuously invest in training our employees and offer regular technical and language training, as well as other professional advancement programs. These programs not only help ensure our employees are well trained and knowledgeable, but also help enhance employee retention.

 

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Strengthen Onshore and Nearshore Delivery with Diversification in Regions

 

In order to drive digital transformation initiatives for our clients, we believe that we need to be near the regions in which our clients are located and in similar time zones. We have established a strong base for our onshore and nearshore delivery model across Mexico. We also have offices in Argentina, Brazil, Costa Rica and the United States to source diverse talent and be responsive to clients in our core markets. Since January 1, 2020, we have added 4 new delivery centers including one in the United States (Tampa, Florida) and three in Mexico (one in Mexico City and the other two in Merida and Colima as a result of the acquisitions). From December 31, 2018 to December 31, 2020, our delivery headcount decreased by 319 employees, or 14.0%. The decrease is mainly explained by the headcount reductions implemented as a result of the COVID-19 pandemic impacts on our business. However, from December 31, 2020 to December 31, 2021, our delivery headcount increased by 298 employees, driven by the demand recovery observed during 2021. As we continue to grow our relationships, we will expand our delivery centers in other cities in Mexico and other countries in similar time zones, such as Argentina and Costa Rica. While we believe that we currently have sufficient delivery center capacity to address our near-term needs and opportunities, as the recovery from the COVID-19 pandemic continues to materialize, and as we continue to expand our relationships with existing clients, attract new clients and expand our footprint in the United States, we will need to expand our teams through remote work opportunities and at existing and new delivery centers in nearshore locations with an abundance of technical talent. As we do so, we compete for talented individuals with other companies in our industry and companies in other industries.

 

Key Business Metrics

 

We regularly monitor several financial and operating metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions. Our key non-GAAP and business metrics may be calculated in a different manner than similarly titled metrics used by other companies. See “— Non-GAAP Measures” for additional information on non-GAAP financial measures and a reconciliation to the most comparable GAAP measures.

 

   Year Ended December 31, 
   2021   2020 
Gross Margin   29.2%   30.8%
Adjusted EBITDA (in thousands)  $3,407   $17,875 
Number of large active clients (at or above $1.0 million of revenue in prior 12-month period) as of end of period   29    29 
Revenue concentration with top 10 clients   65.1%   67.0%

 

Gross Margin

 

We monitor gross margin to understand the profitability of the services we provide to our clients. Gross margin is calculated as net revenues for the period minus cost of revenue for the period, divided by net revenues.

 

Adjusted EBITDA

 

We monitor Adjusted EBITDA to understand the overall operating profitability of our business. We define and calculate EBITDA as net loss plus income tax expense, plus interest expense, net, plus depreciation and amortization. Adjusted EBITDA is EBITDA further adjusted to exclude the change in fair value of contingent consideration obligations, plus change in fair value of embedded derivative liability, plus the change in fair value of warrant liability, plus equity-based compensation expense, plus impairment charges, plus restructuring expenses, plus foreign exchange loss (gain), plus (gain) loss on business dispositions, plus gain on debt extinguishment or debt forgiveness, plus certain transaction costs, plus certain other expense, net. These adjustments also include certain costs and transaction related items that are not reflective of the underlying operating performance of the Company.

 

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See “— Non-GAAP Measures” for additional information and a reconciliation of net loss to EBITDA and Adjusted EBITDA.

 

Number of Large Active Clients

 

We monitor our number of large active clients to better understand our progress in winning large contracts on a period-over-period basis. We define the number of large active clients as the number of active clients from whom we generated more than $1.0 million of revenue in the prior 12-month period. For comparability purposes, we include the clients of the acquired businesses that meet these criteria to properly evaluate total client spending evolution.

 

Revenue Concentration with Top 10 clients

 

We monitor our revenue concentration with top 10 clients to understand our dependence on large clients on a period-over-period basis and to monitor our success in diversifying our revenue base. We define revenue concentration as the percent of our total revenue derived from our ten largest active clients.

 

Components of Results of Operations

 

Our business is organized into a single reportable segment. The Company´s chief operating decision maker is the CEO, who reviews financial information presented on a consolidated basis for purposes of making operating decisions, assessing financial performance and allocating resources.

 

Net Revenues

 

Revenue is derived from the several types of integrated solutions we provide to our clients. Revenue is organized by contract type and geographic location. The type of revenue we generate from customers is classified based on: (i) time and materials, and (ii) fixed price contracts. Time and materials are transaction-based, or volume-based contracts based on input method such as labor hours incurred. Fixed price contracts are contracts where price is contractually predetermined. Revenue by geographic location is derived from revenue generated in the United States and Latin America, which includes Mexico, Argentina, Brazil, and Costa Rica.

 

Cost of Revenue

 

Cost of revenue consists primarily of employee-related costs associated with our personnel and fees from third-party vendors engaged in the delivery of our services, including: salaries, bonuses, benefits, project related travel costs, software licenses and any other costs that relate directly to the delivery of our services.

 

Gross Profit

 

Gross profit represents net revenues less cost of revenue.

 

Selling, General and Administrative Expenses

 

Selling, general and administrative expenses consists primarily of employee-related costs associated with our sales, marketing, legal, accounting and administrative personnel. Selling, general and administrative expenses also includes legal costs, external professional fees, brand marketing, provision for doubtful accounts, as well as expenses associated with our back-office facilities and office infrastructure, information technology, and other administrative expenses.

 

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Depreciation and Amortization

 

Depreciation and amortization consist of depreciation and amortization expenses related to customer relationships, computer equipment, leasehold improvements, furniture and equipment, and other assets.

 

Change in Fair Value of Contingent Consideration Obligations

 

Changes in fair value of contingent consideration obligations consists of changes in estimated fair value of earnout arrangements entered into as part of our business acquisition process.

 

Change in Fair Value of Embedded Derivative Liabilities

 

Changes in fair value of embedded derivative liabilities consists of changes in the fair value of redemption and conversion features embedded within our preferred stock.

 

Change in Fair Value of Warrant Liability

 

Changes in fair value of warrant liability consist of changes to the outstanding public and private placement warrants assumed upon the consummation of the Business Combination.

 

Equity-based Compensation Expense

 

Equity-based compensation expense consists of compensation expenses recognized in connection with performance incentive awards granted to our employees and board members.

 

Impairment Charges

 

Impairment charges relate to losses on impairment of goodwill and intangible assets.

 

Restructuring Expenses

 

Restructuring expenses consists of costs associated with business realignment efforts and strategic transformation costs resulting from value creation initiatives following business acquisitions, which primarily relate to severance costs from back-office headcount reductions.

 

Other Operating Expenses, Net

 

Other operating expenses, net consists primarily of acquisition related costs and transaction costs related, including: legal, accounting, valuation and investor relations advisors, and compensation consultant fees, as well as other operating expenses.

 

Interest Expense

 

Interest expense consists of interest incurred in connection with our long-term debt obligations, and amortization of debt issuance costs.

 

Other (Expense) Income

 

Other (expense) income consists of interest income on invested funds, impacts from foreign exchange transactions, gain on disposition of business, gain on loan forgiveness and other expenses.

 

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Income Tax Expense

 

Income tax expense represents expenses or benefits associated with our operations based on the tax laws of the jurisdictions in which we operate. Our calculation of income tax expense is based on tax rates and tax laws at the end of each applicable reporting period.

 

Results of Operations

 

The following table sets forth our consolidated statements of operations for the presented periods:

 

The following table sets forth our consolidated statements of operations information expressed as a percentage of net revenues for the periods presented:

   Year Ended December 31, 
(in thousands USD)  2021   2020 
Net revenues  $158,668   $163,987 
Cost of revenue   112,303    113,465 
Gross profit   46,365    50,522 
Operating expenses:          
Selling, general and administrative expenses   43,551    31,955 
Depreciation and amortization   6,984    6,959 
Change in fair value of contingent consideration obligations   (2,200)   (6,600)
Change in fair value of embedded derivative liabilities   (4,406)    
Change in fair value of warrant liability   (4,694)     
Equity-based compensation expense   6,481    211 
Impairment charges       16,699 
Restructuring expenses   911    5,524 
Other operating expenses, net   1,785    6,997 
Total operating expense   48,412    61,745 
Loss from operations   (2,047)   (11,223)
Interest expense   (16,457)   (17,293)
Other (expense) income   (1,084)   4,525 
Loss before income tax   (19,588)   (23,991)
Income tax expense   460    2,341 
Net loss   (20,048)   (26,332)
Net income (loss) attributable to noncontrolling interests   22    (155)
Net loss attributable to the Company  $(20,070)  $(26,177)

 

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The following table sets forth our consolidated statements of operations information expressed as a percentage of net revenues for 2021:

 

   Year Ended December 31, 
   2021   2020 
Net revenues  100.0%  100.0%
Cost of revenue   70.8%   69.2%
Gross profit   29.2%   30.8%
Operating expenses:          
Selling, general and administrative expenses   27.4%   19.5%
Depreciation and amortization   4.4%   4.2%
Change in fair value of contingent consideration obligations   (1.4)%   (4.0)%
Change in fair value of embedded derivative liabilities   (2.8)%   %
Change in fair value of warrant liability   (3.0)%   %
Equity-based compensation expense   4.1%   0.1%
Impairment charges   %   10.2%
Restructuring expenses   0.6%   3.4%
Other operating expenses, net   1.1%   4.3%
Total operating expense   30.4%   37.7%
Loss from operations   (1.2)%   (6.9)%
Interest expense   (10.4)%   (10.5)%
Other (expense) income   (0.7)%   2.8%
Loss before income tax   (12.3)%   (14.6)%
Income tax expense   0.3%   1.5%
Net loss   (12.6)%   (16.1)%
Net income (loss) attributable to noncontrolling interests   %   (0.1)%
Net loss attributable to the Company   (12.6)%   (16.0)%

 

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Selected Quarterly Results of Operations

 

The following tables set forth our unaudited consolidated quarterly results of operations for each of the 8 quarters within the period from January 1, 2020 to December 31, 2021. Our quarterly results of operations have been prepared on the same basis as our consolidated financial statements, and we believe they reflect all normal recurring adjustments necessary for the fair presentation of our results of operations for these periods. This information should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this prospectus. These quarterly results of operations are not necessarily indicative of our results of operations for a full year or any future period.

 

   Three Months Ended 
   2021   2020 
(in thousands USD)  Dec 31   Sep 30   June 30   Mar 31   Dec 31   Sep 30   June 30   Mar 31 
Net revenues  $42,095   $40,420   $38,940   $37,213   $34,474   $40,114   $42,742   $46,657 
Cost of revenue   29,594    29,666    26,812    26,231    25,615    26,018    28,059    33,773 
Gross profit   12,501    10,754    12,128    10,982    8,859    14,096    14,683    12,884 
                                         
Operating expenses:                                        
Selling, general and administrative expenses   13,406    11,188    10,189    8,768    8,552    8,978    6,412    8,013 
Depreciation and amortization   1,745    1,746    1,719    1,774    1,705    1,709    1,700    1,845 
Change in fair value of contingent consideration obligations           (2,200)       (554)   (555)   (5,491)    
Change in fair value of embedded derivative liabilities       (1,884)   (1,112)   (1,410)                
Change in fair value of warrant liabilities   (3,935)   (759)                        
Equity-based compensation expense       6,469        12    31    55    56    69 
Impairment charges                       7,565    9,134     
Restructuring expenses   1,024    (135)   12    10    2,965    1,084    1,097    378 
Other operating expenses, net   774    (96)   472    635    3,293    3,205    212    287 
Total operating expense   13,014    16,529    9,080    9,789    15,992    22,041    13,120    10,592 
Income (loss) from operations   (513)   (5,775)   3,048    1,193    (7,133)   (7,945)   1,563    2,292 
                                         
Interest expense   (4,340)   (4,065)   (3,724)   (4,328)   (4,490)   (4,400)   (3,984)   (4,419)
Other income (expense)   (648)   (851)   1,723    (1,308)   4,855    3,002    2,748    (6,080)
(Loss) Income before income taxes   (5,501)   (10,691)   1,047    (4,443)   (6,768)   (9,343)   327    (8,207)
                                         
Income tax expense (benefit)  $473   $96   $499   $(608)  $(119)  $1,012   $1,343   $105 
Net income (loss)  $(5,974)  $(10,787)  $548   $(3,835)  $(6,649)  $(10,355)  $(1,016)  $(8,312)

 

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The following table presents a reconciliation of Adjusted EBITDA, a non-GAAP financial measure, to the most directly comparable financial measure prepared in accordance with GAAP.

 

   Three Months Ended 
   2021   2020 
(in thousands USD)  Dec 31   Sep 30   June 30   Mar 31   Dec 31   Sep 30   June 30   Mar 31 
Net (loss) income  $(5,974)  $(10,787)  $548   $(3,835)  $(6,649)  $(10,355)  $(1,016)  $(8,312)
Income tax expense (benefit)   473    96    499    (608)   (119)   1,012    1,343    105 
Interest Expense, net   4,336    4,045    3,701    4,305    4,463    4,365    3,959    4,394 
Depreciation and amortization   1,745    1,746    1,719    1,774    1,705    1,709    1,700    1,845 
EBITDA   580    (4,900)   6,467    1,636    (600)   (3,269)   5,986    (1,968)
Change in fair value of contingent consideration obligations           (2,200)       (554)   (555)   (5,491)    
Change in fair value of embedded derivative liabilities       (1,884)   (1,112)   (1,410)                
Change in fair value of warrant liabilities   (3,935)   (759)                        
Equity-based compensation expense       6,469        12    31    55    56    69 
Impairment charges                       7,565    9,134     
Restructuring expenses   1,024    (135)   12    10    2,965    1,084    1,097    378 
Foreign exchange loss (gain)   406    790    (596)   1,336    (4,886)   (3,109)   (1,698)   6,096 
Loss (gain) on business dispositions                   271    (129)   (1,252)    
Gain on debt extinguishment           (1,243)   (63)   (142)            
Transaction Costs   716    (177)   467    328    3,557    2,579    210    299 
Other expenses, net   1,492    (1)   (1)   78    80    (16)   (20)   42 
Adjusted EBITDA  $283   $(597)  $1,794   $1,927   $722   $4,205   $8,022   $4,916 

 

Comparison of Years Ended December 31, 2021 and 2020

 

Net revenues

 

   Year Ended December 31,   % Change 
   2021   2020   2021 vs. 2020 
   (in thousands, except percentages) 
Net Revenues  $158,668   $163,987      (3.2)%

 

Net revenues for the year ended December 31, 2021 decreased $5.3 million, or 3.2%, to $158.7 million from $164.0 million for the year ended December 31, 2020. The decrease was mainly related to the suspension or scope reductions in major projects with existing clients driven by the negative effects of the COVID-19 pandemic, combined with the effects of attrition and reduced billing rates on certain contract negotiations.

 

Net Revenues by Geographic Location

 

   Year Ended December 31,   % Change 
   2021   2020   2021 vs. 2020 
   (in thousands, except percentages) 
United States  $103,436   $113,073      (8.5)%
Latin America   55,232    50,914    8.5%
Total  $158,668   $163,987    (3.2)%

 

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Net revenues from our United States operations for the year ended December 31, 2021 decreased $9.7 million, or 8.5%, to $103.4 million from $113.1 million for the year ended December 31, 2020. The change was mainly driven by a $24 million decrease in information technology spending from two customers in the professional services industry and service volume reduction with other smaller clients due to the COVID-19 pandemic, offset by a $14.4 million increase related mainly to extended scope of work with other existing customers, as well as new customers.

 

Net revenues from our Latin America operations for the year ended December 31, 2021 increased $4.3 million, or 8.5%, to $55.2 million from $50.9 million for the year ended December, 2020. The change was driven by an increase of $10.9 million related to increased volume in retail and financial services clients, offset by a $4.8 million decrease in revenues from other customers as a result of project scope reductions and terminations due to COVID-19 and a decrease of $1.8 million in smaller scope projects.

 

Revenues by Contract Type

 

The following table sets forth net revenues by contract type and as a percentage of our revenues for the periods indicated:

 

   Year Ended December 31,   % Change 
   2021   2020   2021 vs. 2020 
   (in thousands, except percentages) 
Time and materials  $130,603   $144,658      (9.7)%
Fixed price   28,065    19,329    45.2%
Total  $158,668   $163,987    (3.2)%

 

Net revenues from our time and materials contracts for the year ended December 31, 2021 decreased approximately $14.1 million, or 9.7%, to $130.6 million from $144.7 million for the year ended December 31, 2020. The main driver of the net variation is related to the project scope reductions and suspensions with our US clients within the professional services industry due to the effects of the COVID-19 pandemic and the shift from time and material services to fixed price Agile pods with one of our clients within the financial services industry in Latin America. Net revenues from our fixed price contracts for the year ended December 31, 2021 increased $8.8 million, or 45.2%, to $28.1 million from $19.3 million for the year ended December 31, 2020. The main drivers of the net increase were related to the shift to fixed price Agile pods with one of our clients from the financial services industry and increased services with clients within the retail industry in Latin America under a fixed-price modality.

 

Cost of revenue

 

   Year Ended December 31,   % Change 
   2021   2020   2021 vs. 2020 
   (in thousands, except percentages) 
Cost of revenue  $112,303   $113,465      (1.0)%
% of net revenues   70.8%   69.2%     

 

Cost of revenue for the year ended December 31, 2021 decreased $1.2 million, or 1.0%, to $112.3 million from $113.5 million for the year ended December 31, 2020. The decrease was primarily driven by the scope reductions in major projects that had a corresponding decline in net revenues. Cost as a percentage of net revenues for the year ended December 31, 2021 increased 1.6%, to 70.8% from 69.2% for the year ended December 31, 2020. The increase was primarily driven by the costs of non-billable onboarding time of new hires and lower utilization due to preparation for new bookings and the effects of the new labor law in Mexico, that came to effect during the third quarter, and increased the payroll cost of the Mexican workforce.

 

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Selling, general and administrative expenses

 

   Year Ended December 31,   % Change 
   2021   2020   2021 vs. 2020 
   (in thousands, except percentages) 
Selling, general and administrative expenses  $43,551   $31,955      36.3%
% of net revenues   27.4%   19.5%     

 

Selling, general and administrative expenses for the year ended December 31, 2021 increased $11.5 million, or 36.0%, to $43.5 million from $32.0 million for the year ended December 31, 2020. The increase was primarily due to a $6.0 million increase in employee costs mostly driven by increased sales headcount and the effect of a new variable compensation plan for the sales and delivery teams, $1.9 million increase in external professional services related to legal, accounting, audit, tax advisory and headhunting services, $1.3 million of bad debt expense due to the increase in our allowance for doubtful accounts, $1.2 million credit recorded in the second quarter of 2020 related to a Tennessee sales tax matter, $0.9 million increase in D&O insurance costs, and $0.2 million in increased cost related to IT infrastructure improvement costs.

 

Depreciation and amortization

 

   Year Ended December 31,   % Change 
   2021   2020   2021 vs. 2020 
   (in thousands, except percentages) 
Depreciation and amortization  $6,984   $6,959       0.4%
% of net revenues   4.4%   4.2%     

 

Depreciation and amortization for year ended December 31, 2021 and 2020, was $7.0 million, respectively.

 

Change in fair value of contingent consideration obligations

 

   Year Ended December 31,   % Change 
   2021   2020   2021 vs. 2020 
   (in thousands, except percentages) 
Change in fair value of contingent consideration obligations  $(2,200)  $(6,600)      (66.7)%
% of net revenues   (1.4)%   (4.0)%     

 

Change in fair value of contingent consideration obligations for the year ended December 31, 2021 decreased $4.4 million, or 66.7%, to $(2.2) million from $(6.6) million for the year ended December 31, 2020. The change is due to the AgileThought LLC business not meeting some of the 2020 and 2021 performance metrics established as part of contingent consideration associated with the acquisition, thus adjusting the fair value of the earnouts of subsequent periods.

 

Change in fair value of embedded derivative liabilities

 

   Year Ended December 31,   % Change 
   2021   2020   2021 vs. 2020 
   (in thousands, except percentages) 
Change in fair value of embedded derivative liabilities  $(4,406)  $      100.0%
% of net revenues   (2.8)%   %     

 

Change in fair value of embedded derivative liabilities for the year ended December 31, 2021 resulted in a gain of $4.4 million. The gain was primarily driven by the settlement of embedded derivative liabilities that occurred as a result of the Business Combination.

 

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Change in fair value of warrant liability

 

   Year Ended December 31,   % Change 
   2021   2020   2021 vs. 2020 
   (in thousands, except percentages) 
Change in fair value of warrant liability  $(4,694)  $      100.0%
% of net revenues   (3.0)%   %     

 

Change in fair value of warrant liability for the year ended December 31, 2021 resulted in a gain of $4.7 million. The gain was primarily driven by a decrease in the market price of our public warrants, increase in risk-free rate of return and increased volatility used to estimate the fair value of our warrant liability from August 23, 2021 to December 31, 2021.

 

Equity-based compensation expense

 

   Year Ended December 31,   % Change 
   2021   2020   2021 vs. 2020 
   (in thousands, except percentages) 
Equity-based compensation expense  $6,481   $211    >1000.0%
% of net revenues   4.1%   0.1%     

 

Equity-based compensation expense for the year ended December 31, 2021 increased $6.3 million, or over 1,000.0%, to $6.5 million from $0.2 million for the year ended December 31, 2020. In connection with the Business Combination, the Company granted stock awards covering shares of Class A common stock and accelerated previously granted restricted stock units, which resulted in $6.5 million equity-based compensation expense that was recognized during the year ended December 31, 2021. During the year ended December 31, 2020, equity-based compensation expense was recognized in connection with board members’ restricted stock units.

 

Impairment charges

 

   Year Ended December 31,   % Change 
   2021   2020   2021 vs. 2020 
   (in thousands, except percentages) 
Impairment charges  $   $16,699    (100.0)%
% of net revenues   %   10.2%     

 

Impairment charges for the year ended December 31, 2021 decreased $16.7 million, or 100.0%. During the year ended December 31, 2020, we recognized $11.6 million of goodwill impairment, $3.5 million of customer relationships impairment and $1.6 million of indefinite-lived intangible asset impairment, resulting from negative impacts of the COVID-19 pandemic and the disposition of a business within our Latin America reporting unit.

 

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Restructuring expenses

 

   Year Ended December 31,   % Change 
   2021   2020   2021 vs. 2020 
   (in thousands, except percentages) 
Restructuring expenses  $911   $5,524    (83.5)%
% of net revenues   0.6%   3.4%     

 

Restructuring expenses for the year ended December 31, 2021 decreased $4.6 million, or 83.5%, to $0.9 million from $5.5 million for the year ended December 31, 2020. The decrease was primarily due to costs incurred during the year ended December 31, 2020 associated with the restructuring implemented in the first quarter 2020 in response to the COVID-19 pandemic. During the year ended December 31, 2021, the Company incurred severance costs in the fourth quarter 2021 due to the Company’s efforts to streamline its operating model and reduce layers of management.

 

Other operating expenses, net

 

   Year Ended December 31,   % Change 
   2021   2020   2021 vs. 2020 
   (in thousands, except percentages) 
Other operating expense, net  $1,785   $6,997    (74.5)%
% of net revenues   1.1%   4.3%     

 

Other operating expenses, net for the year ended December 31, 2021 decreased $5.2 million, or 74.5%, to $1.8 million from $7.0 million for the year ended December 31, 2020. The decrease was mainly driven by a decline in transaction expenses in connection with preparation to become a public company that was expensed in 2020 but capitalized and netted against equity in 2021.

 

Interest expense

 

   Year Ended December 31,   % Change 
   2021   2020   2021 vs. 2020 
   (in thousands, except percentages) 
Interest expense  $(16,457)  $(17,293)   (4.8)%
% of net revenues   (10.4)%   (10.5)%     

 

Interest expense for the year ended December 31, 2021 decreased $0.8 million, or 4.8%, to $16.5 million from $17.3 million for the year ended December 31, 2020. The decrease was primarily due to the creditors exercising their option to convert the combined $38.1 million of debt outstanding into shares of the Company’s common stock that occurred in connection with the Business Combination. In addition, the additional principal payments reduced the outstanding balance of term loans.

 

Other (expense) income

 

   Year Ended December 31,   % Change 
   2021   2020   2021 vs. 2020 
   (in thousands, except percentages) 
Other (expense) income  $(1,084)  $4,525    (124.0)%
% of net revenues   (0.7)%   2.8%     

 

Other (expense) income for the year ended December 31, 2021 decreased $5.6 million, or 124.0%, to $(1.1) million from $4.5 million for the year ended December 31, 2020. The change was primarily due to a $5.5 million decrease in net foreign currency exchange gains derived mainly from exchange rate fluctuations offset by a $1.3 million increase in gain on forgiveness of a Paycheck Protection Program loan recorded in 2021.

 

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Income tax expense

 

   Year Ended December 31,   % Change 
   2021   2020   2021 vs. 2020 
   (in thousands, except percentages) 
Income tax expense  $460   $2,341    (80.4)%
Effective income tax rate   (2.3)%   (9.8)%     

 

Income tax expense for the year ended December 31, 2021 decreased $1.9 million, or 80.4%, to $0.5 million from $2.3 million for the year ended December 31, 2020 due to discrete tax items recorded in the third quarter of 2020.

 

Non-GAAP Measures

 

To supplement our consolidated financial data presented on a basis consistent with U.S. GAAP, we present certain non-GAAP financial measures, including EBITDA and Adjusted EBITDA. We have included the non-GAAP financial measures because they are financial measures used by our management to evaluate our core operating performance and trends, to make strategic decisions regarding the allocation of capital and new investments and are among the factors analyzed in making performance-based compensation decisions for key personnel. The measures exclude certain expenses that are required under U.S. GAAP. We exclude certain non-cash expenses and certain items that are not part of our core operations.

 

We believe this supplemental performance measurement is useful in evaluating operating performance, as they are similar to measures reported by our public industry peers and those regularly used by security analysts, investors and other interested parties in analyzing operating performance and prospects. The non-GAAP financial measures are not intended to be a substitute for any GAAP financial measures and, as calculated, may not be comparable to other similarly titled measures of performance of other companies in other industries or within the same industry.

 

There are significant limitations associated with the use of non-GAAP financial measures. Further, these measures may differ from the non-GAAP information, even where similarly titled, used by other companies and therefore should not be used to compare our performance to that of other companies. We compensate for these limitations by providing investors and other users of our financial information a reconciliation of our non-GAAP measures to the related GAAP financial measure. We encourage investors and others to review our financial information in its entirety, not to rely on any single financial measure and to view our non-GAAP measures in conjunction with GAAP financial measures.

 

We define and calculate our non-GAAP financial measures as follows:

 

EBITDA: Net loss plus income tax expense, plus interest expense, net, and plus depreciation and amortization.

 

Adjusted EBITDA: EBITDA further adjusted to exclude the change in fair value of contingent consideration obligations, plus the change in fair value of embedded derivative liability, plus the change in fair value of warrant liability, plus equity-based compensation expense, plus impairment charges, plus restructuring expenses, plus foreign exchange loss (gain), plus (gain) loss on business dispositions, plus gain on debt extinguishment or debt forgiveness, plus certain transaction costs, plus certain other expense, net.

 

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The following table presents the reconciliation of our EBITDA and Adjusted EBITDA to our net loss, the most directly comparable GAAP measure, for the annual periods indicated:

 

   Year Ended December 31, 
(in thousands USD)  2021   2020 
Net loss  $(20,048)  $(26,332)
Income tax expense   460    2,341 
Interest expense, net   16,387    17,181 
Depreciation and amortization   6,984    6,959 
EBITDA   3,783    149 
Change in fair value of contingent consideration obligations   (2,200)   (6,600)
Change in fair value of embedded derivative liability   (4,406)    
Change in fair value of warrant liability   (4,694)    
Equity-based compensation expense   6,481    211 
Impairment charges       16,699 
Restructuring expenses1   911    5,524 
Foreign exchange loss (gain)2   1,936    (3,597)
(Gain) loss on business dispositions3       (1,100)
Gain on debt extinguishment4   (1,306)   (142)
Transaction costs5   1,334    6,645 
Other expense, net6   1,568    86 
Adjusted EBITDA  $3,407   $17,875 

 

 

1 - Represents restructuring expenses associated with the ongoing reorganization of our business operations and realignment efforts. Refer to Note 14, Restructuring, within our consolidated financial statements in this prospectus.
2 -Represents foreign exchange loss (gain) due to foreign currency transactions.
3 -Represents a gain on disposition of eProcure during 2020. Refer to Note 10, Other Income (Expense), within our consolidated financial statements in this prospectus.
4 -Represents a $1.3 million gain on forgiveness of PPP loans during the year ended December 31, 2021. Refer to Note 10, Other Income (Expense), within our consolidated financial statements in this prospectus.
5 -Represents professional service fees primarily comprised of consulting, transaction services, accounting and legal fees in connection with the merger transaction with LIVK and preparation for becoming and being a public company.
6 - Includes a $1.4 million non operational expense associated with consolidating legal entities.

 

Liquidity and Capital Resources

 

Our main sources of liquidity have been our cash and cash equivalents, cash generated from operations, and proceeds from issuances of stock and debt. Our main uses of cash are funds to operate our business, make principal and interest payments on our outstanding debt, capital expenditures, and business acquisitions.

 

Our future capital requirements will depend on many factors, including our growth rate. Over the past several years, operating expenses have increased as we have invested in growing our business. Payments of principal and interest on our debt and earnout cash payments following our acquisitions have also been cash outflows. Our operating cash requirements may increase in the future as we continue to invest in the growth of our Company.

 

As of December 31, 2021, we had $8.5 million of available cash and cash equivalents, a decrease of $0.8 million from December 31, 2020. We believe that we will have sufficient financial resources to fund our operations for the next 12 months. We are continuously looking to implement strategies to improve our profitability and reduce expenses, along with evaluating alternatives such as refinancing our debt.

 

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First Lien Facility

 

In 2018, we entered into a revolving credit agreement (the “Revolving Credit Agreement”) with Monroe Capital Management Advisors LLC for a revolving credit facility that permits us to borrow up to $1.5 million through November 10, 2023. In 2019, we amended the Revolving Credit Agreement to increase the borrowing limit to $5.0 million. Interest is paid monthly and calculated as LIBOR plus a margin of 8.0% to 9.0%, based on the Total Leverage Ratio (as defined in the Revolving Credit Agreement) as calculated in the most recent compliance certificate. An additional 2.0% interest may be incurred during periods of loan covenant default.

 

As of December 31, 2021, the interest rate was 10.0%. We are required to pay an annual commitment fee of 0.5% on the unused portion of the commitment. As of December 31, 2021 and December 31, 2020, we had no availability under the revolving credit facility.

 

In 2018, we entered into the term loan credit agreement with Monroe Capital Management Advisors LLC pursuant to which we were permitted to borrow up to $75.0 million through November 10, 2023. On July 18, 2019, we entered into an amended and restated credit agreement for the First Lien Facility to increase the borrowing amount to $98.0 million. Interest is paid monthly and calculated as LIBOR plus a margin of 8.0% to 9.0%, based on the total leverage ratio (as defined in the First Lien Facility) as calculated in the most recent compliance certificate (as defined in the First Lien Facility) delivered quarterly. An additional 2.0% interest may be incurred during periods of loan covenant default. Principal payments of $0.6 million are due quarterly until maturity, at which time the remaining outstanding balance is due. The amended and restated credit agreement for the First Lien Facility was further amended on February 2, 2021, pursuant to which we agreed to pay in lieu of the first two regular quarterly principal installments in 2021 (February 2021 through and including July 2021), six monthly principal payments of $1.0 million from February 2021 through and including July 2021. Further, the Total Leverage Ratio covenant was modified for the periods ending from December 31, 2020 to March 31, 2022.

 

The amended and restated credit agreement for the First Lien Facility was further amended on April 30, 2021, pursuant to which we were permitted to defer, at our election, the $1.0 million monthly installment payments for April and May 2021, and in the event of such election, we would incur a fee of $0.5 million for each such deferred payment that would be payable to the lender upon the maturity date. We elected to defer the April and May 2021 payments and incurred a total of $1.0 million fee payable to the lender. Additionally, the Total Leverage Ratio and Fixed Charges Coverage Ratio (as defined in the First Lien Facility) covenants were modified for the period ended December 31, 2020 and thereafter.

 

On June 24, 2021, the amended and restated credit agreement for the First Lien Facility was amended to permit the incurrence of indebtedness (the “June Subordinated Debt”) of up to $8.0 million aggregate principal amount (the “Fifth Amendment to First Lien Facility”). Pursuant to the terms of the amendment and a related subordination agreement, the Subordinated Promissory Note will be subordinated in right of payment to the First Lien Facility. In addition, the amendment modifies our Total Leverage Ratio covenant and Fixed Charges Coverage Ratio covenant to accommodate the incurrence of the Subordinated Promissory Note. In consideration therefor and for the option to defer the $1.0 million monthly installment payment for April, May, June and July until September, we agreed to pay a fee of $4.0 million that is payable to the lender on the maturity date, which includes the $1.0 million fee payable to the lender pursuant to the April 30, 2021 amendment. Additionally, the $0.5 million fee per deferral that was previously established as part of the April 30, 2021 amendment was removed.

 

The amended and restated credit agreement for the First Lien Facility was further amended on July 26, 2021 to permit the incurrence of the Exitus Credit Facility.

 

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On September 30, 2021, the Company entered into an amendment to extend the due date of the $4.0 million in principal payments previously due for April, May, June and July, from September 30, 2021 to October 15, 2021. On October 14, 2021, the Company entered into an amendment to extend the due date from October 15, 2021 to October 29, 2021. On October 29, 2021, the Company entered into an amendment to further extend the due date from October 29, 2021 to November 19, 2021.

 

On November 15, 2021, the Company entered into an amendment to reset the First Lien Facility’s Total Leverage Ratio for the quarterly periods of September 30, 2021 to June 30, 2022 and Fixed Charge Coverage Ratio covenants for the quarterly periods of September 30, 2021 to December 31, 2022. For purposes of calculating compliance with the Company’s maximum Total Leverage Ratio for the quarters ended December 31, 2021, March 31, 2022 and June 30, 2022 (but not for any quarter thereafter), the amount of the Company’s debt will be deemed to be reduced by the market value of the First Lien Shares at the applicable quarter-end. The Company may issue additional First Lien Shares from time to time to reduce the amount of debt for purposes of the maximum Total Leverage Ratio to the extent necessary to comply with such financial ratio; however, such issuance may not be possible due to regulatory restrictions.

 

On November 29, 2021, the Company made a $20.0 million principal prepayment, which included the $4.0 million principal payment that was originally due September 30, 2021. The Company made this payment with proceeds from the New Second Lien Facility. Furthermore, on December 29, 2021, the Company issued 4,439,333 shares of Class A Common Stock to the administrative agent for the First Lien Facility (the “First Lien Shares”), which subject to certain terms and regulatory restrictions, may sell the First Lien Shares upon the earlier of August 29, 2022 and an event of default and apply the proceeds to the outstanding balance of the loan. Subject to regulatory restrictions, the Company may issue additional First Lien Shares from time to time to reduce the amount of debt for purposes of the Total Leverage Ratio to the extent necessary to comply with such financial ratio. In addition, the Company agreed to issue warrants to the administrative agent to purchase $7 million worth of the Company’s Class A Common Stock for nominal consideration. The warrants will be issued on the date that all amounts under the First Lien Facility have been paid in full. In addition, the Company may be required to pay Monroe cash to the extent that we cannot issue some or all of the warrants due to regulatory restrictions. The First Lien lenders charged an additional $2.9 million fee paid upon the end of the term loan in exchange for the amended terms. As of December 31, 2021, total fees payable at the end of the term loan, including fees recognized from prior amendments, totaled $6.9 million.

 

On November 22, 2021, the Company entered into an amendment that requires sixty percent (60%) of proceeds from future equity issuances be used to repay the outstanding balance on the First Lien Facility. On December 27, 2021, the Company closed a follow on stock offering resulting in $21.8 million of net proceeds, of which $13.7 million was used as payment of the outstanding principal and interest balances for the First Lien Facility.

 

On March 30, 2022, the Company entered into an amendment with the First Lien and New Second Lien Facility Lenders to waive the Fixed Charge Coverage Ratio for March 31, 2022. In addition, the Total Leverage Ratio covenant for the quarterly period of March 31, 2022 was reset. As consideration for entering into this amendment, the Company agrees to pay the First Lien Facility’s administrative agent a fee equal to $500,000. The fee shall be fully earned as of March 30, 2022 and shall be due and payable upon the end of the term loan. However, the fee shall be waived in its entirety if final payment in full occurs prior to or on May 30, 2022.

 

Second Lien Facility

 

On July 18, 2019, we entered into the Second Lien Facility which permitted us to borrow $25.0 million at 13.73% interest. On January 30, 2020, the Second Lien Facility was amended to increase the borrowing amount by $4.1 million. Interest is capitalized every six months and is payable at termination or conversion. The Second Lien Lenders had the option at their election to convert the loan into common shares of Legacy AgileThought (a) before January 31, 2022 if we filed for an initial public offering or entered into a merger agreement or (b) on or after January 31, 2022.

 

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Concurrently with the execution of the merger agreement, we entered into the conversion agreement with the Second Lien Lenders, pursuant to which all of the outstanding total obligations due to each Second Lien Lender under that the Second Lien Facility were converted into shares of common stock of Legacy AgileThought immediately prior to the Business Combination. Subsequently, at the effective time of the Business Combination, such shares of common stock of Legacy AgileThought were automatically converted into the applicable portion of the common merger consideration and each Second Lien Lender was entitled to receive their proportionate interest of the common merger consideration as a holder of Legacy AgileThought common stock. At close of the Business Combination, the Second Lien Lenders received 115,923 shares of Legacy AgileThought common stock immediately prior to the Business Combination.

 

New Second Lien Facility

 

On November 22, 2021, the Company entered into a new Second Lien Facility (the “New Second Lien Facility”) Nexxus Capital and Credit Suisse (both of which are existing AgileThought shareholders and have representation on AgileThought’s Board of Directors), Manuel Senderos, Chief Executive Officer and Chairman of the Board of Directors, and Kevin Johnston, Chief Operating Officer. The New Second Lien Facility provides for a term loan facility in an initial aggregate principal amount of approximately $20.7 million, accruing interest at a rate per annum from 11% and 17%. The New Second Lien Facility has an original maturity date of March 15, 2023. If the Credit Facility remains outstanding on December 15, 2022, the maturity date of the New Second Lien Facility will be extended to May 10, 2024.

 

Each lender under the New Second Lien Facility has the option to convert all or any portion of its outstanding loans into AgileThought Class A Common Stock on or after December 15, 2022 or earlier, upon our request. Unless we receive shareholder approval pursuant to applicable Nasdaq rules, the amounts under the New Second Lien Facility will only convert into up to 2,098,545 shares of Class A Common Stock and will only convert at a price per share equal to the greater of $10.19 or the then-current market value. On December 27, 2022, Manuel Senderos and Kevin Johnston exercised the conversion options for their respective loan amounts of $4.5 million and $0.2 million respectively.

 

Paycheck Protection Program Loans

 

On April 30, 2020, and May 1, 2020, the Company received, through four of its subsidiaries, Paycheck Protection Program loans, or the PPP loans, for a total amount of $9.3 million. The PPP loans bear a fixed interest rate of 1.0% over a two-year term, are guaranteed by the United States federal government, and do not require collateral from the Company. The loans may be forgiven, in part or in full, if the proceeds were used to retain and pay employees and for other qualifying expenditures. The Company submitted its forgiveness applications to the Small Business Administration between November 2020 and January 2021. On December 25, 2020, $0.1 million of a $0.2 million PPP loan was forgiven. On March 9, 2021, $0.1 million of a $0.3 million PPP loan was forgiven. On June 13, 2021, $1.2 million of a $1.2 million PPP loan was forgiven. On January 19, 2022, $7.3 million of a $7.6 million PPP loan was forgiven resulting in a remaining PPP Loan balance of $0.3 million of which $0.1 million is due within the next year. The remaining payments will be made monthly until May 2, 2025.

 

Subordinated Promissory Note

 

On June 24, 2021, the Company entered into a credit agreement with AGS Group LLC (“AGS Group”) for a principal amount of $0.7 million. The principal amount outstanding under this agreement matured on December 20, 2021 (“Original Maturity Date”) but was extended until May 19, 2022 (“Extended Maturity Date.”) Interest is due and payable in arrears on the Original Maturity Date at a 14.0% per annum until and including December 20, 2021 and at 20% per annum from the Original Maturity Date to the Extended Maturity Date calculated on the actual number of days elapsed.

 

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Exitus Capital Subordinated Debt

 

On July 26, 2021, the Company agreed with existing lenders and Exitus Capital (“Subordinated Creditor”) to enter into a zero-coupon subordinated loan agreement with Exitus Capital in an aggregate principal amount equal to $3.7 million (“Subordinated Debt”). No periodic interest payments are made and the loan is due on January 26, 2022, with an option to extend up to two additional six month terms. Net loan proceeds totaled $3.2 million, net of $0.5 million in debt discount. Payment of any and all of the Subordinated Debt shall be subordinate of all existing senior debt. In the event of any liquidation, dissolution, or bankruptcy proceedings, all senior debt shall first be paid in full before any distribution shall be made to the Subordinated Creditor. The loan is subject to a 36% annual interest moratorium if full payment is not made upon the maturity date. On January 25, 2022, the Company exercised the option to extend the loan an additional six months to July 26, 2022. The Company recognized an additional $0.5 million debt issuance costs related to the loan extension. The Company has the right to further extend maturity of this facility for an additional six month period. The loan is secured by a pledge by Diego Zavala of certain of his real property located in Mexico City and is subordinated in right of payment to the First Lien Facility.

 

For additional information, see Note 9, Long-term Debt, to our consolidated financial statements appearing in this prospectus.

 

Earnout Obligations

 

The Company records its obligations for contingent purchase price at fair value, based on the likelihood of making contingent earnout payments and stock issuances based on the underlying agreement terms. The earnout payments and value of stock issuances are subsequently remeasured to fair value each reporting date using an income approach determined based on the present value of future cash flows using internal models. As of December 31, 2021 and December 31, 2020, the Company does not have any outstanding stock issuance based earnout obligations.

 

As of December 31, 2021 and 2020, outstanding cash earnouts were $8.8 million and $10.3 million, respectively. Outstanding balance accrues interest at an annual interest rate of 12%. The balance shown at December 31, 2021 and December 31, 2020 includes the related accrued interest. In order for the Company to make payments for its contingent purchase price obligations, in addition to having sufficient cash resources to make the payments themselves, the Company must be in compliance with liquidity and other financial and other covenants included in the First Lien Facility. The Company has not been able to satisfy those covenants to date. Whether the Company is able to satisfy those covenants will depend on the Company’s overall operating and financial performance. There can be no assurance that we will have sufficient cash flows from operating activities, cash on hand or access to borrowed funds to be able to make any contingent purchase price payments when required to do so, and any failure to do so at such time could have a material adverse effect on our business, financial condition, results of operations and prospects.

 

Cash Flows

 

The following table summarizes our consolidated cash flows for the periods presented:

 

   Year Ended December 31, 
(in thousands USD)  2021   2020 
Net cash used in operating activities  $(23,223)  $(1,066)
Net cash used in investing activities   (916)   (1,585)
Net cash provided by financing activities   23,551    6,606 

 

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Operating Activities

 

Net cash used in operating activities for the year ended December 31, 2021 increased by approximately $22.1 million to ($23.2) million from $(1.1) million for the twelve months ended December 31, 2020. The increase was mainly driven by changes in our operating assets and liabilities which decreased $20.5 million on a year over year basis, a decrease of $7.8 million in non-cash items, offset by an increase of $6.3 million in net loss.

 

The decrease of $20.5 million resulting from changes in our operating assets and liabilities was primarily driven by (i) an increase of $25.9 million in accounts receivable, (ii) an increase $2.1 million in prepaid expenses and guarantee deposits, (iii) a decrease of approximately $1.4 million in accrued liabilities, and (v) a $0.3 million change in lease liability partially offset by (i) an increase of $5.8 million in accounts payable and (ii) an increase of $0.8 million of deferred revenue, (iii) an increase of $2.5 million in income tax payable, and (iv) a decrease of $0.1 million in other tax assets.

 

The decrease of $7.8 million in non-cash items was driven by (i) the decrease of $16.7 million in impairment of goodwill and other intangible assets, (ii) the decrease of $4.4 million from the fair value of embedded derivative liabilities, (iii) the decrease of $1.2 million gain on forgiveness of debt, (iv) the decrease of $4.7 million of changes in fair value of warrant liability, and (v) the decrease of $1.6 million in deferred income tax provision, and partially offset by (i) the increase of $6.3 million of share-based compensation, (ii) the increase of $4.8 million in obligations for contingent purchase price, (iii) the increase of $0.2 million in amortization of right-of-use assets, (iv) the increase of $5.6 million in foreign currency remeasurement, (v) the decrease on the recognition of $1.3 million in gain on divestiture of eProcure (a non-strategic business), and (vi) the increase of $2.6 million in amortization of debt issuance costs.

 

Investing Activities

 

Net cash used in investing activities for the twelve months ended December 31, 2021 decreased $0.7 million to $0.9 million from $1.6 million for the twelve months ended December 31, 2020 as a result of a decrease in capital expenditures.

 

Financing Activities

 

Net cash provided by financing activities for the twelve months ended December 31, 2021 increased $17.0 million to $23.6 million from $6.6 million for the twelve months ended December 31, 2020. The increase in net cash provided was primarily driven by (i) proceeds from $27.6 million of PIPE financing, (ii) an increase of $20.0 million in share capital due to the issuance of preferred stock, which was subsequently converted into Class A common stock, (iii) an increase of $5.7 million in share capital as a result of the Business Combination, (iv) a $4.3 million decrease in the payment of contingent consideration, (v) an increase in proceeds from loans of $11.2 million primarily related to the New Second Lien Facility, and (vi) proceeds of $24.9 million from the follow on issuance offset by (i) an increase of $59.2 million in repayment of borrowings mainly on the First Lien Facility (ii) the repayment of deferred issuance costs as a result of the Business Combination and transaction costs of $13.0 million, (iii) the payment of $1.4 million of debt issuance costs, and (iv) paid $3.1 million in transaction costs for the follow on share issuance.

 

Contractual Obligations and Commitments

 

The following table summarizes our contractual obligations as of December 31, 2021:

 

   Payments Due By Period 
(in thousands USD)  Total   Less than 1 Year1   1-3 Years   3-5 Years   More than 5 Years 
Debt obligations  $71,948   $14,287   $57,661   $   $ 
Operating lease obligations   7,327    3,234    3,804    289     
Total  $79,275   $17,521   $61,465   $289   $ 

 

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The commitment amounts in the table above are associated with contracts that are enforceable and legally binding and that specify all significant terms, including fixed or minimum services to be used, fixed, minimum or variable price provisions, and the approximate timing of the actions under the contracts. The table does not include obligations under agreements that we can cancel without a significant penalty.

 

For additional information on our debt and lease obligations, see Note 9, Long-term Debt and Note 8, Leases in our audited consolidated financial statements.

 

Critical Accounting Policies

 

We believe that the following accounting policies involve a high degree of judgment and complexity. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of our operations. See Note 2, Summary of Significant Accounting Policies, to our audited consolidated financial statements included in this prospectus for a description of our other significant accounting policies. The preparation of our consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and judgments that affect the amounts reported in those financial statements and accompanying notes. Although we believe that the estimates we use are reasonable, due to the inherent uncertainty involved in making those estimates, actual results reported in future periods could differ from those estimates.

 

Revenue Recognition

 

The Company recognizes revenue in accordance with Financial Accounting Standards Board’s (“FASB”) Account Standards Codification (“ASC”) 606, Revenue from Contracts with Customers.

 

Revenue is recognized when or as control of promised products or services are transferred to the customer in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. In instances where revenue is recognized over time, the Company uses an appropriate input or output measurement method, typically based on the contract or labor volume.

 

The Company applies judgment in determining the customer’s ability and intention to pay based on a variety of factors, including the customer’s historical payment experience. If there is uncertainty about the receipt of payment for the services, revenue recognition is deferred until the uncertainty is sufficiently resolved. Our payment terms are based on customary business practices and can vary by region and customer type, but are generally 30-90 days. Since the term between invoicing and expected payment is less than a year, we do not adjust the transaction price for the effects of a financing component.

 

The Company may enter into arrangements that consist of any combination of our deliverables. To the extent a contract includes multiple promised deliverables, the Company determines whether promised deliverables are distinct in the context of the contract. If these criteria are not met, the promised deliverables are accounted for as a single performance obligation. For arrangements with multiple distinct performance obligations, we allocate consideration among the performance obligations based on their relative standalone selling price. The standalone selling price is the price at which we would sell a promised good or service on an individual basis to a customer. When not directly observable, the Company generally estimates standalone selling price by using the expected cost plus a margin approach. The Company reassesses these estimates on a periodic basis or when facts and circumstances change.

 

Revenues related to software maintenance services are recognized over the period the services are provided using an output method that is consistent with the way in which value is delivered to the customer.

 

Revenues related to cloud hosting solutions, which include a combination of services including hosting and support services, and do not convey a license to the customer, are recognized over the period as the services are provided. These arrangements represent a single performance obligation.

 

For software license agreements that require significant customization of third-party software, the software license and related customization services are not distinct as the customization services may be complex in nature or significantly modify or customize the software license. Therefore, revenue is recognized as the services are performed in accordance with an output method which measures progress towards satisfaction of the performance obligation.

 

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Revenues related to our non-hosted third-party software license arrangements that do not require significant modification or customization of the underlying software are recognized when the software is delivered as control is transferred at a point in time.

 

Revenues related to consulting services (time-and-materials), transaction-based or volume-based contracts are recognized over the period the services are provided using an input method such as labor hours incurred.

 

The Company may enter into arrangements with third party suppliers to resell products or services, such as software licenses and hosting services. In such cases, the Company evaluates whether the Company is the principal (i.e., report revenues on a gross basis) or agent (i.e., report revenues on a net basis). In doing so, the Company first evaluates whether it controls the good or service before it is transferred to the customer. In instances where the Company controls the good or service before it is transferred to the customer, the Company is the principal; otherwise, the Company is the agent. Determining whether we control the good or service before it is transferred to the customer may require judgment.

 

Some of our service arrangements are subject to customer acceptance clauses. In these instances, the Company must determine whether the customer acceptance clause is substantive. This determination depends on whether the Company can independently confirm the product meets the contractually agreed-upon specifications or if the contract requires customer review and approval. When a customer acceptance is considered substantive, the Company does not recognize revenue until customer acceptance is obtained.

 

Client contracts sometimes include incentive payments received for discrete benefits delivered to clients or service level agreements and volume rebates that could result in credits or refunds to the client. Such amounts are estimated at contract inception and are adjusted at the end of each reporting period as additional information becomes available only to the extent that it is probable that a significant reversal of cumulative revenue recognized will not occur.

 

Business Combinations

 

The Company accounts for its business combinations using the acquisition method of accounting in accordance with ASC 805, Business Combinations, by recognizing the identifiable tangible and intangible assets acquired and liabilities assumed, and any non-controlling interest in the acquired business, measured at their acquisition date fair values. Contingent consideration is included within the acquisition cost and is recognized at its fair value on the acquisition date. A liability resulting from contingent consideration is re-measured to fair value as of each reporting date until the contingency is resolved, and subsequent changes in fair value are recognized in earnings. Acquisition-related costs are expensed as incurred within other operating expenses, net.

 

Equity-Based Compensation

 

We recognize and measure compensation expense for all equity-based awards based on the grant date fair value.

 

For performance share units (“PSUs”), we are required to estimate the probable outcome of the performance conditions in order to determine the equity-based compensation cost to be recorded over the vesting period. Vesting is tied to performance conditions that include the achievement of EBITDA-based metrics and/or the occurrence of a liquidity event.

 

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The grant date fair value is determined based on the fair market value of the Company’s shares on the grant date of such awards. Because there is no public market for the Company’s equity prior to the Business Combination, the Company determines the fair value of shares by using an income approach, specifically a discounted cash flow method, and in consideration of a number of objective and subjective factors, including the Company’s actual operating and financial performance, expectations of future performance, market conditions and liquidation events, among other factors.

 

Prior to the Business Combination, since the Company’s shares were not publicly traded and its shares were rarely traded privately, expected volatility is estimated based on the average historical volatility of similar entities with publicly traded shares. We periodically assess the reasonableness of our assumptions and update our estimates as required. If actual results differ significantly from our estimates, equity-based compensation expense and our results of operations could be materially affected. The Company’s accounting policy is to account for forfeitures of employee awards as they occur.

 

Warrants

 

We account for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480, Distinguishing Liabilities from Equity and ASC 815, Derivatives and Hedging.

 

For warrants that meet all of the criteria for equity classification, the warrants are recorded as a component of additional paid-in capital at the time of issuance. For warrants that do not meet all the criteria for equity classification, the warrants are recorded as liabilities. At the end of each reporting period, changes in fair value during the period are recognized as a component of results of operations. The Company will continue to adjust the warrant liability for changes in the fair value until the earlier of a) the exercise or expiration of the warrants or b) the redemption of the warrants.

 

Our public warrants meet the criteria for equity classification and accordingly, are reported as a component of stockholders’ equity while our private warrants do not meet the criteria for equity classification and are thus classified as a liability.

 

Recent Accounting Pronouncements

 

See Note 2, Summary of Significant Accounting Policies, to our audited consolidated financial statements included in this prospectus, for a description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations.

 

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Business

 

Overview

 

We are a pure-play leading provider of agile-first, end-to-end, digital technology solutions in the North American market using onshore and nearshore delivery. Our mission is to fundamentally change the way people and organizations view, approach and achieve digital transformation. We help our clients transform their businesses by innovating, building, continually improving and running new technology solutions at scale. Our services enable our clients to more effectively leverage technology, optimize cost, grow, and compete.

 

In recent years, technological advances have altered business and competitive landscapes at a pace and scale that are unprecedented in modern industry. The proliferation of new digital technologies, such as cloud computing, mobile, social media, artificial intelligence, machine learning, advanced analytics and automation delivered in an omni-channel way, and the ability to rent them as-a-service instead of acquiring them outright at significant upfront cost, have diminished the scale and infrastructure advantages of incumbent businesses. This, in turn, has enabled the rise of a new breed of companies, known as digital disruptors, across different industries. Digital disruptors build technology platforms by deploying an agile methodology, which is user-driven and focuses on continuous delivery of small upgrades with multi-disciplinary software development teams rapidly designing, developing, testing, delivering and continually monitoring updates to software. The agile method also enables enterprises to innovate and improve products and processes continuously with greater speed than ever before. The traditional waterfall method, premised on a sequential and siloed approach to building software, results in long development cycles, fails to quickly integrate user feedback and is often more expensive than the agile method. Due to these factors, incumbent enterprises have a critical need to digitally transform their businesses in order to compete with new entrants in their markets, enhance customer experiences, drive differentiation, optimize operations and regain their competitive advantages. Based on management’s research, direct digital transformation investment is growing at a 17.1% CAGR (2018-2023) and expected to approach $7.4 trillion between 2020-2023 as companies build on existing strategies and investments.

 

Incumbent enterprises face numerous challenges in attempting to digitally transform their businesses. These challenges include significant existing investment in legacy technology infrastructure, lack of expertise in next-generation technologies, inexperience with agile development and an inability to find sufficient talent to drive innovation and execution. Incumbent enterprises have invested in core technology infrastructure over the last several decades and typically rely on it for running their day-to-day operations. This can result in engrained methods, data silos and high levels of complexity, which can hinder innovation and impair organizational agility and efficiency. Implementing an agile methodology at scale requires intense collaboration, transparency and communication among cross-functional teams of both technology and business users. Many enterprises lack the knowledge and understanding of next-generation technologies necessary to sufficiently evaluate new technologies through pilot and proof-of-concept programs, implement them at scale and maintain and use them once an investment has been made. Professionals with significant experience in agile development and next generation technologies are valued by our management and, accordingly, enterprises can struggle to acquire talent at scale and at a reasonable cost.

 

We combine our agile-first approach with expertise in next-generation technologies to help our clients overcome the challenges of digital transformation to innovate, build, run and continually improve solutions at scale using DevOps tools and methodologies. We offer client-centric, onshore and nearshore digital transformation services that include consulting, design and user experience, custom enterprise application development, DevOps, cloud computing, mobile, data management, advanced analytics and automation expertise. Our professionals have direct industry operating expertise that allows them to understand the business context and the technology pain points that enterprises encounter. We leverage this expertise to create customized frameworks and solutions throughout clients’ digital transformation journeys. We invest in understanding the specific needs and requirements of our clients and tailor our services for them. We believe our personalized, hands-on approach allows us to demonstrate our differentiated capabilities and build trust and confidence with new clients and strengthen relationships with current ones, which enables a trusted client advisor relationship. By leveraging our AgileThought Scaled Framework and our industry expertise, we rapidly and predictably deliver enterprise-level software solutions at scale. Our deep expertise in next-generation technologies facilitates our ability to provide enterprise-class capabilities in key areas of digital transformation.

 

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Industry Background

 

In recent years, technological advances have altered business and competitive landscapes at a pace and at a scale that are unprecedented in modern industry. The proliferation of new technologies, such as cloud computing, mobile, social media, artificial intelligence, machine learning, advanced analytics and automation delivered in an omni-channel way, and the ability to rent them as-a-service instead of acquiring them outright at significant upfront cost, have diminished the scale and infrastructure advantages of incumbent businesses. This, in turn, has enabled the rise of a new breed of companies, known as “digital disruptors,” across different industries. Digital disruptors use digital technology platforms that are essentially software applications to enable innovative ways of providing products and services to clients. Digital disruptors often differentiate themselves with their extensive expertise in developing and using software. New technologies also provide customers and employees with more information and choices, changing how and where they engage with enterprises.

 

Best-in-class software developers have also re-imagined the process of software development. Today, digital disruptors build software by deploying an agile methodology. The traditional waterfall method, premised on a sequential and siloed approach to building software, results in long development cycles, fails to quickly integrate user feedback and is often more expensive than the agile method. The agile method is user-driven and focuses on continuous delivery of small upgrades with multi-disciplinary software development teams rapidly designing, developing, testing, delivering and continually monitoring updates to software. The agile method also enables enterprises to innovate and improve products and processes continuously with greater speed than ever before.

 

Due to these factors, incumbent enterprises with cumbersome processes have a critical need to digitally transform their businesses in order to compete with new entrants in their markets, enhance customer experiences, drive differentiation, optimize operations and regain their competitive advantages. This requires re-imagining and re-engineering their businesses. In order to undertake digital transformation, enterprises need to devise new business strategies, alter their organization structures and cultures, and, most importantly, modernize their technology infrastructures.

 

Challenges to Digital Transformation

 

Digital transformation is about investing in and adopting new technologies and business models to enhance the value delivered to end-users. The challenges to digital transformation include significant existing investment in legacy technology infrastructure, lack of expertise in next-generation technologies and experience in agile development and the need to find talent to drive innovation and execution.

 

Enterprises have a significant investment in existing technology infrastructure

 

Incumbent enterprises have invested in core technology infrastructure over the last several decades and typically rely on it for running their day-to-day operations. For example, banks and insurance companies use core banking and insurance systems built on legacy technologies, while enterprises in other industries use enterprise resource planning, or ERP, systems. These are deployed on-premise, co-located, or outsourced computing infrastructure. That includes mainframe computers and other legacy computing and storage infrastructure. The legacy software applications can result in data silos and high levels of complexity across enterprises. This not only results in significant portions of information technology budgets being allocated to maintenance, support, security and compliance of legacy infrastructure, but also hinders innovation and organizational agility and efficiency.

 

Lack of expertise in next-generation technologies

 

Over the last decade technological developments have revolutionized the technology stack. On-premise, co-located and outsourced hardware is being replaced by “infrastructure-as-a-service” or public cloud, multi-cloud, private cloud and hybrid cloud. On-premise application software is being replaced with “software-as-a-service.” Custom software applications are being built using agile methodology and are being tested, deployed, and managed using automation. These applications are designed to reside in public, multi, or hybrid cloud environments, and are powered by big data and consumed simultaneously on a variety of next-generation devices such as mobile phones. As a result, enterprises have many difficult choices in prioritizing the technology investments they need to make. They need knowledge and understanding of next-generation technologies, with not only the ability to evaluate them through pilots and proofs-of-concept, but also the ability to implement them at scale, maintain and use these technologies once an investment has been made.

 

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Inexperience with agile development

 

Agile development is a customer-focused, iterative approach enabling continuous delivery of incremental enhancements. Unlike traditional waterfall or plan-driven approaches, agile development requires intense collaboration, transparency and communication among cross-functional teams of both technology and business users. In order to adopt new technologies, it is becoming imperative for enterprises to adopt agile frameworks and rapidly deliver on innovative initiatives. Large enterprises often struggle with implementing agile development at scale given their traditional structures and culture.

 

Enterprises need to find talent

 

Digital transformation requires a combination of technology and talent. Enterprises need architects, programmers, data scientists and other professionals who are proficient in next-generation technologies. Given the relatively new nature of some of these technologies, professionals with significant experience are scarce. It is not easy to acquire such talent at scale and at a reasonable cost. Some technology companies, particularly IT services providers, are capable of hiring college graduates in different countries around the world and training them in next-generation technologies. However, it is not easy for an enterprise in other industries, such as healthcare, professional services, financial services and consumer packaged goods, retail and industrial services, to do this on their own. In addition, for technology companies, particularly IT services providers, the COVID-19 pandemic has proven that development and engineering teams do not need to be co-located and remote work can be enabled via distributed teams. However for enterprises in other industries, with traditional structures and cultures that might not be agile-ready, this is not the same reality. Their limitations on managing distributed teams could drive the need to source talent solely in their existing cities of operations so they are co-located with business team members to enable agile development. This practice hinders their access to talent potentially available to them and often contributes to higher talent costs relative to lower cost nearshore locations.

 

Our Opportunity

 

Given strong secular drivers, we expect the demand in key industries, such as healthcare, financial services, and professional services to remain robust, driven by the need to modernize legacy systems and ensure compliance with evolving and complex regulations and customer requirements.

 

Due to increased demand for AI, data analytics, and technologies, we anticipate global IT services spend in the healthcare and financial sectors to increase in the next five years by 20% and 7.8% respectively. Additionally, big four professional services firms have announced a $9 billion spend in various technologies in the next five years.

 

Our Approach

 

We are a pure-play provider of agile-first end-to-end digital transformation services in the North American market using onshore and nearshore delivery. Our nearshore delivery provides clients with access to competitive costs and talent that is able to work and collaborate seamlessly during the clients’ typical hours of operation, due to similar time zones. We combine our agile-first approach with expertise in next-generation technologies and our clients’ existing technology investments to help our clients overcome the challenges of digital transformation to innovate, build, run and continually improve new solutions at scale. We offer client-centric, onshore and nearshore services that we categorize in three main solution streams:

 

Innovate — through Strategic Consulting

 

Build — through Digital Delivery

 

Run — through Digital Operations

 

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Our Strengths

 

We believe the following strengths differentiate us in the marketplace:

 

Agile-First Capabilities

 

We embody an agile-first culture that drives us to provide a range of IT services and business solutions to our clients. By leveraging our AgileThought Scaled Framework and our deep industry expertise, we rapidly and predictably deliver enterprise-level software solutions at scale. We coach our clients, including senior leadership, on the critical role they need to play to enable the successful adoption of agile development practices. Our services span across the entire application lifecycle. We help our clients innovate, build, run and continually improve new technology solutions at scale.

 

Domain Expertise in Attractive, High Growth, Large Addressable Markets

 

We have expertise in industry verticals with large and growing addressable markets for our services. Currently, we have strong expertise in healthcare, professional services, financial services, consumer packaged goods and retail, and industrial services. We focus on verticals where we can leverage our industry knowledge with next-generation technologies to build new technology applications and drive the digital transformation of clients’ technology infrastructure. Many of our executives have direct industry operating experience that allows them to understand the business context and the technology pain points that enterprises encounter.

 

Customized, Client-Centric Approach

 

We believe our client-centric approach is a key competitive advantage. We invest in understanding the specific needs and requirements of our clients and tailor our services for them. We believe our customized, hands-on approach allows us to demonstrate our differentiated capabilities and build trust and confidence with new clients and strengthen relationships with current ones, enabling a trusted client advisor relationship status.

 

Enterprise-Class Expertise in Next-Generation IT Services

 

Our deep expertise in next-generation technologies facilitates our ability to provide enterprise-class capabilities in key areas of digital transformation. Our expertise extends to technologies in omni-channel commerce and content management, data management, business intelligence (BI), machine learning (ML), and artificial intelligence (AI). We have built strategic relationships with key vendors in next-generation technologies. We invest in employee training in the latest technologies that are deployed broadly throughout enterprises.

 

Expertise in Leveraging Existing Technology Systems to Enable Digital Transformation

 

Digital transformation is a holistic process orchestrating the intersection of next-generation technology, human capital, and a firm’s existing technology investments while unlocking the data siloed therein. By constructing digital platforms that are enriched by existing investments, we are able to rapidly overlay new domain models enabling our client’s workforce to focus on high value work and pivot to new business models not afforded by legacy systems. Tactically, we believe this allows accelerated time to market and encourages a feedback loop informing long term investments. As an organization’s digital strategy evolves, and when justified by business drivers, the legacy applications can be modernized to compete in the new digital ecosystem.

 

When constructing digital platforms for our clients, we incorporate technologies including telemetry capture, API management, and application insights with legacy technology systems. Telemetry capture allows the platform to understand how it is being utilized by end users and what their experience is. API management allows us to understand application consumption across business units and lines of service. Application insights support platform scaling and predictive consumption models. These cross functional capabilities extend to all components of the digital platform and allow informed business decisions on when and if legacy systems should be modernized and where our client’s future investments will yield the highest return.

 

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By taking a human-first approach to digital transformation, we help our clients maximize existing investments while building an informed strategic future on next-generation technologies.

 

Values and Culture

 

Our employees are our greatest asset. We have built a culture of empowerment that allows employees to be entrepreneurial and nimble. This culture, combined with strong and pragmatic management oversight and processes, institutional goals and defined key performance metrics, form the basis of our value system. We believe our culture and value system are paramount to best serving our clients.

 

The culture we have built allows us to rapidly absorb organizations we acquire by identifying and integrating the best of their processes and empowering their people to grow within our larger organization. We believe our strong culture and overarching values system have led to our successful track record of acquisitions. The ability to assimilate ideas and retain people differentiates us as a potential acquirer for entrepreneurs and employees seeking a larger platform to grow their businesses.

 

Founder-Led Experienced Management Team

 

Our management team is led by our co-founder, President and Chief Executive Officer, Manuel Senderos Fernández, who has significant experience in the technology and services industry. Members of our senior management team have 20+ years of industry experience on average and have been at AgileThought or with its predecessors for an average of over 6 years, giving them a deep understanding of our culture and the industries in which we operate.

 

Strategy

 

Key elements of our growth strategy include:

 

Expand Our Client Footprint in the United States

 

We are focused on growing our client footprint in the United States and furthering the application of our proven business capabilities in the U.S. market. We acquired 4th Source in 2018 and AgileThought in 2019, both of which are U.S. headquartered and operated companies. These acquisitions have accelerated our growth in the U.S. market. Our 2021 and 2020 revenue from U.S. clients were 65.2% and 69.0% of our total revenue, respectively. With these acquisitions, we have grown our presence in the United States to 355 employees as of December 31, 2021.

 

Penetrate Existing Clients via Cross-Selling

 

We seek to deepen our relationships with existing clients through relation-based selling and moving ourselves to a trusted client advisor relationship. We also seek to expand wallet share by cross-selling our additional services. Our client relationships generally begin with a proof-of-concept, or a pilot, to address a specific business challenge. After this initial phase, we are able to more easily cross-sell our portfolio of services across organizations. We believe we have a successful track record of expanding our relationships with clients by offering a wide range of complementary services.

 

Continue to Identify and Build Competencies in Next-Generation Technologies

 

We are dedicated to remaining at the forefront of market trends and next-generation technologies. We intend to maintain, improve and extend our expertise and delivery capabilities across next-generation and commercially-proven technologies, in order to enhance our clients’ competitive advantage. As we continue to expand, we will remain focused on attracting engineers with next-generation technologies skill-sets, specifically cloud, predictive analytics and causality analysis, and AI, as well as continue to train and update our existing workforce through classroom, on-the-job, and online training programs in key next-generation technologies including Adobe, Appian, ServiceNow and Microsoft Azure.

 

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Strengthen Onshore and Nearshore Delivery with Diversification in Regions

 

In order to drive digital transformation initiatives for our clients, we believe that we need to be near the regions in which our clients are located and in similar time zones. Our onshore and nearshore agile methodology not only facilitates efficient and reliable client communication and collaboration, but also facilitates our engineers being onsite quickly when required. We have established a strong base for our onshore and nearshore delivery model across Mexico, and we also have offices in Argentina, Brazil, Costa Rica and the United States in order to source diverse talent and be responsive to clients in our core markets. We have strategically located our onshore and nearshore delivery centers in areas that are desirable for employees to live, have ample access to innovative technical and industry-experienced talent pools, and have lower IT recruiting competition. However, one of the positive outcomes of the COVID-19 pandemic has been that we have further proven our leading agile delivery capabilities via distributed teams working remotely. This outcome has broadened our capacity to attract and recruit talent located in cities different from where our delivery centers are currently located. As we continue to grow our relationships, we will keep looking for the best talent to expand our footprint in other cities in Mexico as well as other countries in similar time zones such as Argentina and Costa Rica, either by establishing additional delivery centers or by using a remote delivery model.

 

Attract, Develop, Retain and Utilize Highly Skilled Employees

 

We believe attracting, training, retaining and utilizing highly skilled employees with capabilities in next-generation technologies is key to our success. Historically, we have relied primarily on hiring experienced employees to meet our demand for talent. Today, we are focused on growing our workforce through university recruiting. University recruiting helps us diversify our talent base, build-out our delivery capabilities and lower our overall delivery costs. Our strategy is to grow our university recruiting program in Mexico, which is one of the top countries in the world in terms of the number of engineering, math and science graduates. We will also leverage and deepen our existing relationships with universities in Mexico such as Universidad Nacional Autonoma de Mexico, Instituto Politecnico Nacional, Instituto Tecnologico de Estudios Superiores de Monterrey and Universidad del Valle de Mexico in Mexico.

 

Selectively Pursue Tuck-in Acquisitions

 

We have historically pursued acquisitions that expanded our services capabilities, vertical expertise and onshore and nearshore footprint. For example, our acquisition of AgileThought in July 2019 expanded our client base and delivery capabilities in the United States and significantly enhanced our consulting, agile coaching, design and agile software development capabilities. We have a track record of successfully identifying and seamlessly integrating acquired companies into our core business. We plan to selectively pursue “tuck-in” transactions in the future that will help us augment our capabilities, establish new and deeper client relationships, and expand our cross-selling opportunities.

 

AgileThought Scaled Framework

 

We use a framework called AgileThought Scaled Framework for continuously and rapidly building the right software at scale. It helps us deliver measurable business value to our clients in a fashion that supports client ownership and shared accountability. AgileThought Scaled Framework is based on common frameworks enhanced by certain elements such as Continuous Discovery, Opportunity Prioritization, and Team Health.

 

Continuous Discovery allows agile frameworks to be extended to product management and is critical for ensuring that the teams are building viable products in a rapid fashion. In order to achieve this, our teams work in sprints, which are short, focused periods of time (typically one week) in which a small team iterates rapidly to validate customer problems and potential solutions. Opportunity Prioritization and Team Health indicators enable stakeholders to create and prioritize business opportunities long before development work begins. We measure Team Health by monitoring whether a team has everything it needs to achieve its specific goal during a sprint. The Team Health indicators allow stakeholders to visualize the health status of those teams assigned to the specific feature. The Team Health indicators also ensure participation by all stakeholders in the agile development process.

 

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Through the AgileThought Scaled Framework we share accountability with our clients that enables partnership and allows the identification of issues or bottlenecks in near real time. The framework also helps us to retain top talent by cultivating a transparent and forward-thinking work environment. The framework allows enterprise clients to validate and build the right products and features rapidly in an evolving market environment with multiple stakeholders who often have competing priorities. The framework dictates a process that aligns these stakeholders on their product strategies and drives clients to innovative solutions.

 

Certifications and Methodologies

 

We deploy industry standard quality and process management methodologies to guarantee our delivery process for our clients. We are ISO CMMI N3-certified, to help ensure secure and timely delivery of our digital product development services.

 

Our Services

 

We offer client-centric, onshore and nearshore agile-first digital transformation services that help our clients transform by innovating with them, building solutions and applications, continually improving those solutions and applications, and running new solutions at scale. Our services are delivered through a three-phased continuum:

 

Innovate — Strategic Consulting

 

Our Innovate practice is built on the basis of providing agile transformation consulting services leveraged in our deep expertise in industry specific technology trends in order to help our clients solve complex business problems, devise new products and applications, and develop tailored solutions. We combine our deep domain expertise with our knowledge of leading next-generation tools and technologies as well as our technical proficiency in legacy technology systems, to create road maps for our clients to transform their businesses. We provide coaching and training services to clients to help them transition from traditional waterfall software development methods to agile development.

 

We have accelerators for product management, which we refer to as AgileIgnite and DevOpsIgnite, that allow our clients to assess benefits and viability of using these services in short sprints from a two to a four-week period.

 

AgileIgnite

 

AgileIgnite helps our clients assess their readiness to transition to an agile culture. AgileIgnite begins with an assessment of our clients’ current capabilities and tailors interactive training and workshop sessions to gauge the transition of their workflow to a true agile approach. To help make the development process transition more transparent and efficient, AgileIgnite also produces a custom agile implementation roadmap for each client.

 

DevOpsIgnite

 

DevOpsIgnite, our assessment framework, measures and benchmarks our clients’ DevOps maturity against peers to identify strengths and challenges and enables us to create a roadmap for our clients. Our DevOps services focus on quickly building, testing and releasing entirely new applications and new features within existing applications in order to help our clients compete effectively. Post-competitive assessment, our DevOps experts build an action plan to resolve issues and implement a robust continuous delivery release pipeline for targeted software systems.

 

Build — Digital Delivery

 

Our mission is to deliver business value safely, predictably, and fast, which includes efficiencies and cost optimization to drive growth in our clients’ digital operations. Effective team organization and next-gen technologies allow us to validate and deliver our clients’ most critical business needs at scale while reducing time to market.

 

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Our Digital Delivery services offer a broad range of services to address our client´s business needs and build and deliver their desired solutions. From User Experience, Application Engineering, Modernization and Mobility, Advanced Data Analytics, Cloud Architecture and Migration, Automation and AI and ML, we are the trusted partner for our clients’ digital transformation business initiatives.

 

User Experience

 

Our expertise in design and understanding the evolution of user interactions and client demands allows us to bring-to-life enhanced modern designs that help our clients maintain and grow their competitive advantage. We provide extensive analysis and expertise on the usability of our clients’ products and applications, with a focus on designing seamless user interactions. From rapid prototyping and design-thinking workshops to application performance management, our designers have technical expertise in a wide range of collaborative tools, design software and front-end frameworks using digital technologies.

 

Application Engineering, Modernization and Mobility

 

We provide comprehensive software application development services that leverage next-generation technologies and proven processes to deliver custom enterprise-grade and scaled software within an agile framework. Our enterprise application services include software product innovation and validation, application software development, software architecture design, systems integration, performance engineering, DevOps, analytics, automation, optimization and testing, pipeline creation, and software quality assurance. Next-generation technologies such as AI, ML, robotic process automation, or RPA, and the internet of things, which leverage capabilities such as data science and causality, are core to our development processes and allow us to develop applications for our clients that enhance their ability to improve internal efficiencies, optimize cost, leverage competitive business insights and make smarter decisions to drive growth.

 

We take our clients’ complex business challenges and turn them into opportunities using our end-to-end software development and maintenance services that support our clients’ ability to innovate within their lines of business and run mission critical systems and platforms. We leverage our clients’ current technology investments and provide migration and application modernization services which enrich and transform our clients’ legacy systems into cloud-first modern applications within a variety of industries.

 

Our mobility service offering complements the cycle as we collaborate with clients to develop innovative mobile applications with interactive user interfaces such as data analytics, newsfeeds and video that can be deployed on multiple platforms, such as iOS and Android, and devices in a way that compliments their overall technology strategy. We leverage our deep familiarity with next-generation and legacy technologies to harness the power of mobile connectivity for our clients enabling speed and agility. Our team of highly-skilled software design and development professionals provides insight and guidance to develop and support mobile functionality.

 

We also have significant expertise in mobile digital banking capabilities that incorporate omni-channel platforms, digital payments, biometrics, digital banking strategic consulting, and Know Your Customer, or KYC, cloud-based solutions to enable the transition from traditional banking to digital banking.

 

Advanced Data Analytics

 

We provide services for data architecture, causality, data science and data visualization to enable our clients to harness and leverage big data within their organization. We design systems that can learn from data, identify patterns, make decisions and improve business performance with minimal or limited human intervention in order to quickly and automatically produce models that can analyze bigger, more complex data and deliver faster, more accurate results, even on a very large scale, enabling our clients’ to draw insights and optimize performance. We use cloud-based and on-premise tools that align with our clients’ IT and data workloads and leverage advanced analytics techniques such as machine-learning algorithms and AI in order to provide our clients with data-driven services and solutions. This process of developing algorithms from data allows our clients to automate key processes in an intelligent manner while lowering business costs.

 

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Cloud Architecture and Migration

 

We provide cloud planning, implementation, security, and managed services for public cloud, private cloud, on-premise and multi-cloud hybrid environments. Our next-generation cloud solutions typically include an initial assessment phase where we generate an in-depth report for our clients outlining the current state of their technology, the key risks associated with their transformation to the cloud, and a timeline for cloud migration based on their stated objectives. We leverage different Microsoft Azure cloud services (platform-as-a-service, infrastructure-as-a-service, software-as-a-service and function-as-a-service) both as an end solution and across nearly all of our consulting projects to provide cost-effective solutions and real-time delivery of highly scalable resources, such as storage space, virtualization (virtual machines), containerized hosting, as well as data analytics to minimize development time and effort.

 

Automation

 

We help clients automate their core business operations. We help identify functions that are most likely to benefit from automation and design and implement solutions to address their specific needs. We believe that through RPA we reduce the need for human intervention in testing and decision-making. Our automated functions and processes can include code deployment tasks, testing automation, quality assurance, regression testing and test data management. Our testing approach speeds up processes, reduces the potential for human error and saves man-hours by increasing efficiency.

 

We help clients plan and implement cloud-computing strategies that integrate with their on-premises legacy systems and provide managed services to support, monitor, and safeguard information and will ensure that users are able to access services 24/7.

 

AI and ML

 

We help our clients to apply better AI strategies and deploy production-quality machine learning programs that drive better customer experiences and can generate cost-savings. Our teams of data scientists are experts at corralling big data using cloud-based or on-premise tools.

 

We focus our work on finding optimization strategies for predictive analytics and machine learning by testing use cases and prioritizing initiatives based on early discoveries so that our clients can be equipped with new product and customer insights within a few weeks.

 

Run — Digital Operations

 

Our mission is to continue to deliver business value safely, predictably, and fast. Digital operations allow us to leverage agile and DevOps practices to deliver frequent functionality improvements, automate customer business operations and support user personas, while driving down total cost of ownership.

 

We offer Digital Operations services to help our clients run their operations in a seamless manner. From DevOps & Application Optimization to Application Lifecycle Management Support, we provide a reliable and predictable breadth of services to support our clients mission-critical IT initiatives.

 

DevOps & Application Optimization

 

We help our clients by running their applications through a continuous delivery model which we believe allows for higher predictability, fosters agile development, and adaptability to new technologies. Through DevOps, new features are delivered faster, code quality is higher, risks are mitigated, and costs are lower.

 

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Application optimization services focus on establishing standards for application performance and determining what to re-architect, optimize, or develop. After diagnosing performance issues and mitigating the associated risks, we bolster our clients’ operations with process automation.