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.
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; |
| ● | 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.
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;
“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;
“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;
“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.
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.
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.
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. |
| ● | 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. |
| ● | 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.
THE OFFERING
Issuer |
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AgileThought, Inc. (f/k/a LIV Capital Acquisition Corp.). |
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Issuance of Class A Common Stock |
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Shares of Class A Common Stock offered by us |
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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. |
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Shares of Class A Common Stock
outstanding prior to exercise of all
warrants |
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50,473,423 shares (as of March 31, 2022). |
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Shares of Class A Common Stock
outstanding assuming exercise of all
warrants |
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61,334,673 shares (based on total number of outstanding shares of Class A Common Stock as of March 31, 2022). |
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Exercise price of warrants |
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$11.50 per share, subject to adjustment as described herein. |
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Use of proceeds |
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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.” |
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Resale of Class A Common Stock and warrants |
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Shares of Class A Common Stock offered by the selling securityholders |
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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. |
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Warrants offered by the selling security
holders |
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Up to 2,811,250 private warrants |
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Redemption |
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The warrants are redeemable in certain circumstances. See the section entitled “Description of Securities — Warrants” for further discussion. |
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Use of proceeds |
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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. |
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Lock-up agreements |
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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. |
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Market for Class A Common Stock and warrants |
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Our Class A Common Stock and public warrants are currently traded on Nasdaq under the symbols “AGIL” and “AGILW,” respectively. |
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Risk factors |
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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.
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:
| ● | 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.
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.
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.
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.
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.
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.
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. |
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.
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.
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.
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.
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.
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; |
| ● | 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. |
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; |
| ● | 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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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; |
| ● | inflation
rates and measures taken by the governments of these countries to control or otherwise address
inflation; |
| ● | tariff
and inflation control policies; |
| ● | liquidity
of domestic capital and lending markets; |
| ● | 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.
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.
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.
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.
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.
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; |
| ● | 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. |
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.
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.
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.
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.
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.
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. |
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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 | ) |
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 | )% |
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 | ) |
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 | )% |
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.
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.
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.
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.
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. |
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.
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.
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.
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.
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 | |
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 | | |
$ | — | |
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.
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.
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.
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.
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.
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 |
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.
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.
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.
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.
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.
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.
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.
Lifecycle
Management Support
We
help our clients ensure their business continuity with a fully supported and responsive integrated services stack focused on actively
addressing mission-critical software challenges, generating superior outcomes and delivering compelling cost savings. Our end-to-end
ITIL-aligned processes and SOC 2 Type II audit compliant methodologies provide full-stack support for all technologies and environments
24x7x365.
Our
Delivery Model
We
use a combination of onshore and nearshore delivery to provide digital transformation services to our clients. Our onshore and nearshore
model also allows us to quickly travel to our clients’ locations when required. In addition, our ability to collaborate remotely
without disruption due to similar time zones propels our productivity and further enhances our agile delivery.
As
of December 31, 2021, we had 7 delivery centers across United States, Mexico, Central and South America. In addition, we have delivery
employees at client locations in Brazil, Mexico and United States.
Quality
and Process Management
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.
Sales
and Marketing
Our
sales and marketing strategy is focused on a client-centric operating model that seeks to drive revenue growth from new client acquisitions
and expanding relationships with existing clients. Our approach to marketing is based on Account-Based Marketing, or ABM, which provides
us with a targeted demand generation approach for our marketing campaigns. Through ABM we focus on key accounts and our ideal customer
profile, creating targeted content and campaigns.
As
of December 31, 2021, our sales and marketing organization included 52 employees (41 in sales and 11 in marketing) primarily located
in Mexico City and throughout the United States. Our team of marketing professionals actively promotes our thought leadership, brand
and capabilities through a variety of digital channels which includes our website, blogs, digital events such as podcasts and webinars,
various social media platforms, participation in technology conferences through speaking engagements and sponsorships, and technology
industry research briefings with industry analysts.
Our
Customers
We
focus on enterprise clients based in the United States and Latin America. Our clients operate across a broad range of industries, including
the healthcare, professional services, financial services, consumer packaged goods, retail, and industrial services industries. As of
December 31, 2021, we had 191 active clients across the United States and Latin America, defined as clients from whom we generated revenue
over the prior 12 months.
Our
largest client in 2021 accounted for 13.0% of total revenue. Our second and third largest clients in 2021 accounted for 9.6% and 9.5%
revenue in 2021, respectively. Our largest client in 2020 accounted for 17.6% of total revenue. Our second and third largest clients
in 2020 accounted for 13.1% and 11.8% of our total revenue, respectively.
Competition
We
are a strong provider of digital transformation services in North America. We believe we are well positioned to compete effectively due
to our ability to combine our agile-first approach with expertise in next-generation technologies and our clients’ existing technology
investments and our onshore and nearshore delivery capabilities.
Our
competitors include:
| ● | Next-generation
IT services providers such as Endava Plc, EPAM Systems, Inc., Grid Dynamics and Globant S.A.; |
| ● | Large
global consulting and traditional global IT services companies such as Accenture plc, Capgemini
SE, Cognizant Technology Solutions Corporation, and IBM; and, |
| ● | In-house
IT and product development departments of our existing and potential clients. |
Human
Capital and Employees
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. As of December 31, 2021, we had an aggregate of 1,635 delivery and consulting employees in Mexico, representing
72.4% of our total of 2,258 delivery and consulting employees. Our onshore delivery centers in the United States employed 281 delivery
and consulting employees as of December 31, 2021, and our nearshore delivery centers in Brazil and Argentina employed 292 delivery
and consulting employees as of December 31, 2021. As of December 31, 2021 we had 2,670 employees.
Attract
We
recognize that our ability to grow our business is dependent on our ability to attract and retain talent and industry-experienced professionals.
We have primarily relied on hiring employees with prior relevant experience. Historically, we have hired a small number of employees
from university campuses. Going forward, we intend to increase our focus on hiring college graduates. We have leveraged our management
team’s extensive knowledge of Mexico in strategically placing our delivery operations in locations such as Merida and Colima that
have high concentrations of universities with engineering graduates, attractive cost structure, desirable living attributes and low employee
turnover.
Train
and Retain
We
invest in training our employees and offer regular technical and language training as well as other professional advancement programs.
Our training includes programs dedicated to enhance our employees’ abilities and includes language proficiency courses, an Analytics-focused
three-week academy and a two-week condensed Agile Boot Camp program. Additionally, during 2020 we launched our “AT University”
program, which is a program that focuses on providing continuous training tools to our employees through online courses and in-house
training in both technical and soft-skill topics. These programs not only help ensure our employees are well trained and knowledgeable,
but also help enhance employee retention.
We
believe our ability to attract and retain talent is further enhanced by our strategic placement of 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 reduced IT recruiting competition. Additionally, the work-from-home, or WFH, modality that was implemented during the
COVID-19 pandemic has created two benefits for our ability to attract and retain talent. First, the ability of our distributed teams
to effectively WFH for our clients has led us to search for and hire talented professionals outside the cities where we have our delivery
centers, providing greater employment opportunities with us to individuals that would otherwise have had to relocate and reducing potential
effects on our business from region-related attrition. Second, WFH has also reduced commuting and increased family and personal time
for many individuals, which management believes has resulted in higher employee satisfaction which we anticipate translating into higher
retention rates.
Intellectual
Property
Our
ability to obtain, maintain, protect, defend and enforce our intellectual property is important to our success. We rely on intellectual
property laws in the U.S. and certain other jurisdictions, as well as confidentiality procedures and contractual restrictions, to protect
our intellectual property. We own or have applied for registration of various trademarks, service marks and trade names that we believe
are important to our business.
Despite
our efforts to obtain, maintain, protect, defend and enforce our trademarks, service marks and other intellectual property rights, our
trademarks, service marks or other intellectual property rights could be challenged, invalidated, declared generic, circumvented, infringed
or otherwise violated. Opposition or cancellation proceedings have in the past and may in the future be filed against our trademark or
service mark applications and registrations, and our trademarks and service marks may not survive such proceedings. Additionally, although
we take reasonable steps to safeguard our trade secrets, trade secrets can be difficult to protect, and others may independently discover
our trade secrets and other confidential information. We seek to protect our trade secrets and proprietary information, in part, by executing
confidentiality and invention assignment agreements with our employees, contractors and other third parties. The confidentiality agreements
we enter into are designed to protect our trade secrets and proprietary information, and the agreements or clauses requiring assignment
of inventions to us are designed to grant us ownership of all intellectual property and technology that the applicable counterparties
develop in connection with their work for us. We cannot guarantee, however, that we have executed such agreements with all applicable
counterparties, such agreements will not be breached or that these agreements will afford us adequate protection of our intellectual
property, trade secrets and proprietary rights. From time to time, legal action by us may be necessary to enforce or protect our intellectual
property rights or to determine the validity and scope of the intellectual property rights of others, and we may also be required from
time to time to defend against third-party claims of infringement, misappropriation, other violation or invalidity.
For
more information on the risks associated with our intellectual property, see “Risk Factors — Risks Related to Our Intellectual
Property.”
Facilities
We
have offices in two U.S. cities, three cities in Mexico and three additional cities outside the United States and Mexico. Our headquarters
are located in Irving, Texas. We believe that our current facilities are adequate to meet our ongoing needs, and that, if we require
additional space, we will be able to obtain additional facilities on commercially reasonable terms.
Regulations
Due
to the industry and geographic diversity of our operations and services, our operations are subject to a variety of laws and regulations
in the United States, Mexico, Costa Rica, Brazil and Argentina. 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.”
Legal
Proceedings
From
time to time, we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We
are not presently a party to any legal proceedings that, if determined adversely to us, would individually or taken together have a material
adverse effect on our business, operating results, financial condition or cash flows. Regardless of the outcome, litigation can have
an adverse impact on us because of defense and settlement costs, diversion of management time and resources and other factors.
Management
Directors
and Executive Officers
Our
directors and executive officers and their ages as of April 20, 2022 are as follows:
Name |
|
Age |
|
Position(s) |
Executive
Officers |
|
|
|
|
Manuel Senderos Fernández |
|
49 |
|
Chief Executive Officer and
Chairman of the Board of Directors |
Ana Cecilia
Hernández |
|
33 |
|
Interim
Chief Financial Officer |
Kevin
Johnston |
|
55 |
|
Chief
Revenue Officer and Global Chief Operating Officer |
Mauricio Garduño González
Elizondo |
|
54 |
|
Vice President,
Business Development and Director |
Diego
Zavala |
|
60 |
|
Vice President,
M&A and Director |
|
|
|
|
|
Non-Employee Directors |
|
|
|
|
Alexander R. Rossi |
|
53 |
|
Director |
Alejandro
Rojas Domene |
|
48 |
|
Director |
Mauricio
Jorge Rioseco Orihuela |
|
59 |
|
Director |
Arturo
José Saval Pérez |
|
64 |
|
Director |
Roberto
Langenauer Neuman |
|
49 |
|
Director |
Andrés
Borrego y Marrón |
|
53 |
|
Director |
Gerardo
Benítez Peláez |
|
44 |
|
Director |
Marina
Diaz Ibarra |
|
41 |
|
Director |
Executive
Officers
Manuel
Senderos Fernández. Mr. Senderos Fernández has served as our Chief Executive Officer and as
a member of our board of directors since August 2021. Mr. Senderos Fernández served as the Chief Executive Officer of Legacy AT
from 2000 to 2010 and again from July 2019 to August 2021. He served as Chairman of the board of directors of Legacy AT since 2000.
Before that, Mr. Senderos Fernández served from 1996 to 2000 on the board of directors of Desc Corporativo, S.A. de C.V., a publicly
traded industrial conglomerate trading on The Mexican Stock Exchange (BMV) as Grupo Kuo, S.A.B. de C.V. (KUO). From 1993 to 2000, Mr.
Senderos Fernández held various positions in strategic planning and business management at Desc S.A. de C.V. Mr. Senderos Fernández
received a Bachelor of Business Administration from the Universidad Iberoamericana in Mexico City, Mexico, and attended the program for
Executive Development at IMD Business School in Lausanne, Switzerland.
We
believe that Mr. Senderos Fernández is qualified to serve on our board of directors because of his experience leading Legacy AT
through years of business and geographic expansions, his experience as a co-founder of Legacy AT and his extensive knowledge of Legacy
AT’s business and innovation, technology, strategic business management and software.
Ana
Cecilia Hernández. Ms. Hernández has been with the Company for over seven years
and was appointed as Interim Chief Financial Officer on March 23, 2022. During her tenure at the Company, Ms. Hernández served
in different roles across the Finance organization, including Global Financial Planning and Reporting Director leading both the FP&A
and Accounting functions in addition to overseeing all financial aspects related to M&A strategy and post-merger integration efforts,
Finance Head for our European operation until divestiture, Global FP&A Senior Manager, Operations Finance Manager, and most recently,
as Senior Vice President of Corporate Finance. Ms. Hernández has more than 10 years of experience serving in the digital transformation
sector, corporate finance, and turnaround consulting.
Kevin
Johnston. Mr. Johnston has served as our Chief Revenue Officer since August 2021 and was appointed as our
Global Chief Operating Officer on December 8, 2021. Mr. Johnston served as the Chief Revenue Officer of Legacy AT from February 2020
to August 2021. Prior to joining Legacy AT, Mr. Johnston served as the Chief Sales & Revenue Officer, Americas Region for DXC
Technology, a publicly held business-to-business IT services company, from July 2019 to February 20. Mr. Johnston previously held
various executive and management positions at HP Inc. from March 2007 to May 2013 and at Hewlett Packard Enterprise from June 2013
to April 2017, most recently as Vice President & General Manager, Americas Workload and Cloud Practice. Mr. Johnston holds
a B.S. in Agricultural Business and Management from Iowa State University.
Mauricio
Garduño González Elizondo. Mr. Garduño has served as our Vice President, Business Development
and as a member of our board of directors since August 2021. Mr. Garduño served as the VP of Business Development of Legacy AT
from April 2000 to August 2021. Prior to joining Legacy AT, Mr. Garduño co-founded Ncubo Capital, a private payment processing
company, and Kio Networks, a private data center company. Mr. Garduño is married to a first cousin of Alejandro Rojas Domene,
a member of the board of directors of Legacy AT.
We
believe that Mr. Garduño is qualified to serve on our board of directors because of his experience leading Legacy AT’s business
development, his experience as a co-founder of the Legacy AT for more than 20 years, his extensive knowledge of Legacy AT’s
business, and his experience in innovation, technology and software.
Diego
Zavala. Mr. Zavala has served as our Vice President, M&A and as a member of our board of directors since
August 2021. Mr. Zavala served as President of Legacy AT from July 2017 to August 2021 and as Vice President of M&A of Legacy
AT from March 2014 to August 2021. Prior to joining the Legacy AT, from September 1986 to March 2013, Mr. Zavala served
as Founder and Chief Executive Officer of Hildebrando SA de CV, an information technology services firm, partially sold to the global
private equity firm Advent International in Dec-2002 and rebought their shares in 2008. In 2013 Mr. Zavala led the team to sell Hildebrando
to América Móvil (Telmex). Mr. Zavala holds a Bachelor Degree in Electronics Engineering from the Universidad Anahuac in
Mexico and attended and got the Certificate of Professional Development (CPD) at The Wharton School of the University of Pennsylvania.
We
believe that Mr. Zavala is qualified to serve on our board of directors because of his experience leading Legacy AT’s mergers and
acquisitions, his extensive knowledge of Legacy AT’s business, and his deep experience in technology.
Non-Employee
Directors
Alexander
R. Rossi. Mr. Rossi has served as a member of our board of directors since August 2021. Mr. Rossi had served as Chairman of the board
of directors of LIVK since its inception on October 2, 2019. From 2006 to present, Mr. Rossi has served as Managing Partner of LIV Capital
Group, a leading private investment firm in Mexico. From 1996 to 2006, Mr. Rossi served as Managing Director of Communications Equity
Associates, LLC (“CEA”), a merchant and investment bank specializing in the media, communications and technology sectors.
Prior to joining CEA, Mr. Rossi held position at Banoomer securities International, a Mexican Investment Bank, Smith Berney International
and PaineWebber Incorporated. Mr. Rossi currently serves on the board of LIV Capital Acquisition Corp. II, which is traded on the Nasdaq
Global Market, as well as several Mexican companies. Mr. Rossi has an MBA from New York University’s Stern School of Business (1995)
and a BA in Economics and Art History from Williams College (1990).
We
believe Mr. Rossi’s more than 25 years of experience make him well qualified to serve as a director.
Alejandro
Rojas Domene. Mr. Domene has served as a member of our board of directors since August 2021. Mr. Domene has served on the board of
directors of Legacy AT from November 2014 to August 2021. Mr. Rojas is a founder and has served as Chief Executive Officer of Armada
Investment Management Ltd., a private investment management firm since September 2008. He is also the founder and has served as the Chief
Executive Officer of Maya Capital S.A. de C.V., a private investment firm since 2007. Mr. Rojas currently serves on the board of directors
of several companies in Mexico and Israel.
We
believe that Mr. Rojas is qualified to serve on our board of directors because of his experience as a seasoned investor in both private
and public companies and his experience as an entrepreneur advising on acquisitions and corporate strategy.
Mauricio Jorge Rioseco Orihuela.
Mr. Rioseco has served as a member of our board of directors since August 2021. Mr. Rioseco served on the board of directors of Legacy
AT from November 2014 to August 2021. Mr. Rioseco is the Managing Partner of RW Consulting S.A. de C.V., a private consulting firm he
founded in 1997 and was the Managing Partner of MAZARS in Mexico as well as member of the Group Governance Council. He has served on the
board of directors of several companies in Mexico, United States and Europe. Mr. Rioseco holds Bachelor’s degree in Economics and
Accounting from ITAM, an MBA from IPADE and a PhD Honoris Causa by Lasalle in Mexico.
We
believe that Mr. Rioseco is qualified to serve on our board of directors because of his experience in the financial services industry
and advising high-growth businesses.
Arturo
José Saval Pérez. Mr. Saval has served as a member of our board of directors since August 2021.
Mr. Saval served on the board of directors of Legacy AT from May 2015 to August 2021. Mr. Saval is a founding partner and Chairman of
Nexxus Capital, a private equity investment firm. He has over 35 years of experience in private equity, investment and commercial banking,
and has participated in numerous debt and equity transactions, both private and public, as well as in multiple advisory assignments.
Before joining Nexxus in 1998 as co-founder, he held senior positions at Grupo Santander Mexico and top positions in international, corporate,
commercial and investment banking at Grupo GBM, Interacciones, and Grupo Serfin, where he served as a director and member of multiple
investment committees. Mr. Saval currently serves on the board of directors of Nexxus (along with each of its funds) and several Mexican
companies. He was a member of the board from 2010 to 2012 and later became Chairman of the board of the Mexican Private Equity Association
(AMEXCAP) from 2012 to 2014, and he is currently a member of the executive committee. Mr. Saval also served as a member of the board
of the Latin American Venture Capital Association, LAVCA, from 2011 to 2014. Mr. Saval studied Industrial Engineering at Universidad
Iberoamericana in Mexico.
We
believe that Mr. Saval is qualified to serve on our board of directors because of his extensive knowledge and experience in corporate
finance and advisory roles.
Roberto
Langenauer Neuman. Mr. Langenauer has served as a member of the board of directors since August 2021. Mr.
Langenauer has served on the board of directors of Legacy AT from May 2015 to August 2021. Mr. Langenauer is a Senior Managing Partner
and Chief Executive Officer of Nexxus Capital. He has participated in the completion of all Nexxus’s investment cycles since 1996
and has extensive experience in Private Equity investing. Mr. Langenauer has also extensive experience in private debt, mergers and acquisitions
and initial public offerings, participating in several offers of this type. Among his responsibilities, he has been in charge of the
design of investment strategies in private equity, mezzanine debt and the evaluation of investment opportunities. Mr. Langenauer currently
serves on the board of directors of Nexxus Capital (along with each of its funds) and several Mexican companies. Mr. Langenauer obtained
a Bachelor’s degree in Industrial Engineering from the Universidad Iberoamericana in Mexico.
We
believe that Mr. Langenauer is qualified to serve on our board of directors because of his experience in venture capital and private
equity investments and advising on corporate strategy.
Andrés
Borrego y Marrón. Mr. Borrego has served as a member of our board of directors since August 2021. Mr.
Borrego has served on the board of directors of Legacy AT from December 2017 to August 2021. Mr. Borrego has served as CEO and Co-Portfolio
Manager of the Mexico Credit Opportunities funds since 2012 and is the head of the Asset Management business for Credit Suisse in Mexico.
As part of the funds responsibilities, Mr. Borrego serves on the board of several of the public and private portfolio companies. From
2009 to 2011, Mr. Borrego was the co-head of the Credit Suisse Emerging Markets business within Fixed Income for Latin America (ex-Brazil)
and prior to that he was the County Head for Credit Suisse in Mexico based in Mexico City. Mr. Borrego obtained a degree in Industrial
Engineering from Universidad Iberoamericana in Mexico City.
We
believe that Mr. Borrego is qualified to serve on our board of directors because of his financial services experience and his experience
in investment management and corporate finance.
Gerardo
Benítez Peláez. Mr. Benitez has served as a member of our board of directors since August 2021.
Mr. Benitez served on the board of directors of Legacy AT from October 2019 to August 2021. Mr. Benitez has been a private equity investment
professional at Credit Suisse Asset Management Mexico since May 2019 and is responsible for managing the portfolio’s private equity
portfolio in Mexico. Mr. Benitez was a private equity investment professional at Black Creek Mexico from January 2018 to February 2019.
Mr. Benitez is a seasoned private equity investor and operator having invested and participated in global private equity and M&A
over the last 20 years. Mr. Benitez began his private equity career as an investment professional at TPG Capital and served on the board
of directors of a number of TPG Capital portfolio companies. Mr. Benitez obtained a Bachelor of Science degree, a Bachelor of Arts degree
and an M.B.A. from the Wharton School of Business at the University of Pennsylvania.
We
believe that Mr. Benitez is qualified to serve on our board of directors because of his experience in finance with high-growth companies.
Marina
Diaz Ibarra. Ms. Ibarra has served as a member of our board of directors since August 2021. Ms. Ibarra
served on the board of directors of Legacy AT from July 2021 to August 2021. Ms. Ibarra has represented the International Finance Corporation
as an independent member of the board of directors of Grupo Los Grobo LLC since May 2021 and has served as a member of the board of directors
of Gentera SAB de CV and Grupo Rotoplas SAB de CV since March 2021 and February 2019, respectively. Since June 2020, Ms. Ibarra also
has served as an independent member of the advisory board of Bitso SAPI de CV. Previously, Ms. Ibarra served as managing director of
Wolox Inc. from January 2017 to March 2020 and as General Manager for Argentina, Chile and Peru for MercadoLibre, Inc. from May 2015
to December 2016. Ms. Ibarra holds a Bachelor of Economics from Torcuato Di Tella University, a Master of Science degree in project valuation
and management from the Buenos Aires Institute of Technology and an M.B.A. from the Wharton School of Business at the University of Pennsylvania.
We
believe that Ms. Ibarra is qualified to serve on our board of directors because of her experience in finance.
Family
Relationships
As
of the date of this prospectus, there are no family relationships among any of the anticipated executive officers or directors of
the Company, with the exception that Mr. Rojas is the first cousin of Mr. Garduño’s wife.
Board
Composition
Our
business and affairs are organized under the direction of our board of directors. Our board of directors consists of eleven members.
Mr. Senderos currently serves as the Chairman of our board of directors. The primary responsibilities of our board of directors is to
provide oversight, strategic guidance, counseling and direction to our management. Our board of directors meets on a regular basis and
additionally as required.
In
accordance with our certificate of incorporation, our board of directors are divided into three classes, Class I, Class II
and Class III, with only one class of directors being elected in each year and each class serving a three-year term, except with
respect to the election of directors at the special meeting related to the business combination, the Class I directors were elected
to an initial term that will expire at our first annual meeting of stockholders to be held after the business combination (and three-year
terms subsequently), the Class II directors will be elected to an initial term that will expire at our second annual meeting of
stockholders to be held after the business combination (and three-year terms subsequently) and the Class III directors will be elected
to an initial term that will expire at our third annual meeting of stockholders to be held after the business combination (and three-year
terms subsequently). There is no cumulative voting with respect to the election of directors, with the result that the holders of more
than 50% of the shares voted for the election of directors can elect all of the directors.
Our
board of directors is divided into the following classes:
| ● | Class
I, which consists of Gerardo Benitez, Roberto Langenauer and Mauricio Garduño, whose
terms will expire at our first annual meeting of stockholders to be held after the business
combination; |
| ● | Class
II, which consists of Marina Diaz Ibarra, Mauricio Rioseco, Alejandro Rojas and Diego Zavala,
whose terms will expire at our second annual meeting of stockholders to be held after the
business combination; and |
| ● | Class
III, which consists of Andres Borrego, Alexander R. Rossi, Arturo Saval and Manuel Senderos,
whose terms will expire at our third annual meeting of stockholders to be held after the
business combination. |
Director
Independence
Our
board of directors has determined that Arturo Saval, Roberto Langenauer, Andres Borrego, Gerardo Benitez, Mauricio Rioseco, Alexander
R. Rossi, Alejandro Rojas and Marina Diaz Ibarra qualify as “independent directors,” as defined under the listing rules of
The Nasdaq Stock Market LLC (the “Nasdaq listing rules”), and the board of directors consists of a majority of “independent
directors,” as defined under the rules of the SEC and Nasdaq listing rules relating to director independence requirements. In addition,
we are subject to the rules of the SEC and Nasdaq relating to the membership, qualifications and operations of the Audit Committee, as
discussed below.
Board
Committees
Our
board of directors has established two standing committees: the Audit Committee and the Compensation Committee. The Company does not
have a nominating committee, and the responsibility for director nominations is vested in the independent directors. The board of directors
does not believe that a separate nominating committee is necessary because the independent directors effectively serve the function of
a nominating committee. Each of the Audit Committee and the Compensation Committee operates pursuant to a written charter that is available
on our website at https://ir.agilethought.com/corporate-governance/governance-documents. The reference to our website address here and
elsewhere in this proxy statement does not include or incorporate by reference the information on our website into this proxy statement.
The
following table provides membership for the year ended December 31, 2021 for each committee:
|
|
Audit |
|
Compensation |
Name |
|
Committee |
|
Committee |
|
|
|
|
|
Alexander R. Rossi* |
|
X |
|
X |
|
|
|
|
|
Alejandro Rojas |
|
Chair |
|
X |
|
|
|
|
|
Marina Diaz Ibarra* |
|
X |
|
Chair |
Below
is a description of each committee of the board of directors.
Audit
Committee
Our
audit committee consists of Alexander R. Rossi, Alejandro Rojas and Marina Diaz Ibarra. Our board examined each audit committee member’s
scope of experience and the nature of their prior and/or current employment and determined that each of the members of the audit committee
satisfy the independence requirements of Nasdaq and Rule 10A-3 under the Exchange Act. Each member of the audit committee is able
to read and understand fundamental financial statements in accordance with Nasdaq audit committee requirements.
Mr.
Rojas serves as chair of the audit committee. Our board of directors determined that each of Alexander R. Rossi and Marina Diaz Ibarra
qualifies as an audit committee financial expert within the meaning of SEC regulations and meets the financial sophistication requirements
of Nasdaq listing rules. Both our independent registered public accounting firm and management periodically meet privately with our audit
committee.
The
functions of this committee will include, among other things:
| ● | evaluating
the performance, independence and qualifications of our independent auditors and determining
whether to retain our existing independent auditors or engage new independent auditors; |
| ● | helping
ensure the independence and performance of our independent auditors; |
| ● | helping
to maintain and foster an open avenue of communication between management and our independent
auditors; |
| ● | discussing
the scope and results of the audit with our independent auditors, and reviewing, with management,
our interim and year-end operating results; |
| ● | developing
procedures for employees to submit concerns anonymously about questionable account or audit
matters; |
| ● | reviewing
our policies on risk assessment and risk management; |
| ● | reviewing
related party transactions; |
| ● | obtaining
and reviewing a report by our independent auditors at least annually, that describes our
internal quality control procedures, any material issues with such procedures, and any steps
taken to deal with such issues when required by applicable law; and |
| ● | approving
(or, as permitted, pre-approving) all audit and all permissible non-audit services to be
performed by our independent auditors. |
Compensation
Committee
Our
compensation committee consists of Alexander R. Rossi, Alejandro Rojas and Marina Diaz Ibarra. Mrs. Ibarra serves as chair of the
compensation committee. Our board of directors determined that each of the members of the compensation committee is a non-employee director,
as defined in Rule 16b-3 promulgated under the Exchange Act and satisfies the independence requirements of Nasdaq.
The
Compensation Committee is responsible for:
| ● | approving
the retention of compensation consultants and outside service providers and advisors; |
| ● | reviewing
and approving, or recommending that our board of directors approves, the compensation, individual
and corporate performance goals and objectives and other terms of employments of our executive
officers, including evaluating the performance of our Chief Executive Officer, and, with
his assistance, that of our other executive officers; |
| ● | reviewing
and recommending to our board of directors the compensation of our directors; |
| ● | administering
our equity and non-equity incentive plans; |
| ● | reviewing
our practices and policies of employee compensation as they relate to risk management and
risk-taking incentives; |
| ● | reviewing
and evaluating succession plans for the executive officers; |
| ● | reviewing
and approving, or recommending that our board of directors approve, incentive compensation
and equity plans; |
| ● | helping
our board of directors oversee our human capital management policies, plans and strategies;
and |
| ● | reviewing
and establishing general policies relating to compensation and benefits of our employees
and reviewing our overall compensation philosophy. |
Director
Nominations
On
August 23, 2021, our board of directors adopted resolution establishing that director nominees must either be selected, or recommended
for the board of director’s selection, by the independent directors of the board of directors constituting a majority of the board
of director’s independent directors in a vote in which only independent directors participate.
Non-Employee
Director Compensation
Our
board of directors review director compensation periodically to ensure that director compensation remains competitive such that we are
able to recruit and retain qualified directors. We intend to develop a board of directors compensation program that is designed to align
compensation with our business objectives and the creation of stockholder value, while enabling us to attract, retain, incentivize and
reward directors who contribute to the long-term success of the Company.
Code
of Business Conduct and Ethics for Employees, Executive Officers and Directors
Our
board of directors has adopted a Code of Business Conduct and Ethics (the “Code of Conduct”) applicable to all of our employees,
executive officers and directors. The Code of Conduct is available on our website at https://ir.agilethought.com/corporate-governance/governance-documents.
Our board of directors is responsible for overseeing the Code of Conduct and must approve any waivers of the Code of Conduct for employees,
executive officers and directors. We expect that any amendments to the Code of Conduct, or any waivers of its requirements, will be disclosed
on our website.
Compensation
Committee Interlocks and Insider Participation
None
of the members of our compensation committee has ever been our executive officer or employee. None of our executive officers currently
serve, or has served during the last completed fiscal year, on the compensation committee or board of directors of any other entity that
has one or more executive officers that will serve as a member of our board of directors or compensation committee.
Limitation
on Liability and Indemnification
Our
charter eliminates our directors’ liability for monetary damages to the fullest extent permitted by applicable law. The DGCL provides
that directors of a corporation will not be personally liable for monetary damages for breach of their fiduciary duties as directors,
except for liability:
| ● | for
any transaction from which the director derives an improper personal benefit; |
| ● | for
any act or omission not in good faith or that involves intentional misconduct or a knowing
violation of law; |
| ● | for
any unlawful payment of dividends or redemption of shares; or |
| ● | for
any breach of a director’s duty of loyalty to the corporation or its stockholders. |
If
the DGCL is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability
of our directors will be eliminated or limited to the fullest extent permitted by the DGCL, as so amended.
Our
charter requires us to indemnify and advance expenses to, to the fullest extent permitted by applicable law, its directors, officers
and agents. We maintain a directors’ and officers’ insurance policy pursuant to which our directors and officers are insured
against liability for actions taken in their capacities as directors and officers. Finally, our charter prohibits any retroactive changes
to the rights or protections or increase the liability of any director in effect at the time of the alleged occurrence of any act or
omission to act giving rise to liability or indemnification.
In
addition, we entered into separate indemnification agreements with our directors and officers. These agreements, among other things,
require us to indemnify our directors and officers for certain expenses, including attorneys’ fees, judgments, fines and settlement
amounts incurred by a director or officer in any action or proceeding arising out of their services as one of our directors or officers
or any other company or enterprise to which the person provides services at our request.
We
believe these provisions in our charter are necessary to attract and retain qualified persons as our directors and officers.
Executive
Compensation
As
used in this section, “we,” “us” or “our” refers to Legacy AT prior to the closing of the Business
Combination and to AgileThought, Inc. (f/k/a LIV Capital Acquisition Corp.) following the closing the Business Combination.
Our
2021 named executive officers consist of the following individuals:
| ● | Manuel
Senderos Fernández |
Summary
Compensation Table
The
following table provides information regarding compensation earned by or paid to our named executive officers with respect to the years
indicated.
| |
| | |
Salary | | |
Bonus | | |
Stock
Awards | | |
Non-Equity
Incentive
Plan Compensation | | |
All
Other Compensation | | |
Total | |
Name
and Principal Position | |
Year | | |
($) | | |
($) | | |
($)(4) | | |
($) | | |
($)(5) | | |
($) | |
Manuel Senderos
Fernández | |
| 2021 | | |
| 450,000 | (1) | |
| — | | |
| — | | |
|
— | | |
| 2,818 | | |
| 452,818 | |
Chief
Executive Officer and
Chairman of the Board of Directors | |
| 2020 | | |
| 450,000 | (1) | |
| — | | |
| 1,249,416 | | |
| — | | |
| | | |
| 1,699,416 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Kevin Johnston | |
| 2021 | | |
| 400,000 | | |
| — | | |
| — | | |
| — | | |
| 33,530 | | |
| 433,530 | |
Chief
Revenue Officer and Global
Chief Operating Officer | |
| 2020 | | |
| 350,000 | (2) | |
| 140,000 | (3) | |
| 399,813 | | |
| — | | |
| 6,575 | | |
| 896,388 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Jorge Pliego Seguin | |
| 2021 | | |
| 330,000 | | |
| — | | |
| 878,015 | | |
| — | | |
| 34,136 | | |
| 1,242,151 | |
Former
Chief Financial Officer | |
| 2020 | | |
| 330,000 | | |
| — | | |
| 499,766 | | |
| — | | |
| 40,491 | | |
| 870,257 | |
(1) | For
2020, we paid Mr. Senderos’ salary to Invertis LLC, or Invertis, an entity controlled
by Mr. Senderos, and Mr. Senderos received his salary by an invoice to Invertis. For 2021,
we paid 50% of Mr. Senderos’ salary to Invertis and Mr. Senderos received his salary
by an invoice to Invertis. The other 50% was paid directly to Mr. Senderos. |
(2) | The
amount represents Mr. Johnston’s base salary, pro-rated for the portion of 2020 during
which he provided services to us. Mr. Johnston commenced services with us in February 2020. |
(3) | This
amount represents guaranteed quarterly bonuses paid to Mr. Johnston for the quarters ended
March 31, 2020 and June 30, 2020, in accordance with the terms of his employment agreement. |
(4) | These
amounts reflect the grant date fair value of restricted stock units granted, in accordance
with ASC 718 and excluding the effect of estimated forfeitures. For 2021, Mr. Pliego received
87,802 shares as fully vested stock awards in connection with the Business Combination. In
the case of Mr. Johnston, the 2020 awards were accelerated and fully vested in May 2021 and
in the case of Mr. Pliego and Mr. Senderos, the 2020 awards were cancelled. At the same time,
the Merger Agreement provided that Messrs. Senderos, Johnston and Pliego would be granted
restricted stock units as soon as practicable following the closing of the Business Combination.
See “Equity-Based Incentive Awards” for further information regarding these awards.
For information regarding assumptions underlying the value of equity awards, see Note 18
to the financial statements included in this prospectus. This amount does not reflect the
actual economic value that may be realized by the named executive officers. |
(5) | The
amounts represent for 2021, for Messrs. Johnston and Pliego (a) $6,000 and $6,000 in company
discretionary contributions to the 401(k) plan as described under the section titled “401(k)
Plan” and (b) $771 and $771 in life insurance premiums paid by us for the benefit of
each such named executive officer, and with respect to Mr. Johnston , $24,358 related to
travel and expense reimbursements and $2,400 of company ´s contribution to health savings
account (“HSA”), and for Mr. Pliego, $27,365 reimbursement expense related to
housing and other living expenses at his principal residence. For 2020 for Messrs. Johnston
and Pliego (a) $6,000 and $2,576 in company discretionary contributions to the 401(k) plan
as described under the section titled “401(k) Plan” and (b) $575 and $2,995 in
life insurance premiums paid by us for the benefit of each such named executive officer,
and with respect to Mr. Pliego, $34,920 in housing and other living expenses at his principal
residence. |
Narrative
Disclosure to Summary Compensation Table
For
2021, the compensation programs for our named executive officers primarily consisted of base salary and incentive compensation delivered
in 2022 in the form of restricted stock units (“RSUs”) granted under the AgileThought, Inc. 2021 Equity Incentive Plan (the
“2021 Plan”). See “Equity-Based Incentive Awards” below for a description of the awards granted to our named
executive officers in 2022.
Base
Salary
Base
salary is set at a level that is intended to reflect the executive’s duties, authorities, contributions, prior experience and performance.
Performance
Bonus Opportunity
We
seek to motivate and reward our executives for achievements relative to our corporate goals and expectations for each calendar quarter.
Each of our named executive officers was eligible to receive a quarterly performance bonus in 2020 and 2021 based on the achievement
of pre-established corporate performance goals relating to EBIDTA growth measured on a quarterly basis. The target bonus amount for each
named executive officer was as follows: for Mr. Senderos, $112,500 per quarter in 2020 and $112,500 per quarter in 2021; for Mr. Pliego,
$49,500 per quarter in 2020 and $49,500 per quarter in 2021, and for Mr. Johnston, $70,000 per quarter in 2020 and $70,000 per quarter
in 2021. The quarterly bonus was not earned for the year ended December 31, 2021. As a result, none of our named executive officers received
a bonus based on 2021 performance. For 2020, and due to the impact of the COVID-19 pandemic on our business, we cancelled our bonus program
for the year ended December 31, 2020 during the quarter ended June 30, 2020. As a result, none of our named executive officers received
a bonus based on 2020 performance. However, pursuant to his employment agreement, Mr. Johnston received a guaranteed cash bonus payment
of $140,000 in 2020.
Equity-Based
Incentive Awards
Our
equity award program is the primary vehicle for offering long-term incentives to our executives. We believe that equity awards provide
our executives with a strong link to long-term performance, create an ownership culture and help to align the interests of our executives
and stockholders. Prior to the consummation of the Business Combination, we used RSUs for this purpose. We believe that equity awards
are an important retention tool for our executive officers, as well as for our other employees.
Prior
to the Business Combination, all of the equity awards we granted were made pursuant to the AgileThought, Inc. 2020 Equity Incentive Plan
(the “2020 Plan”). The 2020 Plan was terminated in connection with the Business Combination, and no additional awards are
being granted under the 2020 Plan.
In
connection with the Business Combination, the Company adopted the 2021 Plan on August 18, 2021, which became effective immediately upon
the Closing Date. The 2021 Plan provides the Company with flexibility to use various equity-based incentive awards as compensation tools
to motivate and retain the Company’s workforce. The Company initially reserved 5,283,216 shares of Class A common stock for the
issuance of awards under the 2021 Equity Plan. The number of shares of Class A common stock available for issuance under the 2021 Plan
automatically increases on the first day of each calendar year, beginning January 1, 2022 and ending on and including January 1, 2031,
in an amount equal to 5% of the total number of shares of Class A common stock outstanding on December 31 of the preceding year; provided
that the board of directors may act prior to January 1 of a given year to provide that the increase of such year will be a lesser amount
of shares of Class A common stock.
On
January 27, 2022, the Company issued RSUs to senior employees and directors covering up to 2,193,000 Class A RSUs subject to time-based
vesting and performance vesting requirements. Mr. Senderos and Mr. Johnston received 1,050,000 and 50,000 RSUs, respectively. Each RSU
represents a contingent right to receive one share of AgileThought, Inc. Class A Common Stock. Thirty-five percent of the RSUs vest upon
AgileThought, Inc.’s Class A Common Stock achieving a market price of $15 per share, 25% vest upon achieving a market price of $20 per
share, 20% vest upon achieving a market price of $25 per share, and 20% vest upon achieving a market price of $30 per share. Vesting
of the RSUs is subject to continued employment. Thirty-five percent of the RSUs expire on January 27, 2028, 25% expire on January 27,
2030, and 40% expire on January 27, 2032. Awards issued to other executives vest over a period of three years.
Health
and Welfare and Retirement Benefits; Perquisites
We
pay premiums for medical insurance and dental insurance for all full-time employees, including our named executive officers who are full-time
employees. We also pay premiums for life insurance and long-term disability insurance benefits for all full-time employees, including
our named executive officers who are full-time employees. These benefits are available to all full-time employees, subject to applicable
laws. We generally do not provide perquisites or personal benefits to our named executive officers, except in limited circumstances.
In addition, we provide the opportunity to participate in a 401(k) plan to our employees, including each of our named executive officers
who are employees, as discussed under the section titled “401(k) Plan.”
401(k)
Plan
We
maintain the AgileThought, Inc. 401(k) Plan (the “401(k) plan”), a tax-qualified retirement plan that provides eligible U.S.
employees with an opportunity to save for retirement on a tax advantaged basis. Eligible employees are able to make pre-tax or Roth deferrals
from their compensation up to certain limits imposed by the Code. We have the ability to make discretionary contributions to the 401(k)
plan to participants who are employed on the last day of the year and who have also completed at least 1,000 hours of service during
the year. Employee contributions are allocated to each participant’s individual account and are then invested in selected investment
alternatives according to the participants’ directions. Employees are immediately and fully vested in their own contributions and
in any discretionary contributions we make to the participant’s accounts. In 2020, we made discretionary contributions on behalf
of Messrs. Johnston and Pliego, as further described under “Summary Compensation Table” above. The 401(k) plan is intended
to be qualified under Section 401(a) of the Code, with the related trust intended to be tax exempt under Section 501(a) of
the Code. As a tax-qualified retirement plan, contributions to the 401(k) plan are deductible by us when made, and contributions and
earnings on those amounts are generally not taxable to a participating employee until withdrawn or distributed from the 401(k) plan.
Executive
Consulting and Employment Arrangements
The
key terms of Mr. Senderos’ employment agreement, and the employment arrangements with Messrs. Johnston and Pliego, are described
below. Each of its named executive officers provides his services to us on an at-will basis. Each has executed our standard confidential
information, inventions, non-solicitation and non-competition agreement.
Manuel
Senderos Fernández
In
September 2020, Mr. Senderos entered into an amended and restated employment agreement with AgileThought, LLC, which was subsequently
amended and restated on July 13, 2021. Prior to his employment agreement being amended and restated on July 13, 2021, Mr. Senderos provided
the services and received the compensation contemplated under the employment agreement as a consultant pursuant to a consulting agreement
entered into in October 2020 between Legacy AT and Invertis LLC, an entity Mr. Senderos controls. Under his amended and restated employment
agreement Mr. Senderos is entitled to an annual base salary of $450,000, and is eligible to receive a quarterly target bonus, which for
2021 was in the amount of $112,500 per quarter, payable based on the achievement of performance objectives as described above under the
section titled “Performance Bonus Opportunity.” Pursuant to his employment agreement, Mr. Senderos was entitled to an RSU
award with a grant date fair value in the amount of $2,500,000 assuming that Legacy AT’s equity value (net of debt) as of the grant
date was $700,000,000, which was granted in August 2020, the terms of which are described below under “Outstanding Equity Awards
as of December 31, 2021.” In May 2021, Mr. Senderos entered into an RSU cancellation agreement with Legacy AT and agreed to forfeit
the equity awards granted to him under the 2020 Plan, contingent and effective upon the closing of the Business Combination. At the same
time, the Merger agreement provided that Mr. Senderos would be granted RSUs as soon as practicable following the closing of the business
combination. See “Equity-Based Incentive Awards” for further information regarding these awards. Mr. Senderos is also entitled
to certain severance benefits, as described below under the section titled “Potential Payments Upon Termination or Change in Control.”
Mr. Senderos is eligible for certain standard benefits such as paid time off, reimbursement of business expenses, and participation in
employee benefit plans and programs.
Kevin
Johnston
Effective
as of March 2, 2020, AgileThought, LLC, entered into an employment agreement with Mr. Johnston, which governs the current terms of his
employment. Pursuant to his employment agreement, Mr. Johnston is entitled to an annual base salary of $400,000, and is eligible to receive
a quarterly target bonus, which for 2021 was in the amount of $70,000 per quarter, payable based on the achievement of performance objectives
as described above under the section titled “Performance Bonus Opportunity.” In addition, Mr. Johnston was entitled to an
RSU award with a grant date fair value in the amount of $800,000 assuming that Legacy AT’s equity value (net of debt) as of the
grant date was $700,000,000, which was granted in August 2020 and accelerated in connection with the Business Combination. In May 2021,
Mr. Johnston entered into an RSU acceleration agreement with Legacy AT and agreed to accelerate 536 RSU´s granted to him under
the 2020 Plan, contingent and effective upon the closing of the Business Combination. At the same time, the Merger Agreement provided
that Mr. Johnston would be granted RSUs as soon as practicable following the closing of the Business Combination. See “Equity-Based
Incentive Awards” for further information regarding these awards. Mr. Johnston is also entitled to certain severance benefits,
as described below under the section titled “Potential Payments Upon Termination or Change in Control.” Mr. Johnston is eligible
for standard benefits such as paid time off, reimbursement of business expenses, and participation in employee benefit plans and programs.
Jorge
Pliego Seguin
Effective
as of August 4, 2020, AgileThought, LLC, entered into an amended and restated employment agreement with Mr. Pliego, which governs the
current terms of his employment. Pursuant to his employment agreement, Mr. Pliego is entitled to an annual base salary of $330,000,
and is eligible to receive a quarterly target bonus, which for 2021 was in the amount of $49,500 per quarter, payable based on the achievement
of performance objectives as described above under the section titled “Performance Bonus Opportunity.” Pursuant to his
employment agreement, Mr. Pliego was entitled to a RSU award with a grant date fair value in the amount of $1,000,000 assuming that Legacy
AT’s equity value (net of debt) as of the grant date was $700,000,000, which was granted in August 2020, the terms of which
are described above under the section titled “Outstanding Equity Awards as of December 31, 2021.” In May 2021, Mr. Pliego
entered into an RSU cancellation agreement with Legacy AT and agreed to forfeit the equity awards granted to him under the 2020 Plan,
contingent and effective upon the closing of the Business Combination. At the same time, the Merger agreement provided that Mr. Pliego
would be granted RSUs as soon as practicable following the closing of the Business Combination. Due to Mr. Pliego’s retirement
in early 2022, he was not granted these RSUs. Mr. Pliego was also entitled to certain severance benefits, as described below under the
section titled “Potential Payments Upon Termination or Change in Control.” Mr. Pliego was eligible for standard benefits
such as paid time off, reimbursement of business expenses, and participation in employee benefit plans and programs.
Potential
Payments upon Termination or Change in Control
Each
of our named executive officers is entitled to severance benefits upon (i) a “regular termination” and (ii) a “Each
of our named executive officers is entitled to severance benefits upon (i) a “regular termination” and (ii) a “change
in control termination” (each as described below). Upon a regular termination, each of our named executive officers is entitled
to (i) continued payment of his base salary for 12 months, (ii) COBRA premiums for up to 12 months, and (iii) a lump sum cash payment
equal to the sum of the all quarterly bonus amounts for the calendar year of his termination, paid at target level, with the amount applicable
to the calendar quarter in which the executive ceases employment prorated to reflect the portion of the calendar quarter in which he
remained employed (reduced for any quarterly bonus amounts already earned and paid for such calendar year). Upon a change in control
termination, each of our named executive officers is entitled to (i) continued payment of his base salary for 12 months, (ii) COBRA premiums
for up to 12 months, (iii) a lump sum cash payment equal to the sum of the all quarterly bonus amounts for the calendar year of his termination,
paid at target level, and (iv) accelerated vesting of all outstanding equity awards held by the executive. All severance benefits are
subject to the applicable named executive’s execution of an effective release of claims.
For
purposes of its named executive officers’ severance benefits, a “regular termination” is an involuntary termination
(i.e., a termination other than for cause or a resignation for good reason, as defined in the employment agreements) that does not occur
within 12 months following the effective date of a “change in control” (as defined in the 2021 Plan), or the “change
in control period.” A “change in control termination” is a regular termination that occurs during the change in control
period.
Outstanding
Equity Awards at Fiscal Year-End
As
of December 31, 2021 there were no outstanding equity awards for our named executive officers.
As
described above under “Equity-Based Incentive Awards,” Messrs. Senderos and Johnston were granted RSUs in January 2022.
Employee
Benefit Plans
2020
Equity Incentive Plan
Legacy
AT’s 2020 Equity Incentive Plan, or the 2020 Plan, was adopted by Legacy AT’s board of directors in August 2020 and
approved by the Legacy AT stockholders in September 2020. The 2020 Plan was terminated in connection with the business combination,
and no additional awards are being granted under the 2020 Plan.
Stock
Awards. The 2020 Plan provides for the grant of incentive stock options, or ISOs, within the meaning of Section 422
of the Code to Legacy AT’s employees, including employees of any parent or subsidiary, and for the grant of nonstatutory stock
options, stock appreciation rights, restricted stock awards, restricted stock unit awards and other forms of stock awards to Legacy AT
employees, directors and consultants, including employees and consultants of Legacy AT’s affiliates.
Authorized
Shares. The maximum number of shares of Class A Common Stock that may be issued pursuant to stock awards
under the 2020 Plan is 48,000 shares. The maximum number of shares of Class A Common Stock that may be issued pursuant to the
exercise of ISOs under the 2020 Plan is 144,000 shares. Shares subject to stock awards granted under the 2020 Plan that, under certain
circumstances, expire or terminate or are forfeited back to or repurchased by Legacy AT will become available for future grant under
the 2020 Plan while it remains in effect. As of April 15, 2021, there were restricted stock unit awards covering 7,510 shares
of common stock outstanding under the 2020 Plan, of which restricted stock unit awards covering 3,785 shares of common stock will
be cancelled immediately before the closing.
Plan
Administration. The Legacy AT board of directors, or a duly authorized committee of the board of directors,
administers the 2020 Plan and is referred to as the “plan administrator” herein. The plan administrator may also delegate
to one or more of Legacy AT’s officers the authority to (1) designate employees (other than officers) to receive specified
stock awards and (2) determine the number of shares subject to such stock awards. Under the 2020 Plan, the plan administrator has
the authority to determine award recipients, dates of grant, the numbers and types of stock awards to be granted, the applicable fair
market value and the provisions of each stock award, including the period of their exercisability and the vesting schedule applicable
to a stock award.
Under
the 2020 Plan, the plan administrator also generally has the authority to effect, with the consent of any adversely affected participant,
(A) the reduction of the exercise, purchase, or strike price of any outstanding award; (B) the cancellation of any outstanding
award and the grant in substitution therefore of other awards, cash, or other consideration; or (C) any other action that is treated
as a repricing under generally accepted accounting principles.
Restricted
Stock Unit Awards. Restricted stock unit awards are granted under restricted stock unit award agreements adopted
by the plan administrator. Restricted stock unit awards may be granted in consideration for any form of legal consideration that may
be acceptable to the Legacy AT board of directors and permissible under applicable law.
Restricted
stock unit awards may be settled by cash, delivery of stock, a combination of cash and stock as deemed appropriate by the plan administrator,
or in any other form of consideration set forth in the restricted stock unit award agreement. Additionally, dividend equivalents may
be credited in respect of shares covered by a restricted stock unit award. Except as otherwise provided in the applicable award agreement,
restricted stock unit awards that have not vested will be forfeited once the participant’s continuous service ends for any reason.
With limited exceptions for domestic relations orders, official marital settlement agreements or other specified divorce or separation
instruments and the laws of descent and distribution, restricted stock unit awards granted under the 2020 Plan are generally non-transferable.
Changes
to Capital Structure. In the event there is a specified type of change in Legacy AT’s capital
structure, such as a stock split, reverse stock split, or recapitalization, appropriate adjustments will be made to (1) the class and
maximum number of shares reserved for issuance under the 2020 Plan, (2) the class and maximum number of shares that may be
issued on the exercise of ISOs and (3) the class and number of shares and exercise price, strike price, or purchase price,
if applicable, of all outstanding stock awards.
Corporate
Transactions. The 2020 Plan provides that in the event of certain specified significant corporate transactions,
unless otherwise provided in an award agreement or other written agreement between Legacy AT and the award holder or unless otherwise
expressly provided by the plan administrator at the time of grant of a stock award, the plan administrator may take one or more of the
following actions with respect to such stock awards:
| ● | arrange
for the assumption, continuation, or substitution of a stock award by a surviving or acquiring
corporation; |
| ● | arrange
for the assignment of any reacquisition or repurchase rights held by Legacy AT to the surviving
or acquiring corporation; |
| ● | accelerate
the vesting, in whole or in part, of the stock award and provide for its termination if not
exercised (if applicable) at or before the effective time of the transaction; |
| ● | arrange
for the lapse, in whole or in part, of any reacquisition or repurchase rights held by Legacy
AT; |
| ● | cancel
or arrange for the cancellation of the stock award, to the extent not vested or not exercised
before the effective time of the transaction, in exchange for a cash payment, if any; and |
| ● | make
a payment equal to the excess, if any, of (A) the value of the property the participant
would have received on exercise of the award immediately before the effective time of the
transaction, over (B) any exercise price payable by the participant in connection with
the exercise. |
The
plan administrator is not obligated to treat all stock awards or portions of stock awards in the same manner and is not obligated to
treat all participants in the same manner.
Change
in Control. A stock award may be subject to additional acceleration of vesting and exercisability upon or
after a change in control as may be provided in the award agreement or other written agreement between Legacy AT and the participant,
but in the absence of such provision, no such acceleration will occur.
2021
Plan
In
August 2021 our board of directors adopted the AgileThought, Inc. 2021 Equity Incentive Plan (the “2021 Plan”) and our stockholders
approved the 2021 Plan in August 2021. The 2021 Plan became effective immediately upon the Closing.
Purpose
of the 2021 Plan
The
purpose of the 2021 Plan is to secure and retain the services of employees and directors of, and consultants to, us or our affiliates,
to provide incentives for such persons to exert maximum efforts for our success and to provide a means by which such persons may be given
an opportunity to benefit from increases in value of the Class A Common Stock through the granting of awards thereunder. We believe that
the equity-based awards to be issued under the 2021 Plan will motivate award recipients to offer their maximum effort to us and help
focus them on the creation of long-term value consistent with the interests of our stockholders. We believes that grants of incentive
awards are necessary to enable us to attract and retain top talent.
Eligibility. Employees
and directors of, and consultants to, us or our affiliates, are eligible to receive awards under the equity incentive plan.
Award
Types. The equity incentive plan provides for the grant of incentive stock options (“ISOs”)
to employees and for the grant of nonstatutory stock options (“NSOs”), stock appreciation rights, restricted stock awards,
restricted stock unit awards, performance awards and other forms of stock awards to employees, directors and consultants.
Share
Reserve. 5,283,216 shares of Class A Common Stock are initially reserved for issuance under the
equity incentive plan. The number of shares of Class A Common Stock reserved for issuance under the equity incentive plan will automatically
increase on January 1 of each year, for a period of ten years, from January 1, 2022 continuing through January 1, 2031, in
an amount equal to 5% of the total number of shares of our capital stock outstanding on December 31 of the preceding calendar year, or
a lesser number of shares as may be determined by our board of directors. The maximum number of shares that may be issued pursuant to
the exercise of ISOs under the equity incentive plan is equal to 300% of the number of shares of Class A Common Stock initially reserved
under the equity incentive plan. Shares issuable under the equity incentive plan will be shares of authorized but unissued or reacquired
shares of Class A Common Stock, including shares repurchased by us on the open market or otherwise. Shares subject to awards granted
under the equity incentive plan that expire or terminate without the shares covered by such portion of the award having been issued,
that are settled in cash rather than in shares, the withholding of shares that would otherwise be issued to satisfy the exercise, strike
or purchase price of an award, or the withholding of shares that would otherwise be issued to satisfy a tax withholding obligation in
connection with an award will not reduce the number of shares available for issuance under the equity incentive plan. Additionally, shares
issued pursuant to awards under the equity incentive plan that are repurchased or forfeited because of a failure to meet a contingency
or condition required for the vesting of such shares, shares that are reacquired to satisfy the exercise, strike or purchase price of
an award or to satisfy tax withholding obligations related to an award, will be added back to the share reserve and become available
for future grant under the equity incentive plan.
Plan
Administration. Our board of directors will administer the equity incentive plan unless and until it
delegates administration to a committee or committees thereof (as applicable, the “plan administrator”). The plan administrator
may also delegate to one or more persons who are our officers (as defined in Section 16 of the Exchange Act) the authority to (i) designate
employees other than officers to receive specified awards and (ii) determine the number of shares to be subject to such awards up
to the total number of shares determined by the plan administrator that may be granted by such officer.
Subject
to the terms of the equity incentive plan, the plan administrator has the authority to determine from time to time the terms of awards,
including recipients, when and how each award will be granted, the type or combination of awards granted, the provisions of each award
(which need not be identical), the number of shares or cash equivalent subject to each award, the fair market value of a share applicable
to an award, and the terms of any performance award that is not valued in whole or in part by reference to, or otherwise based on, the
Class A Common Stock. The plan administrator has the power to, among other things, construe and interpret the equity incentive plan and
awards, establish, amend and revoke rules and regulations for the administration thereof, settle all controversies in connection therewith,
accelerate the time at which an award may first exercised or the time during which it will vest, prohibit the exercise of any exercisable
award during a period of up to 30 days prior to certain transactions or changes affecting the Class A Common Stock, suspend or terminate
the equity incentive plan at any time, amend the equity incentive plan at any time subject to any stockholder approval required by applicable
law and to generally exercise such powers and to perform such acts it deems necessary or expedient to promote our best interests and
that are not in conflict with the provisions of the equity incentive plan or awards. Subject to the terms of the equity incentive plan,
the plan administrator also has the authority to reduce the exercise (or strike) price of any outstanding option or stock appreciation
right, cancel and re-grant any outstanding option or stock appreciation right in exchange for new options, stock appreciation rights,
restricted stock, restricted stock units or other stock awards covering the same or a different number of shares of Class A Common Stock,
cash and/or other valuable consideration, or take any other action that is treated as a repricing under generally accepted accounting
principles, with the consent of any materially adversely affected participant.
Stock
Options. ISOs and NSOs are granted under stock option agreements adopted by the plan administrator.
The plan administrator determines the exercise price for stock options, within the terms and conditions of the equity incentive plan,
provided that the exercise price of a stock option generally cannot be less than 100% of the fair market value of a share of Class A
Common Stock on the date of grant (however, a stock option may be granted with an exercise or strike price lower than 100% of the fair
market value on the date of grant of such award if such award is granted pursuant to an assumption of or substitution for another option
pursuant to a corporate transaction, as such term is defined in the equity incentive plan, and in a manner consistent with the provisions
of Sections 409A and, if applicable, 424(a) of the Code). Options granted under the equity incentive plan vest at the rate specified
in the stock option agreement as determined by the plan administrator. The plan administrator determines the term of stock options granted
under the equity incentive plan, up to a maximum of ten years. Unless the terms of an optionholder’s stock option agreement provide
otherwise, if an optionholder’s service relationship ceases for any reason other than disability, death or for cause, the optionholder
may generally exercise any vested options for a period of three months following the cessation of service. If an optionholder’s
service relationship ceases due to death, or an optionholder dies during the period that an option is otherwise exercisable following
cessation of service, the optionholder or a beneficiary may generally exercise any vested options for a period of 12 months. In
the event an optionholder’s service relationship ceases due to disability the optionholder may generally exercise any vested options
for a period of 18 months. Options generally terminate immediately upon the termination of an optionholder’s service for cause.
The period of exercise for an option following a separation from service may be extended as set forth in the equity incentive plan in
the event that the exercise of the option following such a termination of service is prohibited by applicable securities laws or our
insider trading policy. In no event may an option be exercised beyond the expiration of its term. Acceptable consideration for the purchase
of Class A Common Stock issued upon the exercise of a stock option will be determined by the plan administrator and may include (i) cash,
check, bank draft, or money order, (ii) a broker-assisted cashless exercise, (iii) the tender of shares of Class A Common
Stock previously owned by the optionholder, (iv) a net exercise of the option if it is an NSO and (v) other legal consideration
approved by the plan administrator.
Limitations
on ISOs. The aggregate fair market value, determined at the time of grant, of Class A Common Stock
with respect to ISOs that are exercisable for the first time by an optionholder during any calendar year under all stock plans maintained
by us may not exceed $100,000. Options or portions thereof that exceed such limit will generally be treated as NSOs. No ISO may be granted
to any person who, at the time of the grant, owns or is deemed to own stock possessing more than 10% of our total combined voting power
or that of any of our affiliates unless (1) the option exercise price is at least 110% of the fair market value of the stock subject
to the option on the date of grant, and (2) the option is not exercisable after the expiration of five years from the date of grant.
No ISOs may be granted after the earlier of the tenth anniversary of the date our board of directors adopted the equity incentive plan
and the date the equity incentive plan is approved by our stockholders.
Restricted
Stock Awards. Restricted stock awards are granted under restricted stock award agreements adopted by
the plan administrator. A restricted stock award may be awarded in consideration for cash, check, bank draft or money order, past services,
or any other form of legal consideration that may be acceptable to the plan administrator and permissible under applicable law. The plan
administrator determines the terms and conditions of restricted stock awards, including vesting and forfeiture terms. Additionally, dividends
or dividend equivalents may be credited in respect of shares covered by restricted stock as determined by the plan administrator and
specified in the award agreement. Except as provided otherwise in the applicable award agreement, if a participant’s service relationship
ends for any reason, we may receive through a forfeiture condition or a repurchase right any or all of the shares held by the participant
under his or her restricted stock award that have not vested as of the date the participant terminates service.
Restricted
Stock Unit Awards. Restricted stock units are granted under restricted stock unit award agreements adopted
by the plan administrator. Restricted stock units will generally be granted in consideration for the participant’s services. A
restricted stock unit may be settled by cash or the issuance of Class A Common Stock, or a combination of cash and Class A Common Stock
as determined by the plan administrator and specified in the award agreement. Additionally, dividends or dividend equivalents may be
credited in respect of shares covered by a restricted stock unit as determined by the plan administrator and specified in the award agreement.
Except as otherwise provided in the applicable award agreement, restricted stock units that have not vested will be forfeited once the
participant’s continuous service ends for any reason.
Stock
Appreciation Rights. Stock appreciation rights are granted under stock appreciation grant agreements
adopted by the plan administrator and will be denominated in shares of Class A Common Stock equivalents. The plan administrator determines
the purchase price or strike price for a stock appreciation right, which generally cannot be less than 100% of the fair market value
of Class A Common Stock on the date of grant (however, a stock appreciation right may be granted with an exercise or strike price lower
than 100% of the fair market value on the date of grant of such award if such award is granted pursuant to an assumption of or substitution
for another option pursuant to a corporate transaction, as such term is defined in the equity incentive plan, and in a manner consistent
with the provisions of Sections 409A and, if applicable, 424(a) of the Code). A stock appreciation right granted under the equity
incentive plan vests at the rate specified in the stock appreciation right agreement as determined by the plan administrator. The appreciation
distribution payable to a Participant upon the exercise of a stock appreciation right will not be greater than an amount equal to the
excess of the aggregate fair market value on the date of exercise of a number of shares of Class A Common Stock equal to the number of
Class A Common Stock equivalents that are vested and being exercised, over the strike price of such stock appreciation right Such appreciation
distribution may be paid in the form of Class A Common Stock or cash, any combination thereof, or in any other form of payment, as determined
by the plan administrator and specified in the stock appreciation grant agreement.
Performance
Awards. The equity incentive plan permits the grant of performance-based stock and cash awards.
The plan administrator may structure awards so that the shares of Class A Common Stock, cash, or other property will be issued or paid
only following the achievement of certain pre-established performance goals during a designated performance period. The performance
criteria that will be used to establish such performance goals may be based on any one of, or combination or, the following as determined
by the plan administrator: earnings (including earnings per share and net earnings); earnings before interest, taxes and depreciation;
earnings before interest, taxes, depreciation and amortization; total stockholder return; return on equity or average stockholder’s
equity; return on assets, investment, or capital employed; stock price; margin (including gross margin); income (before or after taxes);
operating income; operating income after taxes; pre-tax profit; operating cash flow; sales or revenue targets; increases in revenue
or product revenue; expenses and cost reduction goals; improvement in or attainment of working capital levels; economic value added (or
an equivalent metric); market share; cash flow; cash flow per share; share price performance; debt reduction; customer satisfaction;
stockholders’ equity; capital expenditures; debt levels; operating profit or net operating profit; workforce diversity; growth
of net income or operating income; billings; financing; regulatory milestones; stockholder liquidity; corporate governance and compliance;
intellectual property; personnel matters; progress of internal research; progress of partnered programs; partner satisfaction; budget
management; partner or collaborator achievements; internal controls, including those related to the Sarbanes-Oxley Act of 2002;
investor relations, analysts and communication; implementation or completion of projects or processes; employee retention; number of
users, including unique users; strategic partnerships or transactions (including in-licensing and out-licensing of intellectual
property); establishing relationships with respect to the marketing, distribution and sale of our products; supply chain achievements;
co-development, co-marketing, profit sharing, joint venture or other similar arrangements; individual performance goals; corporate development
and planning goals; and other measures of performance selected by the plan administrator whether or not listed in the equity incentive
plan.
The
performance goals may be based on a company-wide basis, with respect to one or more business units, divisions, affiliates, or business
segments, and in either absolute terms or relative to the performance of one or more comparable companies or the performance of one or
more relevant indices. Unless specified otherwise (i) in the award agreement at the time the award is granted or (ii) in such
other document setting forth the performance goals at the time the goals are established, the plan administrator will appropriately make
adjustments in the method of calculating the attainment of performance goals as follows: (1) to exclude restructuring and/or other
nonrecurring charges; (2) to exclude exchange rate effects; (3) to exclude the effects of changes to generally accepted accounting
principles; (4) to exclude the effects of any statutory adjustments to corporate tax rates; (5) to exclude the effects of items
that are “unusual” in nature or occur “infrequently” as determined under generally accepted accounting principles;
(6) to exclude the dilutive effects of acquisitions or joint ventures; (7) to assume that any business divested by us achieved
performance objectives at targeted levels during the balance of a performance period following such divestiture; (8) to exclude
the effect of any change in the outstanding shares of common stock by reason of any stock dividend or split, stock repurchase, reorganization,
recapitalization, merger, consolidation, spin-off, combination or exchange of shares or other similar corporate change, or any distributions
to stockholders other than regular cash dividends; (9) to exclude the effects of stock based compensation and the award of bonuses
under our bonus plans; (10) to exclude costs incurred in connection with potential acquisitions or divestitures that are required to
be expensed under generally accepted accounting principles; and (11) to exclude the goodwill and intangible asset impairment charges
that are required to be recorded under generally accepted accounting principles. In addition, the plan administrator may establish or
provide for other adjustment items in the award agreement at the time the award is granted or in such other document setting forth the
performance goals at the time the performance goals are established. In addition, the plan administrator retains the discretion to reduce
or eliminate the compensation or economic benefit due upon attainment of the performance goals. Partial achievement of the specified
criteria may result in the payment or vesting corresponding to the degree of achievement as specified in the applicable award agreement
or the written terms of a performance cash award. The performance goals may differ from participant to participant and from award to
award.
Other
Stock Awards. The plan administrator may grant other awards based in whole or in part by reference
to Class A Common Stock. The plan administrator will set the number of shares under the stock award and all other terms and conditions
of such awards.
Non-Employee Director
Compensation Limit. The aggregate value of all compensation granted or paid by us to any individual
for service as a non-employee director with respect to any period commencing on the date of our annual meeting of stockholders for
a particular year and ending on the day immediately prior to the date of our annual meeting of stockholders for the next subsequent year
(such period, the “annual period”), including awards granted under the equity incentive plan and cash fees paid by us to
such non-employee director, will not exceed $1,000,000 in total value. For purposes of this limitation, the value of any such stock
awards is calculated based on the grant date fair value of such stock awards for financial reporting purposes. This limitation will apply
commencing with the first annual period that begins on our first annual meeting of stockholders following the effective date of the equity
incentive plan.
Non-Exempt Employees. No
option or stock appreciation right, whether or not vested, granted to an employee who is a non-exempt employee for purposes of the
Fair Labor Standards Act of 1938, as amended, will be first exercisable for any shares of Class A Common Stock until at least six months
following the date of grant of such award. However, in accordance with the provisions of the Worker Economic Opportunity Act, any vested
portion of such award may be exercised earlier than six months following the date of grant of such Award in the event of such participant’s
death or disability, a corporate transaction, as defined in the equity incentive plan, in which such award is not assumed, continued
or substituted, a change in control, as defined in the equity incentive plan, or such participant’s retirement.
Changes
to Capital Structure. In the event there is a change in or other events that occur with respect to
the Class A Common Stock without receipt of consideration by us through merger, consolidation, reorganization, recapitalization, reincorporation,
stock dividend, dividend in property other than cash, large nonrecurring cash dividend, stock split, reverse stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate structure or any similar equity restructuring transaction, appropriate
and proportional adjustments will be made to (i) the class(es) and maximum number of shares of Class A Common Stock subject to the
equity incentive plan and the maximum number of shares by which the share reserve may annually increase; (ii) the class(es) and
maximum number of shares that may be issued pursuant to the exercise of ISOs; and (iii) the class(es) and number of securities and
exercise price, strike price or purchase price of Class A Common Stock subject to outstanding awards.
Corporate
Transactions. The following applies to awards under the equity incentive plan in the event of a corporate
transaction, as defined in the equity incentive plan, unless otherwise provided in a participant’s award agreement or other written
agreement with us or unless otherwise expressly provided by the plan administrator at the time of grant. In the event of a corporate
transaction, any awards outstanding under the equity incentive plan (or a portion thereof) may be assumed, continued or substituted by
any surviving or acquiring corporation (or its parent company), and any reacquisition or repurchase rights held by us with respect of
Class A Common Stock issued pursuant to the award may be assigned to the successor (or its parent company). If the surviving or acquiring
corporation (or its parent company) does not assume, continue or substitute such awards, then with respect to any such awards that are
held by participants whose continuous service has not terminated prior to the effective time of the corporate transaction (“current
participants”), the vesting (and exercisability, if applicable) of such awards will be accelerated in full to a date prior to the
effective time of the corporate transaction (contingent upon the effectiveness of the corporate transaction), and such awards will terminate
if not exercised (if applicable) at or prior to the effective time of the corporate transaction, and any reacquisition or repurchase
rights held by us with respect to such awards will lapse (contingent upon the effectiveness of the transaction). With respect to performance
awards that are not assumed and that will accelerate upon the occurrence of a corporate transaction and that have multiple vesting levels
depending on performance level, unless otherwise provided by an award agreement, the award will accelerate at 100% of target. If the
surviving or acquiring corporation (or its parent company) does not assume, continue or substitute such awards, then with respect to
any such awards that are held by persons other than current participants, such awards will terminate if not exercised (if applicable)
prior to the effective time of the corporate transaction, except that any reacquisition or repurchase rights held by us with respect
to such stock awards will not terminate and may continue to be exercised notwithstanding the corporate transaction. The plan administrator
is not obligated to treat all awards or portions of awards in the same manner and is not obligated to take the same actions with respect
to all participants. In the event an award will terminate if not exercised prior to the effective time of a corporate transaction, the
plan administrator may provide, in its sole discretion, that the holder of such award may not exercise such award but instead will receive
a payment equal in value, at the effective time, to the excess (if any) of the value of the property the participant would have received
upon the exercise of the award over any exercise price payable by such holder in connection with such exercise.
Plan
Termination. Our board of directors will have the authority to suspend or terminate the equity incentive
plan at any time. No awards may be granted under the equity incentive plan while it is suspended or after it is terminated.
Certain
U.S. Federal Income Tax Aspects of Awards Under the Equity Incentive Plan
This
is a brief summary of the federal income tax aspects of awards that may be made under the equity incentive plan based on existing U.S.
federal income tax laws. This summary provides only the basic tax rules. It does not describe a number of special tax rules, including
the alternative minimum tax and various elections that may be applicable under certain circumstances. It also does not reflect provisions
of the income tax laws of any municipality, state or foreign country in which a holder may reside, nor does it reflect the tax consequences
of a holder’s death. The tax consequences of awards under the equity incentive plan depend upon the type of award.
Incentive
Stock Options. The recipient of an ISO generally will not be taxed upon grant of the option. Federal
income taxes are generally imposed only when the shares of Class A Common Stock from exercised ISOs are disposed of, by sale or otherwise.
If the ISO recipient does not sell or dispose of the shares of Class A Common Stock until more than one year after the receipt of the
shares and two years after the option was granted, then, upon sale or disposition of the shares, the difference between the exercise
price and the market value of the shares of Class A Common Stock as of the date of exercise will be treated as a long-term capital
gain, and not ordinary income. If a recipient fails to hold the shares for the minimum required time the recipient will recognize ordinary
income in the year of disposition generally in an amount equal to any excess of the market value of the Class A Common Stock on the date
of exercise (or, if less, the amount realized or disposition of the shares) over the exercise price paid for the shares. Any further
gain (or loss) realized by the recipient generally will be taxed as short-term or long-term gain (or loss) depending on the
holding period. We will generally be entitled to a tax deduction at the same time and in the same amount as ordinary income is recognized
by the option recipient.
Nonstatutory
Stock Options. The recipient of an NSO generally will not be taxed upon the grant of the option. Federal
income taxes are generally due from a recipient of NSOs when the options are exercised. The excess of the fair market value of the Class
A Common Stock purchased on such date over the exercise price of the option is taxed as ordinary income. Thereafter, the tax basis for
the acquired shares is equal to the amount paid for the shares plus the amount of ordinary income recognized by the recipient. We will
generally be entitled to a tax deduction at the same time and in the same amount as ordinary income is recognized by the option recipient
by reason of the exercise of the option.
Other
Awards. Recipients who receive restricted stock unit awards will generally recognize ordinary income
when they receive shares upon settlement of the awards in an amount equal to the fair market value of the shares at that time. Recipients
who receive awards of restricted shares subject to a vesting requirement will generally recognize ordinary income at the time vesting
occurs in an amount equal to the fair market value of the shares at that time minus the amount, if any, paid for the shares. However,
a recipient who receives restricted shares which are not vested may, within 30 days of the date the shares are transferred, elect
in accordance with Section 83(b) of the Code to recognize ordinary compensation income at the time of transfer of the shares rather
than upon the vesting dates. If a restricted share award subject to the Section 83(b) election is subsequently canceled, no tax
deduction will be allowed for the amount previously recognized as income, and no tax previously paid will be refunded. Unless a participant
makes a Section 83(b) election, dividends paid to a participant on unvested restricted shares will be taxable to the participant
as ordinary income. If the participant made a Section 83(b) election, the dividends will be taxable to the participant as dividend
income. Recipients who receive stock appreciation rights will generally recognize ordinary income upon exercise in an amount equal to
the excess of the fair market value of the underlying shares of Class A Common Stock on the exercise date over the exercise price. We
will generally be entitled to a tax deduction at the same time and in the same amount as ordinary income is recognized by the recipient.
Unless a participant has made a Section 83(b) election, we will also be entitled to a tax deduction for dividends paid on unvested
restricted shares.
Employee
Stock Purchase Plan
In
August 2021 our board of directors adopted the AgileThought, Inc. 2021 Employee Stock Purchase Plan (the “Employee Stock Purchase
Plan”) and our stockholders approved the Employee Stock Purchase Plan in August 2021. The Employee Stock Purchase Plan became effective
immediately upon the Closing.
Purpose
of the Employee Stock Purchase Plan
The
purpose of the Employee Stock Purchase Plan is to provide eligible employees with an opportunity to increase their proprietary interest
in the success of the Company by purchasing Class A Common Stock from us on favorable terms and to pay for such purchases through
payroll deductions. We believe by providing eligible employees with an opportunity to increase their proprietary interest in the success
of the Company, the Employee Stock Purchase Plan will motivate recipients to offer their maximum effort to us and help focus them on
the creation of long-term value consistent with the interests of our stockholders.
Overview. The
Employee Stock Purchase Plan includes a component that is intended to qualify as an employee stock purchase plan under Section 423
of the Code (the “423 component”) and also authorizes the grant of purchase rights under a component that is not intended
to meet the requirements of Section 423 of the Code (the “non-423 component”).
Share
Reserve. The Employee Stock Purchase Plan authorizes the issuance of 1,056,643 shares of Class A Common Stock.
Such shares may be issued under purchase rights granted to our employees or to employees of any of our designated affiliates. The number
of shares of Class A Common Stock reserved for issuance will automatically increase on January 1 of each calendar year, from January 1,
2022 through January 1, 2031, by the lesser of (i) 1% of the total number of shares of our capital stock outstanding on December
31 of the preceding calendar year, and (ii) the number of shares equal to 200% of the initial share reserve unless prior to the
date of any such increase, our board of directors determines that such increase will be less than the amount set forth in clauses (i) and
(ii). If purchase rights granted under the Employee Stock Purchase Plan terminate without having been exercised, the shares of Class
A Common Stock not purchased under such purchase rights will again become available for issuance under the Employee Stock Purchase Plan.
The stock purchasable under the Employee Stock Purchase Plan will be shares of authorized but unissued or reacquired Class A Common Stock,
including shares repurchased by us on the open market.
Plan
Administration. Our board of directors will have the authority to administer the Employee Stock Purchase Plan
unless and until it delegates administration to a committee or committees thereof (as applicable, the “ESPP plan administrator”).
To the extent not prohibited by law, the ESPP plan administrator may also delegate some or all of its authority to one or more of our
officers or other persons or groups as it deems necessary, appropriate or advisable under conditions or limitations that it may set at
or after the time of the delegation. The ESPP plan administrator has the power to, among other things, determine how and when purchase
rights will be granted and the provisions of each offering (which need not be identical), construe and interpret the Employee Stock Purchase
Plan and purchase rights thereunder, establish, amend and revoke rules and regulations for the administration thereof, settle all controversies
in connection therewith, suspend or terminate the Employee Stock Purchase Plan at any time, amend the Employee Stock Purchase Plan at
any time, to generally exercise such powers and to perform such acts it deems necessary or expedient to promote the best interests of
us and to carry out the intent that the Employee Stock Purchase Plan be treated as an employee stock purchase plan with respect to the
423 Component, and to adopt such rules, procedures and sub-plans as are necessary or appropriate to permit or facilitate participation
in the Employee Stock Purchase Plan by employees who are foreign nationals or employed or located outside the United States.
Purchase
Rights; Offering. Generally, all regular employees, including officers and directors who are employed for
purposes of Code Section 423(b)(4), employed by us or by certain of our affiliates designated by the ESPP plan administrator as
“related corporations” under the Employee Stock Purchase Plan, will be eligible to participate in the Employee Stock Purchase
Plan and may purchase, normally through payroll deductions, Class A Common Stock under the Employee Stock Purchase Plan. Unless otherwise
determined by the ESPP plan administrator, Class A Common Stock will be purchased for the accounts of employees participating in the
Employee Stock Purchase Plan at a price per share equal to not less than the lesser of (i) 85% of the fair market value of a share of
Class A Common Stock on the first trading date of an offering or (ii) 85% of the fair market value of a share of Class A Common Stock
on the date of purchase.
The
Employee Stock Purchase Plan is implemented through a series of offerings under which eligible employees are granted purchase rights
to purchase shares of Class A Common Stock on specified dates during such offerings. Under the Employee Stock Purchase Plan, the ESPP
plan administrator may specify offerings with durations of not more than 27 months, and may specify shorter purchase periods within
each offering. Each offering will have one or more purchase dates on which shares of Class A Common Stock will be purchased for employees
participating in the offering. An offering under the Employee Stock Purchase Plan may be terminated under certain circumstances.
Limitations. Employees
may have to satisfy one or more of the following service requirements before participating in the Employee Stock Purchase Plan, as determined
by the ESPP plan administrator, including: (i) being customarily employed for more than 20 hours per week; (ii) being customarily
employed for more than five months per calendar year; or (iii) continuous employment for a period of time (not to exceed two years).
No employee may purchase shares under the 423 component of the Employee Stock Purchase Plan at a rate in excess of $25,000 worth of Class
A Common Stock based on the fair market value per share of Class A Common Stock at the beginning of an offering for each year such a
purchase right is outstanding. Finally, no employee will be eligible for the grant of any purchase rights under the 423 component of
the Employee Stock Purchase Plan if immediately after such rights are granted, such employee has voting power over 5% or more of our
capital stock measured by vote or value pursuant to Section 424(d) of the Code. The plan administrator may also exclude highly compensated
employees, within the meaning of Section 423(b)(4)(D) of the Code.
Changes
to Capital Structure. In the event that there is a change in or other events that occur with respect to the
Class A Common Stock without receipt of consideration by us through merger, consolidation, reorganization, recapitalization, reincorporation,
stock dividend, dividend in property other than cash, large nonrecurring cash dividend, stock split, liquidating dividend, combination
of shares, exchange of shares, change in corporate structure or other similar equity restructuring transactions, the ESPP plan administrator
will make appropriate and proportional adjustments to (i) the class(es) and maximum number of shares reserved under the Employee
Stock Purchase Plan, (ii) the class(es) and maximum number of shares by which the share reserve may increase automatically each
year, (iii) the class(es) and maximum number of shares and purchase price applicable to all outstanding offerings and purchase rights
and (iv) the class(es) and number of shares that are subject to purchase limits under ongoing offerings.
Corporate
Transactions. In the event of a corporate transaction, as defined in the Employee Stock Purchase Plan, any
then-outstanding rights to purchase shares under the Employee Stock Purchase Plan may be assumed, continued or substituted by any
surviving or acquiring entity (or its parent company). If the surviving or acquiring entity (or its parent company) elects not to assume,
continue or substitute such purchase rights, then the participants’ accumulated payroll contributions will be used to purchase
shares of Class A Common Stock within ten business days prior to such corporate transaction, and such purchase rights will terminate
immediately.
Employee
Stock Purchase Plan Amendment or Termination. Our board of directors have the authority to amend the Employee
Stock Purchase Plan. We must obtain stockholder approval of any amendment to the Employee Stock Purchase Plan to the extent required
by applicable law or listing rules. Our board of directors have the authority to suspend or terminate the Employee Stock Purchase Plan
at any time. No such amendment, suspension or termination of the Employee Stock Purchase Plan may materially impair any benefits, privileges,
entitlements and obligations under any outstanding purchase rights previously granted except with the consent of the participant, as
necessary to facilitate compliance with any laws, listing requirements, or governmental regulations, or as necessary to obtain or maintain
favorable tax, listing, or regulatory treatment.
Certain
Federal Income Tax Consequences of Participating in the Employee Stock Purchase Plan
The
following brief summary of the effect of U.S. federal income taxation upon the participant and us with respect to the shares purchased
under the Employee Stock Purchase Plan does not purport to be complete and does not discuss the tax consequences of a participant’s
death or the income tax laws of any state or non-U.S. jurisdiction in which the participant may reside.
The
423 component of the Employee Stock Purchase Plan, and the right of U.S. participants to make purchases thereunder, is intended to qualify
under the provisions of Sections 421 and 423 of the Code. Under these provisions, no income will be taxable to a participant until
the shares purchased under the Employee Stock Purchase Plan are sold or otherwise disposed of. Upon sale or other disposition of the
shares, the participant generally will be subject to tax in an amount that depends upon whether the sale occurs before or after expiration
of the holding periods described in the following sentence. If the shares are sold or otherwise disposed of more than two years from
the first day of the applicable offering and one year from the applicable date of purchase, the participant will recognize ordinary income
measured as the lesser of (1) the excess of the fair market value of the shares at the time of such sale or disposition over the
purchase price, or (2) the excess of the fair market value of a share on the offering date that the right was granted over the purchase
price for the right as determined on the offering date. Any additional gain will be treated as long-term capital gain. If the shares
are sold or otherwise disposed of before the expiration of either of these holding periods, the participant will recognize ordinary income
generally measured as the excess of the fair market value of the shares on the date the shares are purchased over the purchase price.
Any additional gain or loss on such sale or disposition will be long-term or short-term capital gain or loss, depending on
how long the shares have been held from the date of purchase. We generally will not entitled to a deduction for amounts taxed as ordinary
income or capital gain to a participant, except to the extent of ordinary income recognized by participants upon a sale or disposition
of shares prior to the expiration of the holding periods described above.
If
a purchase right is granted under the non-423 component of the Employee Stock Purchase Plan, then to the extent a participant is
subject to U.S. federal income tax, the participant will recognize ordinary income, in the year of purchase, in an amount equal to the
excess of the fair market value of the shares on the purchase date over the purchase price. The amount of such ordinary income will be
added to the participant’s basis in the shares, and any additional gain or resulting loss recognized on the disposition of the
shares, after such basis adjustment, will be a capital gain or loss. A capital gain or loss will be long-term if the participant
holds the shares for more than one year after the purchase date. We may be entitled to a deduction in the year of purchase equal to the
amount of ordinary income realized by the participant.
Director
Compensation
The
following table sets forth in summary form information concerning the compensation that Legacy AT paid or awarded during the year ended
December 31, 2021 to each of its directors who served on the Legacy AT board of directors during 2021 in addition to compensation that
the Company paid or awarded following the Business Combination.
Name | |
Fees
Earned ($) | | |
Stock
Awards ($)(1) | | |
Non-equity
incentive plan compensation ($) | | |
Total ($) | |
Diego Zavala(2) | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | |
Alexander R. Rossi | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | |
Alejandro Rojas Domene | |
$ | 66,250 | | |
$ | — | | |
$ | — | | |
$ | 66,250 | |
Mauricio Jorge Rioseco Orihuela | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | |
Arturo José Saval Pérez | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | |
Roberto Langenauer | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | |
Andrés Borrego y Marrón | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | |
Gerardo Benítez Peláez | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | |
Mauricio Garduño (3) | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | |
Marina Diaz Ibarra | |
$ | — | | |
$ | — | | |
$ | — | | |
$ | — | |
Michael Monahan (4) | |
$ | 45,000 | | |
$ | 57,570 | | |
$ | — | | |
$ | 102,570 | |
Lewis Wirshba(5) | |
$ | 47,500 | | |
| 57,570 | | |
| | | |
| 105,070 | |
(1) | Amounts
reflect the grant date fair value of restricted stock units granted in 2021, in accordance
with ASC 718. For information regarding assumptions underlying the value of equity awards,
for information regarding assumptions underlying the value of equity awards, see Note 18
to the financial statements included in our Annual Report on Form 10-K. |
(2) | Mr.
Zavala is an executive officer of the Company who does not receive any additional compensation
for services provided as a director. |
(3) | Mr.
Garduño is an executive officer of the Company who does not receive any additional
compensation for services provided as a director. |
(4) | Mr.
Monahan resigned from the board of directors of Legacy AT in April 2021. |
(5) | Mr.
Wirshba resigned from the board of directors of Legacy AT in April 2021. |
Prior
to their resignations, Mr. Monahan and Mr. Wirshba entered into a letter agreement with Legacy AT in 2019. Mr. Rojas entered into a letter
agreement with Legacy AT in March 2020. Pursuant to such letter agreements, each of Mr. Monahan, Mr. Wirshba and Mr. Rojas received a
cash retainer for 2021 in the amount of $45,000, $47,500, and $66,250 respectively. In connection with the business combination, and
after their resignation, Mr. Monahan and Mr. Wirshba, received 5,757 Class A shares.
On
January 27, 2022, the Company issued RSUs to certain directors covering up to 68,000 RSUs subject to time-based vesting and performance
vesting requirements. Ms. Diaz Ibarra and Mr. Rojas received 18,000 and 50,000 RSUs respectively. The RSUs convert to shares of Class
A Common Stock on a one-for-one basis. The awards issued to Ms. Diaz Ibarra vested immediately. Of the awards issued to Mr. Rojas, 16,667
shares of Class A Common Stock vested immediately upon granting. The remaining RSUs will vest in two equal installments beginning November
10, 2022.
Certain
Relationships and Related Party Transactions
Other
than compensation arrangements for our directors and executive officers, which are described elsewhere in this prospectus, below is a
description of transactions since January 1, 2019 to which we, LIVK or Legacy AT were a party or will be a party, in which:
| ● | The
amounts involved exceeded or will exceed $120,000; and |
| ● | Any
of our directors, executive officers or holders of more than 5% of our outstanding voting
securities, or any member of the immediate family of, or person sharing the household with,
the foregoing persons, had or will have a direct or indirect material interest. |
New
Second Lien Facility
We
entered into a new Second Lien Facility (the “New Second Lien Facility”) on November 22, 2021, which was funded on November
29, 2021 with GLAS USA LLC, as administrative agent, GLAS AMERICAS LLC, as collateral agent, and entities affiliated with the CS Investors
and Nexxus Capital, Manuel Senderos, our Chief Executive Officer and Chairman of the Board of Directors and Kevin Johnston, our Chief
Revenue Officer and Global Chief Operating Officer (the “New Second Lien Lenders”). The New Second Lien Facility will be
secured by a second lien on substantially all of our assets and will provide for a term loan facility in an initial aggregate principal
amount of approximately $20.3 million, accruing interest at a rate per annum equal to approximately 11%.
Each
New Second Lien Lender under the New 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 or after December 15, 2022 or earlier, upon our request, at a conversion price equal
to the closing price of one share of our Class A Common Stock on the trading day immediately prior to the conversion date. Unless we
receive shareholder approval pursuant to applicable Nasdaq rules, the amounts outstanding under the New Second Lien Facility will only
convert into up to 2,098,545 shares of our Class A Common Stock (approximately 5% of our currently outstanding shares) and will only
convert at a price per share equal to the greater of $10.19 or then-current market value.
The
proceeds from the New Second Lien Facility were used to pay the $20 million principal prepayment under the Amended and Restated Credit
Agreement by and among IT Global Holding LLC, 4th Source LLC, AgileThought, LLC, AN Extend, S.A. de C.V., AN Evolution S. de R.L. de
C.V., AN Global LLC, AgileThought, Inc., the financial institutions party thereto as lenders, and Monroe Capital Management Advisors,
LLC, as Administrative Agent (the “First Lien Facility”), with the remainder to be used for general corporate purposes.
The
New Second Lien Facility has an original maturity date of March 15, 2023. If the First Lien Facility remains outstanding on December
15, 2022, the maturity date of the New Second Lien Facility will be extended to May 10, 2024.
On
December 30, 2021, the Company entered into a registration rights agreement (the “New Second Lien Registration Rights Agreement”)
with the lenders under the New Second Lien Facility. The New Second Lien Registration Rights Agreement covers shares of Class A Common
Stock currently held by the New Second Lien Lenders and shares issuable upon conversion of the loans under the New Second Lien Facility.
As
a result, at the expiration of the lock-up agreements applicable to such lenders, the New Second Lien Lenders will be able to make a
written demand for registration under the Securities Act of all or a portion of their registrable securities, subject to a maximum of
three such demand registrations, as long as such demand includes a number of registrable securities with a total offering price in excess
of $10.0 million. Any such demand may be in the form of an underwritten offering and will be subject to customary restrictions and conditions
as contemplated in the New Second Lien Registration Rights Agreement. In addition, the New Second Lien Lenders will have “piggy-back”
registration rights to include their registrable securities in other registration statements filed by the Company subsequent to the expiration
of the lock-up agreements applicable to such lenders. The Company also agreed to file a resale shelf registration statement covering
the resale of all registrable securities upon the expiration of the lock-up agreements applicable to such lenders.
In
addition, Mr. 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 a lender to obtain a loan in the amount of $4.5 million used by him to provide the Company with his portion of the
New Second Lien Facility.
On
December 27, 2022, Mr. Senderos and Mr. Johnston exercised the conversion options for their respective loan amounts of $4.5 million and
$0.2 million respectively.
Voting
and Support Agreements
Concurrently
with the execution of the Merger Agreement, certain Legacy AT equity holders entered into voting and support agreements in favor of LIVK
and Legacy AT and their respective successors. In the voting and support agreements, the Legacy AT support agreement equity holders (the
“Legacy AT support agreement equity holders”) agreed to vote all of their Legacy AT equity interests in favor of the Merger
Agreement, the Business Combination and related transactions and to take certain other actions in support of the Merger Agreement, the
Business Combination and related transactions. The voting and support agreements also prevent the Legacy AT support agreement equity
holders from transferring their voting rights with respect to their Legacy AT equity interests or otherwise transferring their Legacy
AT equity interests prior to the closing, except for certain permitted transfers. The Legacy AT support agreement equity holders also
each agreed, with certain exceptions, to a lock-up for a period ending on the earlier of (a) the date that is 180 days from the closing
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 of our securities that
they receive as merger consideration under the Merger Agreement. In connection with the amendment of the First Lien Facility on November
15, 2021, certain Legacy AT equity holders agreed to extend their lock-up period to end on the earlier of (a) the date the Company pays
the First Lien Facility in full and (b) the first day on or after June 30, 2022 on which the Total Leverage Ratio (as defined in the
First Lien Facility) is less than 2.00 to 1 or, with respect to certain Legacy AT equity holders, 3.00 to 1.
Sponsor
Letter Agreement
Concurrently
with the execution of the Merger Agreement, LIV Capital Acquisition Sponsor, L.P. (the “sponsor”), its permitted transferees
and the insiders entered into the sponsor letter agreement with LIVK and Legacy AT pursuant to which they agreed to vote all of their
respective Class B ordinary shares of LIVK in favor of the Business Combination and related transactions and to take certain other
actions in support of the Merger Agreement, the Business Combination and related transactions. Sponsor and the insiders also agreed that,
in the event that the amount of available cash was less than $50,000,000 at the closing the business combination, then up to 20% of the
sponsor shares would be deemed to be “deferred sponsor shares.” The sponsor, its permitted transferees and the insiders also
agreed that each of them would not transfer and, subject to the failure to achieve certain milestones, may be required to forfeit, any
such deferred sponsor shares, subject to the terms of the sponsor letter agreement. The sponsor also waived certain anti-dilution protection
to which it would otherwise be entitled in connection with the PIPE subscription financing.
The
sponsor and each of the insiders also agreed, with certain exceptions, to a lock-up for a period ending on the earlier of (a) the
date that is 180 days from the closing 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 will hold as of immediately following the closing. Permitted
transferees of the sponsor are also subject to the lock-up period.
The
sponsor letter agreement also provides that, for so long as 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, sponsor will be entitled to nominate one director designee to serve on our board of directors. No separate consideration
was provided to the sponsor or the insiders in exchange for their execution of the sponsor letter agreement.
Amended
and Restated Registration Rights Agreement
On
the Closing Date, the sponsor and certain other holders of Class A Common Stock entered into an amended and restated registration rights
agreement with the Company. As a result, the sponsor and such holders of Class A Common Stock are able to make a written demand for registration
under the Securities Act of 1933, as amended (the “Securities Act”), of all or a portion of their registrable securities,
subject to a maximum of two such demand registrations for the sponsor and five such demand registrations for such holders of Class A
Common Stock party thereto, in each case so long as such demand includes a number of registrable securities with a total offering price
in excess of $10.0 million. Any such demand may be in the form of an underwritten offering and will be subject to customary restrictions
and conditions as contemplated in the amended and restated registration rights agreement. In addition, the holders of registrable securities
will have “piggy-back” registration rights to include their securities in other registration statements filed by us subsequent
to the consummation of the Business Combination. On September 14, 2021, we filed a resale shelf registration statement covering the resale
of all registrable securities, which was declared effective on September 27, 2021.
PIPE
Subscription Agreements
In
connection with the Business Combination, we entered into subscription agreements with certain subscription investors pursuant to which
we have agreed to issue and sell to the subscription investors, in the aggregate, $27,600,000 or 2,760,000 shares of Class A
Common Stock at a purchase price of $10.00 per share. The sale of PIPE Shares was consummated immediately prior to the closing of the
Business Combination.
Pursuant
to the subscription agreements with the subscription investors, we agreed that we will use our reasonable best efforts to:
| ● | file
within 30 calendar days after the closing of the Business Combination a resale shelf registration
statement with the SEC covering the resale of all shares of the Class A Common Stock
issued pursuant to the subscription agreements; and |
| ● | maintain
the effectiveness of such registration statement until the earliest of (A) the fourth
anniversary of the closing of the Business Combination, (B) the date on which the subscription
investors cease to hold any shares of Class A Common Stock issued pursuant to the subscription
agreements, or (C) on the first date on which the subscription investors can sell all
of their shares issued pursuant to the subscription agreements (or shares received in exchange
therefor) under Rule 144 of the Securities Act within 90 days without
limitation as to the manner of sale or amount of such securities that may be sold. We will
bear the cost of registering these securities. |
On
September 14, 2021, we filed this resale shelf registration statement covering the resale of all PIPE Shares, which was originally declared
effective on September 27, 2021.
Indemnification
Agreements
We
are party to an indemnification agreements with each of our directors and officers. These agreements will require us to indemnify these
individuals to the fullest extent permitted under the Delaware General Corporation Law, as amended, against liabilities that may arise
by reason of their service to us, and to advance expenses incurred as a result of any proceeding against them as to which they could
be indemnified.
LIVK
Related Party Transactions and Agreements
In
October 2019, the sponsor purchased 1,725,000 founder shares for an aggregate purchase price of $25,000, or approximately $0.0145 per
share. On December 10, 2019, LIVK effected a share dividend resulting in there being an aggregate of 2,012,500 founders shares outstanding.
The
sponsor purchased 2,811,250 private warrants for a purchase price of $1.00 per warrant in a private placement simultaneously with the
closing of LIVK’s initial public offering. Each private warrant may be exercised for one share of Class A Common Stock at a price
of $11.50 per share, subject to adjustment as provided herein. The private warrants (including the shares of Class A Common Stock issuable
upon exercise of the private warrants) may not, subject to certain limited exceptions, be transferred, assigned or sold by it until 30
days after the completion of the Business Combination.
LIVK
entered into an Administrative Services Agreement pursuant to which LIVK paid the sponsor up to $10,000 per month for office space, administrative
and support services. Upon completion of the Business Combination, LIVK ceased paying any of these monthly fees. As of December 31, 2021,
the sponsor had been paid an aggregate of $0.3 million for office space, administrative and support services and was entitled to be reimbursed
for any out-of-pocket expenses.
The
sponsor, LIVK’s officers and directors, or any of their respective affiliates, were reimbursed for any out-of-pocket expenses incurred
in connection with activities on LIVK’s behalf, such as identifying potential target businesses and performing due diligence on
suitable business combinations. As of December 31, 2021, the sponsor, and its respective affiliates had been paid an aggregate of $0.9
million.
The
sponsor agreed to loan LIVK up to $150,000 under an unsecured promissory note to be used to pay for a portion of the expenses of our
initial public offering. The outstanding amounts under this promissory note with the sponsor were repaid.
The
sponsor committed to providing LIVK with an aggregate of $650,000 in loans. The loans were to be non-interest bearing, unsecured and
due upon the consummation of the Business Combination.
Legacy
AT Related Party Transactions
Transactions
with Principal Stockholders
Agreements
with Nexxus Funds and CS Investors
The
Nexxus Funds, and CS Investors are each principal stockholders of Legacy AT.
Second
Lien Facility
On
January 30, 2020, Legacy AT entered into the Second Lien Facility, with GLAS USA LLC, as administrative agent, GLAS AMERICAS LLC, as
collateral agent, and certain entities affiliated with the CS Investors and Nexxus Capital, or the Second Lien Lenders. The Second Lien
Facility was secured by a second lien on substantially all of Legacy AT’s assets and provided for a term loan facility in an initial
aggregate principal amount of approximately $29 million, consisting of two $12.5 million tranches, or the tranche A term loans and the
tranche B term loans, respectively, and two approximately $2 million tranches, or the tranche A-2 term loans and the tranche B-2 term
loans, respectively. The Second Lien Facility had an original maturity date in July 2024. The outstanding borrowings under the Second
Lien Facility as of August 15, 2021 were $38.1 million. In connection with the Business Combination, the outstanding obligations under
the Second Lien Facility of $38.1 million were converted into 115,923 common shares of Legacy AT stock. Upon the effective time of the
Business Combination, such shares of Legacy AT common stock were converted into the right to receive Class A Common Stock.
Interest
on the loans under the Second Lien Facility accrued at a fixed rate per annum equal to 13.73%. Interest on the tranche A term loans and
the tranche A-2 term loans was payable semi-annually in arrears by capitalizing such interest and adding such capitalized interest to
the outstanding principal amount of the tranche A term loans and the tranche A-2 term loans; provided that so long as Legacy AT’s
consolidated total leverage ratio was less than or equal to 2.50:1.00, each tranche A term loan Second Lien Lender and tranche A-2 term
loan Second Lien Lender had the right to require all or a portion of such interest to be paid in cash. Interest on the tranche B term
loan and the tranche B-2 term loans was payable at maturity date or on demand at any time an event of default existed under the Second
Lien Facility.
Legacy
AT was required to make mandatory prepayments of loans under the Second Lien Facility (without payment of a premium) with (i) net cash
proceeds from certain non-ordinary course asset sales, (ii) casualty proceeds and condemnation awards (subject to reinvestment rights
and other exceptions) and (iii) net cash proceeds from issuances of equity (subject to reinvestment rights and other exceptions, including
with respect to net cash proceeds in connection with an initial public offering).
Legacy
AT was allowed prepay the loans under the Second Lien Facility in whole (but not in part) at any time after the second anniversary of
the closing date of the Second Lien Facility subject to certain conditions, including the compensation of Second Lien Lenders for the
lost value of their conversion rights.
The
Second Lien Facility contained customary representations and warranties, customary events of default and customary affirmative and negative
covenants, including, among other things, restrictions on indebtedness, liens, investments, mergers, dispositions, prepayment of other
indebtedness and dividends and other distributions. The Second Lien Facility also contained financial covenants requiring that Legacy
AT not exceed a maximum consolidated total leverage ratio, that Legacy AT maintain a minimum consolidated fixed charge coverage ratio
and that Legacy AT not exceed a limit on capital expenditures per fiscal year.
Each
Second Lien Lender under the Second Lien Facility had the right to convert all, but not less than all, of its outstanding loans into
Legacy AT’s Class A common stock under certain circumstances, including in connection with an initial public offering. Following
the consummation of an initial public offering, the Second Lien Facility provided that the Lenders’ conversion rights would terminate.
On
February 2, 2021, Legacy AT entered into a waiver and second amendment to the Second Lien Facility, or the Second Amendment. The Second
Amendment, among other things, (i) amended certain mandatory prepayment provisions, (ii) amended certain covenants and events of default
and (iii) provided for the Second Lien Lenders’ consent to the Business Combination and the other transactions contemplated thereto,
subject to certain conditions set forth therein.
On
April 30, 2021, Legacy AT entered into a third amendment to the Second Lien Facility, or the Third Amendment. The Third Amendment, among
other things, (i) amended certain covenants and (ii) amended certain conditions to the Second Lien Lenders’ consent to the Business
Combination and the other transactions contemplated thereto.
Conversion
Agreement
Concurrently
with the execution of the Merger Agreement, Legacy AT 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 the Second Lien Facility, as amended, were converted
into an aggregate of 115,923 shares of common stock of Legacy AT immediately prior to the Business Combination. Subsequently, at the
effective time of the Business Combination, such shares of common stock of Legacy AT were automatically converted into the right to receive
the applicable portion of the common merger consideration (as defined in the conversion agreement) and each Second Lien Lender received
their proportionate interest of the common merger consideration as a holder of Legacy AT common stock.
Services
Agreement with Nexxus Capital
On
March 1, 2017, Legacy AT entered into a services agreement, or the Nexxus services agreement, with EXTEND SOLUTIONS, S.A. de C.V. and
IMPULSORA GESTION 3, S.C, an entity affiliated with Nexxus Capital, or the Nexxus affiliate, pursuant to which Legacy AT agreed to deliver
Microsoft 365 platform subscription and cloud hosting services to the Nexxus affiliate, with an average monthly value of approximately
$30,000. The Nexxus services agreement has no termination date. During the years ended December 31, 2021, 2020 and 2019, AgileThought
received an aggregate of $28,828, $31,231 and $36,641, respectively, based on the exchange rate in effect on the last business day of
the applicable fiscal year, pursuant to the Nexxus services agreement.
Services
Agreements with Banco Credit Suisse Mexico S.A.
In
2018, 2019 and on February 15, 2020, Legacy AT entered into services agreements, or the CS services agreements, with BANCO CREDIT
SUISSE MEXICO S.A. and AN DATA INTELIGENCE, S.A. DE C.V., an entity affiliated with Banco Credit Suisse Mexico S.A., or the Banco
CS affiliate, pursuant to which Legacy AT agreed to deliver maintenance support for Qlik Licensing to the Banco CS affiliate, with an
average monthly value of approximately $22,000. The CS services agreements are renewable on an annual basis. During the years ended
December 31, 2020 and 2019, Legacy AT received an aggregate of $36,426 and $35,885, respectively, based on the exchange rate in
effect on the last business day of each applicable fiscal year, pursuant to the CS services agreement.
Transactions
with Executive Officers and Directors
Lease
Agreement with NASOFT Systems, S.A. de C.V.
Legacy
AT leases one of its offices in Mexico City pursuant to a lease agreement dated January 1, 2016 between NASOFT Systems, S.A. de C.V.
and North American Software, S.A.P.I. de C.V., one of Legacy AT’s wholly owned Mexican subsidiaries. One of the members of Legacy
AT’s board of directors, Alejandro Rojas Domene, owns a 33.33% equity stake in NASOFT Systems, S.A. de C.V. During the years ended
December 31, 2021, 2020 and 2019 pursuant to this lease agreement, AgileThought paid NASOFT Systems, S.A. de C.V. $88,966, $265,408 and
$281,091, respectively, based on the exchange rate in effect on the last business day of the applicable fiscal year.
Loan
Agreements with Invertis, S.A. de C.V.
In
June 2016, January, May, July, August 2019 and April 2020, Legacy AT entered into payable loan agreements with Invertis, pursuant to
which Invertis made certain loans to Legacy AT in the principal amounts of up to 1,636,600 Mexican pesos, 7,635,625 Mexican pesos, 2,590,000
Mexican pesos, 5,100,000 Mexican pesos, 4,627,120 Mexican pesos and 30,000 Mexican pesos (approximately $85,067, based on an exchange
rate of $1.00 equals 19.2390 Mexican pesos, the exchange rate on December 31, 2018, $396,512, $134,497, $264,839, and $239,971 based
on an exchange rate of $1.00 equals 19.2570 Mexican pesos, the exchange rate on December 31, 2019), out of which 1,103,759 Mexican pesos
(approximately $51,338, based on an exchange rate of $1.00 equals 21.5000 Mexican pesos, the exchange rate on December 31, 2020) in the
aggregate was outstanding as of December 31, 2020. Each of the loans also bore an annual ordinary interest on outstanding balances equal
to 8.10%, 15.95%, and 17.759% respectively. The loan agreement was subject to the laws of Mexico City. Prior to the consummation of the
Business Combination, the loan was repaid in its entirety, and the loan agreement was terminated.
Loan
Agreement with Manuel Senderos Fernández
On
July 19, 2016, Legacy AT entered into a loan agreement with Mr. Senderos in the principal amount of up to 500,000 Mexican pesos (approximately
$23,256, based on an exchange rate of $1.00 equals 21.5000 Mexican pesos, the exchange rate on December 31, 2020), of which the entire
amount was outstanding as of December 31, 2020. The loan agreement was subject to the laws of Mexico City. Prior the consummation of
the Business Combination, Mr. Senderos repaid this loan in its entirety, and the loan agreement was terminated.
Loan
Agreements with Mauricio Garduño
In
July, 2014, January 2016, March 2016, August 2016, November 2016, December 2016, January 2017, February 2017, March 2017, April 2017,
June 2017, July 2017, August 2017, May 2019, June 2019, July 2019, August 2019, September 2019 and January 2020, Legacy AT entered
into several loan agreements with Mr. Garduño, Legacy AT’s and our VP of Business Development and a member of Legacy AT’s
and our board of directors in the aggregate principal amount of up to 17,193,039 Mexican pesos (approximately $799,676 based on an exchange
rate of $1.00 equals 21.5000 Mexican pesos, the exchange rate on December 31, 2020), out of which 17,193,039 Mexican pesos (approximately
$799,676, based on an exchange rate of $1.00 equals 21.5000 Mexican pesos, the exchange rate on December 31, 2020) was outstanding as
of December 31, 2020. No principal and no interest was paid on the loans as of December 31, 2020. Each of the loans also bore an annual
ordinary interest on outstanding balances ranging from 6.796% to 17.759%. The loan agreement was subject to the laws of Mexico City.
Prior the consummation of the Business Combination, Mr. Garduño repaid this loan in its entirety, and the loan agreement was terminated.
Professional
Services Agreement with Diego Zavala
On
January 5, 2018, Legacy AT entered into a Professional Services Agreement between North American Software S.A.P.I. de C.V., one of Legacy
AT’s Mexican wholly owned subsidiaries, and Telte Holdings, S.A. de C.V., a Mexican corporation wholly owned by Mr. Zavala. Mr.
Zavala is Legacy AT’s and our Vice President of Mergers and Acquisitions and one of Legacy AT’s and our principal stockholders.
Pursuant to this Professional Services Agreement, Legacy AT compensated Mr. Zavala for his consulting and advisory services to Legacy
AT’s company. During the years ended December 31, 2021, 2020 and 2019 Legacy AT paid Telte Holdings, S.A. de C.V. an aggregate
of $137,067 (including VAT) for services rendered between January-May 2021, $374,191 (including VAT) and $588,323 (including VAT), respectively,
based on the exchange rate in effect on the last business day of the applicable fiscal year. Legacy AT also paid $25,000 to AGS Group
LLC for the services rendered by Mr. Zavala during the month of June 2021, and paid $175,000 for the services rendered from July-December
2021.
Loan
Agreement with AGS Group LLC
On
June 24, 2021, Legacy AT entered into a promissory note with AGS Group LLC, or AGS, an entity over which Mr. Zavala maintains sole voting
and investment control. Mr. Zavala is Legacy AT’s and our Vice President of Mergers and Acquisitions and one of Legacy AT’s
and our principal stockholders. Pursuant to the promissory note, Legacy AT borrowed $673,000, the outstanding principal of which will
be due on December 20, 2021 (the “Original Maturity Date”) but was extended to, May 19, 2022 (the “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.
Subordinated
Debt with Exitus Capital
On
July 26, 2021, AgileThought Digital Solutions S.A.P.I. de C.V., a wholly owned subsidiary of AT, entered into a credit facility with
Exitus Capital S.A.P.I. de C.V., SOFOM E.N.R. (the “Exitus Facility”), pursuant to which it borrowed $3.7 million. There
are no regular interest payments on the debt, however in the event of a payment default, interest will accrue on the overdue balance
at a rate equal to 36.0% per annum until such balance is paid. The principal balance of the loan is payable at maturity, which is six
months from the date of execution, or January 26, 2022 with an option to extend up to two additional six month terms. On January 25,
2022 Legacy AT exercised the option to extend the loan an additional six months to July 26, 2022. The Exitus Facility is secured by a
pledge of certain real property by Mr. Zavala, Legacy AT’s and our Vice President of Mergers and Acquisitions and one of Legacy
AT’s and our principal stockholders.
Shareholders
Agreement
On
December 15, 2017, Legacy AT entered into a shareholders agreement which was subsequently amended and restated on February 15, 2019 and
amended on March 19, 2021. All of the current holders of Legacy AT’s Class A common stock and Class B common stock and
preferred stock are party to this shareholders agreement. The shareholders agreement, among other things:
| ● | grants
rights to Legacy AT’s major shareholders to appoint members of Legacy AT’s board
of directors and provides for specified board observer rights; |
| ● | grants
rights to Legacy AT’s major shareholders with respect to the appointment and removal
of certain executive officers and the appointment of Legacy AT’s auditors; |
| ● | sets
forth the board and shareholder approvals required for Legacy AT to engage in specified transactions; |
| ● | provides
limited anti-dilution rights to two of Legacy AT’s large shareholders; |
| ● | grants
preemptive rights to Legacy AT’s shareholders, subject to specified conditions; |
| ● | provides
for restrictions on the transfer of shares and rights of first refusal and tag-along rights
with respect to any permitted transfers of shares by Legacy AT’s shareholders; |
| ● | grants
Legacy AT’s major shareholders specified rights with respect to the initiation and
conduct of a public offering of Legacy AT’s shares and change of control transactions;
and |
| ● | obligates
Legacy AT to deliver periodic financial statements and reports to Legacy AT’s shareholders. |
The
shareholders agreement automatically terminated upon the completion of the Business Combination.
Equity
Contribution Agreement
On
February 2, 2021, Legacy AT entered into the equity contribution agreement with LIV Fund IV, pursuant to which such funds purchased,
on March 19, 2021, 2,000,000 shares of preferred stock of Legacy AT for $10.00 per share, for an aggregate purchase price of $20,000,000
would be converted to shares of Class A Common Stock on a one-for-one basis in connection with the Business Combination. The proceeds
from the purchase were used to partially repay the First Lien Facility. In connection with the consummation of the Business Combination
and pursuant to the terms of the Merger Agreement, the Legacy AT preferred stock ceased to be outstanding and LIV Fund IV received 2,000,000
shares of Class A Common Stock.
Policies
and Procedures for Related Party Transactions
Prior
to the completion of the Business Combination, Legacy AT did not have a formal policy regarding approval of transactions with related
parties. Effective as of the completion of the Business Combination, our board of directors adopted a written related person transaction
policy that sets forth our procedures for the identification, review, consideration and approval or ratification of related person transactions.
For purposes of our policy only, a related person transaction is a transaction, arrangement or relationship, or any series of similar
transactions, arrangements or relationships, in which we and any related person are, were or will be participants and in which the amount
involved exceeds $120,000. Transactions involving compensation for services provided to us as an employee or director are not covered
by this policy. A related person is any executive officer, director or beneficial owner of more than 5% of any class of our voting securities,
including any of their immediate family members and any entity owned or controlled by such persons.
Under
the policy, if a transaction has been identified as a related person transaction, including any transaction that was not a related person
transaction when originally consummated or any transaction that was not initially identified as a related person transaction prior to
consummation, our management must present information regarding the related person transaction to our Audit Committee, or, if Audit Committee
approval would be inappropriate, to another independent body of our board of directors, for review, consideration and approval or ratification.
The presentation must include a description of, among other things, the material facts, the interests, direct and indirect, of the related
persons, the benefits to us of the transaction and whether the transaction is on terms that are comparable to the terms available to
or from, as the case may be, an unrelated third party or to or from employees generally. Under the policy, we will collect information
that it deems reasonably necessary from each director, executive officer and, to the extent feasible, significant stockholder to enable
us to identify any existing or potential related person transactions and to effectuate the terms of the policy.
In
addition, under our Code of Conduct, which we adopted effective upon the completion of the Business Combination, our employees and directors
have an affirmative responsibility to disclose any transaction or relationship that reasonably could be expected to give rise to a conflict
of interest.
In
considering related person transactions, our Audit Committee, or other independent body of our board of directors, will take into account
the relevant available facts and circumstances including, but not limited to:
| ● | the
risks, costs and benefits to us; |
| ● | the
impact on a director’s independence in the event that the related person is a director,
immediate family member of a director or an entity with which a director is affiliated; |
| ● | the
availability of other sources for comparable services or products; and |
| ● | the
terms available to or from, as the case may be, unrelated third parties or to or from employees
generally. |
The
policy requires that, in determining whether to approve, ratify or reject a related person transaction, our Audit Committee, or other
independent body of our board of directors, must consider, in light of known circumstances, whether the transaction is in, or is not
inconsistent with, our best interests and those of our stockholders, as our Audit Committee, or other independent body of our board of
directors, determines in the good faith exercise of its discretion.
All
of the transactions described above that were entered into after the adoption of the written policy were approved in accordance with
the policy.
Principal
Stockholders
The
following table sets forth information known to the Company regarding the actual beneficial ownership of the Company’s Class A
Common Stock as of March 31, 2022, by:
| ● | each
person known by the Company to be the beneficial owner of more than 5% of the Company’s
outstanding shares of Class A Common Stock; |
| ● | each
of the Company’s named executive officers and directors; and |
| ● | all
executive officers and directors of the Company as a group. |
The
number of shares beneficially owned by each stockholder is determined under rules of the SEC and includes voting or investment power
with respect to securities. Under these rules, beneficial ownership includes any shares as to which the individual or entity has sole
or shared voting power or investment power. In computing the number of shares beneficially owned by an individual or entity and the percentage
ownership of that person, shares of Class A Common Stock subject to options, warrants or other rights held by such person that are currently
exercisable or will become exercisable within 60 days are considered outstanding, although these shares are not considered outstanding
for purposes of computing the percentage ownership of any other person.
The
numbers of shares of our Class A Common Stock beneficially owned and percentages of beneficial ownership of our outstanding Class A Common
Stock that are set forth below are based on 50,473,423 shares of Class A Common Stock issued and outstanding as of March 31, 2022. The
following table does not take into account the issuance of:
| ● | 10,861,250
shares of Class A Common Stock issuable upon exercise of the outstanding warrants outstanding
as of March 31, 2022, at an exercise price of $11.50 per share; |
| ● | 1,457,422
shares of Class A Common Stock issuable upon the exercise of the First Lien Warrants, based
on the average closing price for the 20 consecutive trading days preceding March 31, 2022
of $4.80 of our Class A Common Stock as reported on Nasdaq; or |
| ● | up
to 1,516,247 shares of Class A Common Stock issuable upon the conversion of the New Second
Lien Facility based on a conversion price of $10.19 per share of our Class A Common Stock. |
In
addition, the following table assumes no exercise of outstanding warrants or settlement of unvested restricted stock units referred to
above.
Name of Beneficial Owner(1) | |
Owned | | |
Number of Shares of Class A Common Stock Beneficially % of Ownership | |
Directors and Named Executive Officers | |
| | |
| |
Alexander R. Rossi(2) Director | |
| 582,818 | | |
| 1.0 | % |
Alejandro Rojas Domene Director | |
| 143,346 | | |
| * | |
Mauricio Jorge Rioseco Orihuela Director | |
| 1,077,703 | | |
| 2.1 | % |
Arturo José Saval Pérez(5) Director | |
| 10,012,377 | | |
| 19.8 | % |
Roberto Langenauer(5) Director | |
| 10,012,377 | | |
| 19.8 | % |
Andrés Borrego y Marrón Director | |
| — | | |
| — | |
Gerardo Benítez Peláez Director | |
| — | | |
| — | |
Marina Diaz Ibarra Director | |
| 18,000 | | |
| * | |
Manuel Senderos(3) Chief Executive Officer and Chairman of the Board of Director | |
| 5,036,785 | | |
| 10.0 | % |
Jorge Pliego Seguin Former Chief Financial Officer | |
| 73,704 | | |
| * | |
Kevin Johnston Chief Revenue Officer and Global Chief Operating Officer | |
| 47,012 | | |
| * | |
Mauricio
Garduño(4) Vice President, Business Development and Director | |
| 997,628 | | |
| 2.0 | % |
Diego Zavala Vice President, M&A and Director | |
| 2,281,167 | | |
| 4.5 | % |
All directors and executive officers as a group (13 persons) | |
| 20,270,540 | | |
| 40.2 | % |
Five Percent Holders: | |
| | | |
| | |
Nexxus Funds(5) | |
| 10,012,377 | | |
| 19.8 | % |
CS Investors(6) | |
| 9,596,232 | | |
| 19.0 | % |
Fideicomiso LIV Mexico Growth IV No. F/2416(7) | |
| 3,319,400 | | |
| 6.4 | % |
(1) | Unless
otherwise noted, the business address of each of those listed in the table above is 222 W. Las Colinas Blvd. Suite 1650E, Irving, Texas,
75039. |
(2) | Includes
300,125 shares of Class A Common Stock that are issuable upon the exercise of private warrants that are exercisable. |
(3) | Mr.
Senderos holds his shares through Invertis, LLC. Includes 1,200,000 shares of Class A Common Stock pledged as security for indebtedness,
which was reviewed and approved by the board of directors as a grandfathered pledge prior to the business combination. Also includes
approximately 2 million shares of Class A Common Stock pledged as security for indebtedness in the amount of $4.5 million, used by Mr.
Senderos to provide the Company with a portion of the New Second Lien Facility. The pledge and related waivers to our insider trading
policy were reviewed and approved by the board of directors. |
(4) | Includes
30,000 shares of Class A Common Stock pledged as security for indebtedness, which was reviewed and approved by the board of directors
as a grandfathered pledge prior to the Business Combination. |
(5) | Consists
of (i) 5,237,261 shares of Class A Common Stock held of record by 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) 4,775,116 shares Class A Common
Stock held of record by Nexxus Capital Private Equity Fund VI, L.P. (collectively, the “Nexxus Funds”). The Nexxus Funds’
investors are the record holders of the shares of Class A Common Stock. Notwithstanding the foregoing, the manager of the Nexxus Funds,
Nexxus Capital Administrador VI, S.C., has, via the Nexxus Funds’ agreements, certain voting rights and investment discretion.
Nexxus Capital Administrador VI, S.C., wholly owned by Nexxus Capital, S.A.P.I. de C.V. and such entity´s majority ownership maintained
by Roberto Langenauer and Arturo José Saval, thus such individuals have voting rights and investment discretion of Nexxus Capital,
S.A.P.I. de C.V., hence have voting rights and investment discretion of the Class A Common Stock. The business address of Nexxus Capital
is Bosque de Alisos No. 47B - 4th fl., Bosques de las Lomas, 05120, Mexico City, Mexico. |
Selling
Securityholders
This
prospectus relates to the resale by the selling securityholders from time to time of up to 38,532,805 shares of Class A Common
Stock (including 2,811,250 shares of Class A Common Stock that may be issued upon exercise of the private warrants) and up to 2,811,250
private warrants. The selling securityholders may from time to time offer and sell any or all of the Class A Common Stock and private
warrants set forth below pursuant to this prospectus and any accompanying prospectus supplement. As used in this prospectus, the term
“selling securityholders” includes the persons listed in the table below, together with any additional selling securityholders
listed in a subsequent amendment to this prospectus, and their pledgees, donees, transferees, assignees, successors, designees and others
who later come to hold any of the selling securityholders’ interests in the Class A Common Stock or private warrants other than
through a public sale.
Certain
of the selling securityholders listed below are subject to lock-up restrictions with respect to securities of the Company that may be
sold by it from time to time pursuant to the registration statement of which this prospectus forms part. See the sections titled “Certain
Relationships and Related Party Transactions — Voting and Support Agreements” and “Certain Relationships and
Related Party Transactions — Sponsor Letter Agreement.”
Except
as set forth in the footnotes below, the following table sets forth, based on written representations from the selling securityholders,
certain publicly available information regarding the beneficial ownership of our Class A Common Stock and warrants by the selling securityholders
and the shares of Class A Common Stock and warrants being offered by the selling securityholders. The applicable percentage ownership
of Class A Common Stock is based on approximately 50,473,423 shares of Class A Common Stock outstanding as of March 31, 2022. Information
with respect to shares of Class A Common Stock and private warrants owned beneficially after the offering assumes the sale of all of
the shares of Class A Common Stock or private warrants. The selling securityholders may offer and sell some, all or none of their shares
of Class A Common Stock or private warrants, as applicable.
We
have determined beneficial ownership in accordance with the rules of the SEC. Except as indicated by the footnotes below, we believe,
based on the information furnished to us, that the selling securityholders have sole voting and investment power with respect to all
shares of Class A Common Stock and warrants that they beneficially own, subject to applicable community property laws. Except as otherwise
described below, based on the information provided to us by the selling securityholders, no selling securityholder is a broker-dealer or
an affiliate of a broker dealer.
Up
to 8,050,000 shares of Class A Common Stock issuable upon exercise of the public warrants are not included in the table below.
Please
see the section titled “Plan of Distribution” for further information regarding the selling securityholder’s
method of distributing these shares.
| |
Shares of Class A Common Stock | | |
Warrants to Purchase Class A Common Stock | |
Name | |
Number
Beneficially
Owned
Prior to
Offering | | |
Number
Registered
for Sale
Hereby | | |
Number
Beneficially
Owned
After
Offering | | |
Percent
Owned
After
Offering | | |
Number
Beneficially
Owned
Prior to
Offering | | |
Number
Registered
For Sale
Hereby | | |
Number
Beneficially
Owner
After
Offering | | |
Percent
Owner
After
Offering | |
Administradora LIV Capital, S.A.P.I. de C.V.(1) | |
| 60,000 | | |
| 60,000 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Alejandro Edgar Perdomo Liceras | |
| 6,390 | | |
| 6,390 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Alejandro Morera Mitre | |
| 10,000 | | |
| 10,000 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Alejandro Puente Córdoba(2) | |
| 20,000 | | |
| 20,000 | | |
| — | | |
| — | | |
| 10,000 | | |
| 10,000 | | |
| — | | |
| — | |
Alexander Roger Rossi(3) | |
| 582,818 | | |
| 582,818 | | |
| — | | |
| — | | |
| 300,125 | | |
| 300,125 | | |
| — | | |
| — | |
Aljoes, S.A. de C.V.(4) | |
| 10,000 | | |
| 10,000 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Ana Luz Alvarez Galindo | |
| 10,000 | | |
| 10,000 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Ariela Katz de Gugenheim | |
| 100,000 | | |
| 100,000 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Ballant Limited Partnership(5) | |
| 50,000 | | |
| 50,000 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Fideicomiso LIV Mexico Growth IV No. F/2416(6) | |
| 3,319,400 | | |
| 3,319,400 | | |
| — | | |
| — | | |
| 1,059,914 | | |
| 1,059,914 | | |
| — | | |
| — | |
Benjamín García Villarreal | |
| 15,000 | | |
| 15,000 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Bernardo Jiménez | |
| 10,000 | | |
| 10,000 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Bua Management Limited Partnership(7) | |
| 300,000 | | |
| 300,000 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Bugambilia, LLC(8) | |
| 461,667 | | |
| 461,667 | | |
| — | | |
| — | | |
| 116,667 | | |
| 116,667 | | |
| — | | |
| — | |
Carlos Rohm(9) | |
| 55,000 | | |
| 55,000 | | |
| — | | |
| — | | |
| 15,000 | | |
| 15,000 | | |
| — | | |
| — | |
CXGL Holdings, L.P.(10) | |
| 20,000 | | |
| 20,000 | | |
| — | | |
| — | | |
| 10,000 | | |
| 10,000 | | |
| — | | |
| — | |
Cynthia Negrete Franco(11) | |
| 384,988 | | |
| 384,988 | | |
| — | | |
| — | | |
| 150,375 | | |
| 150,375 | | |
| — | | |
| — | |
Enrique García Villarreal | |
| 15,000 | | |
| 15,000 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Eva R. Rello Alonso de Celada | |
| 100,000 | | |
| 100,000 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Felipe Esteve Recolons | |
| 20,000 | | |
| 20,000 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Francisco Cabellero | |
| 20,000 | | |
| 20,000 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Glory (Best Investment Corporation)(12) | |
| 128,093 | | |
| 128,093 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Guillermo González Guajardo | |
| 25,000 | | |
| 25,000 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Gustavo Robles Rios | |
| 10,224 | | |
| 10,224 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Humberto Zesati González(13) | |
| 706,152 | | |
| 706,152 | | |
| — | | |
| — | | |
| 361,792 | | |
| 361,792 | | |
| — | | |
| — | |
Ignacio Farías | |
| 15,000 | | |
| 15,000 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Irene Esses Dayán | |
| 12,500 | | |
| 12,500 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
ITA12, S.A.P.I. de C.V.(14) | |
| 85,000 | | |
| 85,000 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Javier Maurilio Najera Muñoz(15) | |
| 138,500 | | |
| 138,500 | | |
| — | | |
| — | | |
| 35,000 | | |
| 35,000 | | |
| — | | |
| — | |
Jorge Esteve Recolons | |
| 30,000 | | |
| 30,000 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
José Antonio Solano Arroyo | |
| 50,000 | | |
| 50,000 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Jose Luis Ballesteros | |
| 25,000 | | |
| 25,000 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Juan Cristobal Bremer Villaseñor | |
| 15,000 | | |
| 15,000 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Juan Manuel Fernández | |
| 12,500 | | |
| 12,500 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Juan Marco Gutiérrez Wanless | |
| 50,000 | | |
| 50,000 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Laura Laviada Diez Barroso(16) | |
| 461,665 | | |
| 461,665 | | |
| — | | |
| — | | |
| 116,666 | | |
| 116,666 | | |
| — | | |
| — | |
Laura Renee Diez Barroso Azcárraga(17) | |
| 461,668 | | |
| 461,668 | | |
| — | | |
| — | | |
| 116,667 | | |
| 116,667 | | |
| — | | |
| — | |
LIV Mexico Growth Fund IV, L.P.(18) | |
| 471,600 | | |
| 471,600 | | |
| — | | |
| — | | |
| 150,586 | | |
| 150,586 | | |
| — | | |
| — | |
LIVE Fund I Partners, L.P.(19) | |
| 108,983 | | |
| 108,983 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Luis Fernando Narchi Karam | |
| 100,000 | | |
| 100,000 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Luis Rodrigo Clemente Gamero | |
| 14,203 | | |
| 14,203 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Maria Fernanda Alonso Aviles | |
| 11,928 | | |
| 11,928 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Mariana Romero Casillas | |
| 21,300 | | |
| 21,300 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Maxmilan LLC(20) | |
| 20,000 | | |
| 20,000 | | |
| — | | |
| — | | |
| 10,000 | | |
| 10,000 | | |
| — | | |
| — | |
Mercer QIF Fund(21) | |
| 42,209 | | |
| 42,209 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Miguel Ángel Dávila Guzmán(22) | |
| 699,484 | | |
| 699,484 | | |
| — | | |
| — | | |
| 358,458 | | |
| 358,458 | | |
| — | | |
| — | |
Miriam Corona Chacón | |
| 2,556 | | |
| 2,556 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Moneda Latin American Equities (Delaware) L.P.(23) | |
| 16,320 | | |
| 16,320 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Moneda Luxembourg SICAV-Latin America Small Cap Fund(24) | |
| 63,378 | | |
| 63,378 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Patricio Mangino Lissarrague | |
| 10,224 | | |
| 10,224 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
RA4 Holding, S.A.P.I. de C.V.(25) | |
| 5,000 | | |
| 5,000 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Sepia Partners, L.P.(26) | |
| 100,000 | | |
| 100,000 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Tierra Norte, L.P.(27) | |
| 100,000 | | |
| 100,000 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Amy Kaufmann(28) | |
| 1,000 | | |
| 1,000 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Alejandro Rojas Domene | |
| 127,929 | | |
| 127,929 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
David Nussbaum(29) | |
| 8,000 | | |
| 8,000 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Diego Zavala | |
| 2,281,167 | | |
| 2,281,167 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
EarlyBird Capital, Inc.(30) | |
| 32,500 | | |
| 32,500 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Federico Alberto Tagliani | |
| 90,954 | | |
| 90,954 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Gleeson Cox(31) | |
| 500 | | |
| 500 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Manuel Senderos(32) | |
| 4,595,176 | | |
| 4,595,176 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Jilian Carter(33) | |
| 1,000 | | |
| 1,000 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Jorge Pliego Seguin | |
| 75,768 | | |
| 75,768 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Joseph Mongiello(34) | |
| 500 | | |
| 500 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Kevin Johnston | |
| 31,121 | | |
| 31,121 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Marc Van Tricht(35) | |
| 1,000 | | |
| 1,000 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Mauricio Garduño González Elizondo(36) | |
| 997,628 | | |
| 997,628 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Mauricio Jorge Rioseco Orihuela | |
| 1,077,703 | | |
| 1,077,703 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Mauro Conijeski(37) | |
| 8,000 | | |
| 8,000 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Steven Levine(38) | |
| 8,000 | | |
| 8,000 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Richard Michael Powell(39) | |
| 2,500 | | |
| 2,500 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
CS Investors(40) | |
| 9,596,232 | | |
| 9,596,232 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Nexxus Funds(41) | |
| 10,012,377 | | |
| 10,012,377 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Total | |
| 38,532,805 | | |
| 38,532,805 | | |
| | | |
| | | |
| 2,811,250 | | |
| 2,811,250 | | |
| | | |
| | |
(1) | Alexander
R. Rossi, Humberto Zesati González and Miguel Ángel Dávila Guzmán share voting and dispositive power with
regard to the shares of Class A Common Stock held of record by Administradora LIV Capital, S.A.P.I. de C.V. All indirect holders of the
above referenced shares disclaim beneficial ownership of all applicable shares except to the extent of their actual pecuniary interest
therein. |
(2) | Number
of shares of Class A Common Stock being registered for sale hereby consists of (i) 10,000 shares of Class A Common Stock and (ii) 10,000
shares of Class A Common Stock that are issuable upon the exercise of private warrants. |
(3) | Number
of shares of Class A Common Stock being registered for sale hereby consists of (i) 282,693 shares of Class A Common Stock and (ii) 300,125
shares of Class A Common Stock that are issuable upon the exercise of private warrants. |
(4) | Luis
A. Nicolau has voting and dispositive power with respect to the shares of Class A Common Stock held of record by Aljoes, S.A. de C.V.
and may be deemed to beneficially own the shares held by Aljoes, S.A. de C.V. |
(5) | Caribou
Bahamas GP Ltd is general partner of Ballant Limited Partnership and has voting and dispositive power with respect to the shares of Class
A Common Stock held of record by Ballant Limited Partnership and may be deemed to beneficially own the shares held by Ballant Limited
Partnership. |
(6) | Number
of shares of Class A Common Stock being registered for sale hereby consists of (i) 2,259,486 shares of Class A Common Stock and (ii)
1,059,914 shares of Class A Common Stock that are issuable upon the exercise of private warrants held by Banco Invex, S.A., Institución
de Banca Múltiple, Invex Grupo Financiero acting solely and exclusively in its capacity as trustee of the Contrato de Fideicomiso
Irrevocable de Emisión de Certificados Bursátiles Fiduciario de Desarrollo No. F/2416 identified as “Fideicomiso
LIV Mexico Growth IV No. F/2416” whose record holders are the trust investors. The manager of Fideicomiso LIV Mexico Growth IV
No. F/2416, Administradora LIV Capital, S.A.P.I. de C.V. has full voting powers. Pursuant to the instructions of the Fideicomiso corporate
bodies, the Investment Committee (Comité Técnico) and Noteholders Meeting (Asamblea de Tenedores), as applicable, Administradora
LIV Capital, S.A.P.I. de C.V. has dispositive power of the shares of Class A Common stock. Administradora LIV Capital, S.A.P.I. de C.V.
is wholly owned by Miguel Ángel Dávila Guzmán, Humberto Zesati González and Alexander Roger Rossi. All indirect
holders of the above referenced securities disclaim beneficial ownership of all applicable securities except to the extent of their actual
pecuniary interest therein. |
(7) | Alejandro
Joaquin Marti Garcia has voting and dispositive power with respect to the shares of Class A Common Stock held of record by Bua Management
Limited Partnership and may be deemed to beneficially own the shares held by Bua Management Limited Partnership. |
(8) | Number
of shares of Class A Common Stock being registered for sale hereby consists of (i) 345,000 shares of Class A Common Stock and (ii) 116,667
shares of Class A Common Stock that are issuable upon the exercise of private warrants. |
(9) | Number
of shares of Class A Common Stock being registered for sale hereby consists of (i) 40,000 shares of Class A Common Stock and (ii) 15,000
shares of Class A Common Stock that are issuable upon the exercise of private warrants. |
(10) | Number
of shares of Class A Common Stock being registered for sale hereby consists of (i) 10,000 shares of Class A Common Stock and (ii) 10,000
shares of Class A Common Stock that are issuable upon the exercise of private warrants. |
(11) | Number
of shares of Class A Common Stock being registered for sale hereby consists of (i) 234,613 shares of Class A Common Stock and (ii) 150,375
shares of Class A Common Stock that are issuable upon the exercise of private warrants. |
(12) | Angeles
Servente and Pablo Caamaño share voting and dispositive power with respect to the shares of Class A Common Stock held of record
by Glory (Best Investment Corporation) (Moneda) and each may be deemed to beneficially own the shares held by Glory (Best Investment
Corporation). |
(13) | Number
of shares of Class A Common Stock being registered for sale hereby consists of (i) 344,360 shares of Class A Common Stock and (ii) 361,792
shares of Class A Common Stock that are issuable upon the exercise of private warrants. |
(14) | Juan
Carlos Torres has voting and dispositive power with respect to the shares of Class A Common Stock held of record by ITA 12, SAPI de CV
and may be deemed to beneficially own the shares held by ITA 12, SAPI de CV. |
(15) | Number
of shares of Class A Common Stock being registered for sale hereby consists of (i) 103,500 shares of Class A Common Stock and (ii) 35,000
shares of Class A Common Stock that are issuable upon the exercise of private warrants. |
(16) | Number
of shares of Class A Common Stock being registered for sale hereby consists of (i) 344,999 shares of Class A Common Stock and (ii) 116,666
shares of Class A Common Stock that are issuable upon the exercise of private warrants. |
(17) | Number
of shares of Class A Common Stock being registered for sale hereby consists of (i) 345,001 shares of Class A Common Stock and (ii) 116,667
shares of Class A Common Stock that are issuable upon the exercise of private warrants. |
(18) | Number
of shares of Class A Common Stock being registered for sale hereby consists of (i) 321,014 shares of Class A Common Stock and (ii) 150,586
shares of Class A Common Stock that are issuable upon the exercise of private warrants. LIV GP IV, L.P. is the general partner of LIV
Mexico Growth Fund IV, L.P. LIV GP IV, L.P., as general partner, and through its respective investment committee, has voting and dispositive
power of the shares of Class A Common stock held of record by LIV Mexico Growth Fund IV, L.P. The ultimate beneficiaries of LIV GP IV,
L.P. are Miguel Ángel Dávila Guzmán, Humberto Zesati González and Alexander Roger Rossi. All indirect holders
of the above referenced securities disclaim beneficial ownership of all applicable securities except to the extent of their actual pecuniary
interest therein. |
(19) | Alexander
R. Rossi, Humberto Zesati González and Miguel Ángel Dávila Guzmán share voting and dispositive power with
regard to the securities held of record by LIVE Fund I Partners, L.P. All indirect holders of the above referenced securities disclaim
beneficial ownership of all applicable securities except to the extent of their actual pecuniary interest therein. |
(20) | Number
of shares of Class A Common Stock being registered for sale hereby consists of (i) 10,000 shares of Class A Common Stock and (ii) 10,000
shares of Class A Common Stock that are issuable upon the exercise of private warrants. |
(21) | Angeles
Servente and Pablo Caamaño share voting and dispositive power with respect to the shares held of record by Mercer QIF Fund (Moneda)
and each may be deemed to beneficially own the shares held by Mercer QIF Fund (Moneda). |
(22) | Number
of shares of Class A Common Stock being registered for sale hereby consists of (i) 341,026 shares of Class A Common Stock and (ii) 358,458
shares of Class A Common Stock that are issuable upon the exercise of private warrants. |
(23) | Angeles Servente and Pablo Caamaño share voting and
dispositive power with respect to the shares held of record by Moneda Latin American Equities (Delaware) L.P. and each may be deemed
to beneficially own the shares held by Moneda Latin American Equities (Delaware) L.P. |
(24) | Felipe Corvalán and Pablo Caamaño share voting
and dispositive power with respect to the shares of Class A Common Stock held of record by Moneda Luxembourg SICAV-Latin America Small
Cap Fund and each may be deemed to beneficially own the shares held by Moneda Luxembourg SICAV-Latin America Small Cap Fund. |
(25) | Juan Pablo Retes Garrido has voting and dispositive power
with respect to the shares held of record by RA4 Holding, SAPI de CV and may be deemed to beneficially own the shares held by RA4 Holding,
SAPI de CV. |
(26) | JTC Corporate Services (USA) Ltd., as the investment advisor
of Sepia Partners, L.P., has voting and dispositive power with respect to the shares of Class A Common Stock held of record by Sepia
Partners, L.P. and may be deemed to have beneficial ownership of the Class A common stock held directly by Sepia Partners, L.P. |
(27) | Glico PTC LLC is the general partner of Tierra Norte, L.P.
Carol L. Salaiz, as manager of Glico PTC LLC, has voting and dispositive power with respect to the shares of Class A Common Stock held
of record by Tierra Norte, L.P. and may be deemed to have beneficial ownership of the Class A Common Stock held directly by Tierra Norte,
L.P. |
(28) | Based on information provided to us by the selling securityholder,
the selling securityholder may be deemed to be an affiliate of a broker-dealer. Based on such information, the selling securityholder
acquired the securities being registered hereunder in the ordinary course of business, and at the time of the acquisition of the securities,
the selling securityholder did not have any agreements or understandings with any person to distribute such securities. |
(29) | Based on information provided to us by the selling securityholder,
the selling securityholder may be deemed to be an affiliate of a broker-dealer. Based on such information, the selling securityholder
acquired the securities being registered hereunder in the ordinary course of business, and at the time of the acquisition of the securities,
the selling securityholder did not have any agreements or understandings with any person to distribute such securities. |
(30) | EarlyBirdCapital, Inc., a broker-dealer, acted as representative
of the underwriters for LIVK’s IPO, as well as LIVK’s investment banker in connection with the business combination. David
Nussbaum, Steven Levine and Amy Kaufmann share voting and dispositive power with respect to the securities held of record by EarlyBird
Capital, Inc. All indirect holders of the above referenced securities disclaim beneficial ownership of all applicable securities except
to the extent of their actual pecuniary interest therein. The address of this EarlyBird Capital, Inc. is 366 Madison Avenue,
8th Floor, New York, NY 10017. Based on information provided to us by the selling securityholder, the selling securityholder
may be deemed to be a broker-dealer. Based on such information, the selling securityholder acquired the securities being registered hereunder
in the ordinary course of business, and at the time of the acquisition of the securities, the selling securityholder did not have any
agreements or understandings with any person to distribute such securities. |
(31) | Based on information provided to us by the selling securityholder,
the selling securityholder may be deemed to be an affiliate of a broker-dealer. Based on such information, the selling securityholder
acquired the securities being registered hereunder in the ordinary course of business, and at the time of the acquisition of the securities,
the selling securityholder did not have any agreements or understandings with any person to distribute such securities. |
(32) | Mr. Senderos holds his shares through Invertis, LLC and has
sole voting and dispositive power with respect to the shares of Class A Common Stock held of record by Invertis, LLC. Includes 1,200,000
shares of Class A Common Stock pledged as security for indebtedness. The pledge was reviewed and approved by the board of directors as
a grandfathered pledge prior to the business combination. Also includes approximately 2,000,000 shares of Class A Common Stock pledged
as security for indebtedness in the amount of $4.5 million, used by Mr. Senderos to provide the Company with a portion of the New Second
Lien Facility. The pledge and related waivers to our insider trading policy were reviewed and approved by the board of directors. |
(33) | Based on information provided to us by the selling securityholder,
the selling securityholder may be deemed to be an affiliate of a broker-dealer. Based on such information, the selling securityholder
acquired the securities being registered hereunder in the ordinary course of business, and at the time of the acquisition of the securities,
the selling securityholder did not have any agreements or understandings with any person to distribute such securities. |
(34) | Based on information provided to us by the selling securityholder,
the selling securityholder may be deemed to be an affiliate of a broker-dealer. Based on such information, the selling securityholder
acquired the securities being registered hereunder in the ordinary course of business, and at the time of the acquisition of the securities,
the selling securityholder did not have any agreements or understandings with any person to distribute such securities. |
(35) | Based on information provided to us by the selling securityholder,
the selling securityholder may be deemed to be an affiliate of a broker-dealer. Based on such information, the selling securityholder
acquired the securities being registered hereunder in the ordinary course of business, and at the time of the acquisition of the securities,
the selling securityholder did not have any agreements or understandings with any person to distribute such securities. |
(36) | Includes 30,000 shares of Class A Common Stock pledged as
security for indebtedness. The pledge was reviewed and approved by the board of directors as a grandfathered pledge prior to the business
combination. |
(37) | Based on information provided to us by the selling securityholder,
the selling securityholder may be deemed to be an affiliate of a broker-dealer. Based on such information, the selling securityholder
acquired the securities being registered hereunder in the ordinary course of business, and at the time of the acquisition of the securities,
the selling securityholder did not have any agreements or understandings with any person to distribute such securities. |
(38) | Based on information provided to us by the selling securityholder,
the selling securityholder may be deemed to be an affiliate of a broker-dealer. Based on such information, the selling securityholder
acquired the securities being registered hereunder in the ordinary course of business, and at the time of the acquisition of the securities,
the selling securityholder did not have any agreements or understandings with any person to distribute such securities. |
(39) | Based on information provided to us by the selling securityholder,
the selling securityholder may be deemed to be an affiliate of a broker-dealer. Based on such information, the selling securityholder
acquired the securities being registered hereunder in the ordinary course of business, and at the time of the acquisition of the securities,
the selling securityholder did not have any agreements or understandings with any person to distribute such securities. |
(40) | Consists of (i) 6,259,138 shares of Class A Common Stock
held of record by 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 and (ii) 3,337,094 shares of Class A Common Stock held of record by 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. The business
address of the CS Investors is Av. Paseo de la Reforma 115, Lomas — Virreyes, Lomas de Chapultepec, Miguel Hidalgo, 11000 Ciudad
de Mexico, CDMX. |
(41) | Consists of (i) 5,237,261 shares of Class A Common Stock
held of record by 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) 4,775,116 shares Class A Common Stock held of record by Nexxus Capital
Private Equity Fund VI, L.P.. The Nexxus Funds’ investors are the record holders of the shares of Class A Common Stock. Notwithstanding
the foregoing, the manager of the Nexxus Funds, Nexxus Capital Administrador VI, S.C., has, via the Nexxus Funds’ agreements, certain
voting rights and investment discretion. Nexxus Capital Administrador VI, S.C. is wholly owned by Nexxus Capital, S.A.P.I. de C.V. and
such entity´s majority ownership maintained by Roberto Langenauer and Arturo José Saval, thus such individuals have voting
rights and investment discretion of Nexxus Capital, S.A.P.I. de C.V., hence have voting rights and investment discretion of the Class
A Common Stock. The business address of Nexxus Capital is Bosque de Alisos No. 47B-4th fl., Bosques de las Lomas, 05120, Mexico
City, Mexico. |
Description of
SECURITIES
The following is a summary
of the rights of our Class A Common Stock and preferred stock. This summary is qualified by reference to the complete text of our charter
and our bylaws filed as exhibits to the registration statement of which this prospectus forms a part.
General
Our charter authorizes the
issuance of 220,000,000 shares of capital stock, consisting of (x) 210,000,000 shares of Class A Common Stock, par value $0.0001 per share
and (y) 10,000,000 shares of our preferred stock, par value $0.0001 per share.
As of March 31, 2022, there
were 50,473,423 shares of our Class A Common Stock outstanding. No shares of preferred stock are outstanding as of the date of this prospectus.
Class A Common Stock
Listing
Our Class
A Common Stock is listed on Nasdaq under the symbol “AGIL.”
Voting Rights
Each holder of the shares
of Class A Common Stock is entitled to one vote for each share of Class A Common Stock held of record by such holder on all matters properly
submitted to the stockholders for their vote; provided, however, that except as otherwise required by applicable law, holders of Class
A Common Stock shall not be entitled to vote on any amendment to the proposed charter that relates solely to the terms of one or more
outstanding series of preferred stock if the holders of such affected series are entitled, either separately or together as a class with
the holders of one or more other such series, to vote thereon pursuant to applicable law or the proposed charter (including any certificate
of designation filed with respect to any one or more series of preferred stock). The holders of the shares of Class A Common Stock do
not have cumulative voting rights in the election of directors. Generally, all matters to be voted on by stockholders must be approved
by a majority (or, in the case of election of directors, by a plurality) of the votes entitled to be cast by all stockholders present
in person or represented by proxy, voting together as a single class.
Dividend Rights
Subject to preferences that
may be applicable to any outstanding preferred stock, the holders of shares of Class A Common Stock are entitled to receive ratably such
dividends, if any, as may be declared from time to time by our board of directors of out of funds legally available therefor.
Rights upon Liquidation, Dissolution and Winding-Up
In the event of any voluntary
or involuntary liquidation, dissolution or winding up of our affairs, the holders of the shares of Class A Common Stock are entitled to
share ratably in all assets remaining after payment of our debts and other liabilities, subject to prior distribution rights of preferred
stock or any class or series of stock having a preference over the shares of Class A Common Stock, then outstanding, if any.
Preemptive or Other Rights
The holders of shares of Class
A Common Stock have no preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions
applicable to the shares of Class A Common Stock.
Preferred Stock
No shares of preferred stock
are issued or outstanding as of the date of this prospectus. Our charter authorizes our board of directors to establish one or more series
of preferred stock, and to fix the number of shares of any such series. Our board of directors is authorized to determine for such series
the powers, including voting powers, full or limited, or no voting powers, and such the designation, preferences and relative, participating,
optional or other rights, any qualifications, limitations or restrictions thereof, all as shall be stated and expressed in the resolution
or resolutions providing for the designation and issue of such shares of preferred stock from time to time adopted by our board of directors
providing for the issuance of such shares and as may be permitted by the DGCL. The number of authorized shares of preferred stock, or
any series thereof, may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote
of the holders of a majority of the voting power of all of the outstanding shares of stock of the Company entitled to vote thereon, without
a separate vote of the holders of the preferred stock, or of any series thereof, unless a vote of any such holders is required pursuant
to the terms of any certificate of designation filed with respect to any one or more series of preferred stock
The issuance of preferred
stock may have the effect of delaying, deferring or preventing a change in control of us without further action by the stockholders. Additionally,
the issuance of preferred stock may adversely affect the holders of the Class A Common Stock of us by restricting dividends on the shares
of Class A Common Stock, diluting the voting power of the shares of Class A Common Stock or subordinating the liquidation rights of the
shares of Class A Common Stock. As a result of these or other factors, the issuance of preferred stock could have an adverse impact on
the market price of the shares of Class A Common Stock. At present, we have no plans to issue any preferred stock.
Warrants
As of March 31, 2022, there
were 10,861,250 warrants to purchase Class A Common Stock outstanding, consisting of 8,050,000 public warrants and 2,811,250 private warrants.
Each warrant entitles the registered holder to purchase one share of Class A Common Stock at a price of $11.50 per share at any time commencing
30 days after the closing of the business combination. The warrants will expire at 5:00 p.m., New York City time, on the fifth anniversary
of the closing of the business combination, or earlier upon redemption or liquidation.
Our warrants are listed on
Nasdaq under the symbol “AGILW.”
Public Warrants
Each whole public warrant
will entitle the registered holder to purchase one share of Class A Common Stock at a price of $11.50 per share, subject to adjustment
as discussed below, at any time commencing thirty (30) days after the closing of the business combination, provided that we have an effective
registration statement under the Securities Act covering the issuance of the shares of Class A Common Stock issuable upon exercise of
the public warrants and a current prospectus relating to them is available and such shares are registered, qualified or exempt from registration
under the securities, or blue sky laws of the state of residence of the holder (or we permit holders to exercise their public warrants
on a cashless basis under the circumstances specified in the warrant agreement). A warrant holder may exercise its public warrants only
for a whole number of shares of Class A Common Stock. No fractional shares will be issued upon exercise of the warrants. If, upon exercise
of the warrants, a holder would be entitled to receive a fractional interest in a share, we will, upon exercise, round up to the nearest
whole number the number of shares of Class A Common Stock to be issued to the warrant holder. The public warrants will expire five years
after the closing of the business combination, at 5:00 p.m., New York City time, or earlier upon redemption or liquidation.
We will not be obligated to
deliver any shares of Class A Common Stock pursuant to the exercise of a public warrant and will have no obligation to settle such public
warrant exercise unless a registration statement under the Securities Act covering the issuance of the shares of Class A Common Stock
issuable upon exercise is then effective and a prospectus relating thereto is current, subject to us satisfying our obligations described
below with respect to registration. No public warrant will be exercisable for cash or on a cashless basis, and we will not be obligated
to issue any shares to holders seeking to exercise their public warrants, unless the issuance of the shares upon such exercise is registered
or qualified under the securities laws of the state of the exercising holder, or an exemption is available. In the event that the conditions
in the two immediately preceding sentences are not satisfied with respect to a public warrant, the holder of such public warrant will
not be entitled to exercise such public warrant and such public warrant may have no value and expire worthless.
We have agreed that as soon
as practicable, but in no event later than fifteen (15) business days, after the closing of the business combination, we will use our
reasonable best efforts to file with the SEC and have an effective registration statement for covering the issuance, under the Securities
Act, of the shares of Class A Common Stock issuable upon exercise of the public warrants, and we will use our reasonable best efforts
to cause the same to become effective within sixty (60) business days after the closing and to maintain the effectiveness of such registration
statement, and a current prospectus relating thereto, until the expiration of the public warrants in accordance with the provisions of
the warrant agreement. Notwithstanding the foregoing, if a registration statement covering the Class A Common Stock issuable upon exercise
of the warrants is not effective within 60 business days following the consummation of our business combination, warrant holders may,
until such time as there is an effective registration statement and during any period when we shall have failed to maintain an effective
registration statement, exercise warrants on a cashless basis pursuant to the exemption provided by Section 3(a)(9) of the Securities
Act of 1933, as amended, or the Securities Act, provided that such exemption is available. If that exemption, or another exemption, is
not available, holders will not be able to exercise their warrants on a cashless basis. On September 14, 2021, we filed this resale shelf
registration statement covering the resale of all registrable securities, which was originally declared effective on September 27, 2021.
Once the warrants become exercisable,
we may redeem the public warrants for redemption:
| ● | in whole and not in part; |
| ● | at a price of $0.01 per public warrant; |
| ● | upon not less than thirty (30) days’ prior written notice of redemption to each public warrant holder; |
| ● | if, and only if, the reported last sales price of the 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 public warrant holders; and |
| ● | if, and only if, there is a current registration statement in effect with respect to the shares of Class
A Common Stock underlying such warrants. |
If and when the public 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.
If the foregoing conditions
are satisfied and we issue a notice of redemption of the public warrants, each public warrant holder will be entitled to exercise his,
her or its public warrant prior to the scheduled redemption date. However, the price of the shares of Class A Common Stock may fall below
the $18.00 redemption trigger price as well as the $11.50 public warrant exercise price after the redemption notice is issued.
If we call the public warrants
for redemption as described above, our management will have the option to require any holder that wishes to exercise his, her or its public
warrant to do so on a “cashless basis.” If our management takes advantage of this option, all holders of public warrants would
pay the exercise price by surrendering their public warrants for that number of shares of Class A Common Stock equal to the quotient obtained
by dividing (x) the product of the number of Class A Common Stock underlying the warrants, multiplied by the difference between the exercise
price of the warrants and the “fair market value” (defined below) by (y) the fair market value. The “fair market value”
will mean the average last reported sale price of the shares of Class A Common Stock for the five (5) trading days ending on the third
trading day prior to the date on which the notice of redemption is sent to the holders of public warrants.
Public warrant holders may
elect to be subject to a restriction on the exercise of their public warrants such that an electing public warrant holder would not be
able to exercise their warrants to the extent that, after giving effect to such exercise, such holder would beneficially own in excess
of 9.8% of the shares of Class A Common Stock outstanding.
The exercise price and number
of Class A Common Stock issuable on exercise of the warrants may be adjusted in certain circumstances including in the event of a stock
dividend, extraordinary dividend or our recapitalization, reorganization, merger or consolidation. However, the warrants will not be adjusted
for issuances of Class A Common Stock at a price below their respective exercise prices.
The public warrants are issued
in registered form under the warrant agreement between Continental Stock Transfer & Trust Company, as warrant agent, and us. You should
review a copy of the warrant agreement, which is filed as an exhibit to the registration statement of which this prospectus is a part,
for a complete description of the terms and conditions applicable to the public warrants. The warrant agreement provides that the terms
of the public warrants may be amended without the consent of any holder to cure any ambiguity or correct any defective provision, but
requires the approval by the holders of at least 50% of then outstanding public warrants to make any change that adversely affects the
interests of the registered holders of public warrants.
The public warrants may be
exercised upon surrender of the warrant certificate on or prior to the expiration date at the offices of the warrant agent, with the exercise
form on the reverse side of the warrant certificate completed and executed as indicated, accompanied by full payment of the exercise price
(or on a cashless basis, if applicable), by certified or official bank check payable to the Company, for the number of public warrants
being exercised. The warrant holders do not have the rights or privileges of holders of shares of Class A Common Stock and any voting
rights until they exercise their public warrants and receive shares of Class A Common Stock. After the issuance of the shares of Class
A Common Stock upon exercise of the public warrants, each holder will be entitled to one vote for each share held of record on all matters
to be voted on by holders of shares of Class A Common Stock.
No fractional shares will
be issued upon exercise of the warrants. If, upon exercise of the warrants, a holder would be entitled to receive a fractional interest
in a share, we will, upon exercise, round up to the nearest whole number the number of shares of Class A Common Stock to be issued to
the warrant holder.
Private Warrants
The private warrants (including
the shares of Class A Common Stock issuable upon exercise of the private warrants) will not be transferable, assignable or salable until
thirty (30) days after the completion of an initial business combination, including the business combination, subject to certain exceptions
and they will not be redeemable by us so long as they are held by LIV Capital Acquisition Sponsor, L.P. or its permitted transferees.
LIV Capital Acquisition Sponsor, L.P., as well as its permitted transferees, has the option to exercise the private warrants on a cashless
basis and has certain registration rights related to such private warrants. Otherwise, the private warrants have terms and provisions
that are identical to those of the public warrants. If the private warrants are held by holders other than LIV Capital Acquisition Sponsor,
L.P. or its permitted transferees, the private warrants will be redeemable by us and exercisable by the holders on the same basis as the
public warrants.
If holders of the private
warrants elect to exercise them on a cashless basis, they would pay the exercise price by surrendering their public warrants for that
number of shares of Class A Common Stock equal to the quotient obtained by dividing (x) the product of the number of Class A Common Stock
underlying the warrants, multiplied by the difference between the exercise price of the warrants and the “fair market value”
(defined below) by (y) the fair market value. The “fair market value” will mean the average last reported sale price of the
shares of Class A Common Stock for the five (5) trading days ending on the third trading day prior to the date on which the notice of
redemption is sent to the holders of public warrants.
Dividends
We have not paid any cash
dividends on our Class A Common Stock to date. The payment of cash dividends in the future will be dependent upon our revenues and earnings,
if any, capital requirements and general financial condition. The payment of any cash dividends is within the discretion of our board
of directors. In addition, our board of directors is not currently contemplating and does not anticipate declaring any share dividends
in the foreseeable future.
Certain Anti-Takeover Provisions of Delaware Law, Our Charter
and Our Bylaws
We are a corporation incorporated
under the laws of the State of Delaware, subject to the provisions of Section 203 of the DGCL, which we refer to as “Section 203,”
regulating corporate takeovers.
Section 203 prevents certain
Delaware corporations, under certain circumstances, from engaging in a “business combination” with:
| ● | a stockholder who owns fifteen percent or more of our outstanding voting stock (otherwise known as an
“interested stockholder”); |
| ● | an affiliate of an interested stockholder; or |
| ● | an associate of an interested stockholder, for three years following the date that the stockholder became
an interested stockholder. |
A “business combination”
includes a merger or sale of more than ten percent of our assets.
However, the above provisions
of Section 203 do not apply if:
| ● | our board of directors approves the transaction that made the stockholder an “interested stockholder,”
prior to the date of the transaction; |
| ● | after the completion of the transaction that resulted in the stockholder becoming an interested stockholder,
that stockholder owned at least 85% of our voting stock outstanding at the time the transaction commenced, other than statutorily excluded
shares of common stock; or |
| ● | on or subsequent to the date of the transaction, the business combination is approved by our board of
directors and authorized at a meeting of our stockholders, and not by written consent, by an affirmative vote of at least two-thirds of
the outstanding voting stock not owned by the interested stockholder. |
Our charter, our bylaws and
the DGCL contain provisions that could have the effect of rendering more difficult, delaying, or preventing an acquisition deemed undesirable
by our board of directors. These provisions could also make it difficult for stockholders to take certain actions, including electing
directors who are not nominated by the members of our board of directors or taking other corporate actions, including effecting changes
in our management. For instance, our charter does not provide for cumulative voting in the election of directors and provides for a classified
board of directors with three-year staggered terms, which could delay the ability of stockholders to change the membership of a majority
of our board of directors. Our board of directors are empowered 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 in certain circumstances; and our advance notice provisions in
our bylaws require that stockholders must comply with certain procedures in order to nominate candidates to our board of directors or
to propose matters to be acted upon at a stockholders’ meeting.
Our authorized but unissued
common stock and preferred stock will be available for future issuances without stockholder approval and could be utilized for a variety
of corporate purposes, including future offerings to raise additional capital, acquisitions and employee benefit plans. The existence
of authorized but unissued and unreserved common stock and preferred stock could render more difficult or discourage an attempt to obtain
control of us by means of a proxy contest, tender offer, merger or otherwise.
Charter and Bylaws
Among other things, our charter
and our bylaws:
| ● | not provide for cumulative voting in the election of directors; |
| ● | provides for 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; |
| ● | permits 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; |
| ● | prohibits stockholder action by written consent; |
| ● | requires 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; |
| ● | limits the liability of, and providing indemnification to, our directors and officers; |
| ● | controls the procedures for the conduct and scheduling of stockholder meetings; |
| ● | provides 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; |
| ● | grants 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; |
| ● | requires 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 |
| ● | provides for 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. |
The combination of these provisions
will make it more difficult for our existing stockholders to replace our board of directors as well as for another party to obtain control
of us by replacing our board of directors. Since our board of directors has the power to retain and discharge our officers, these provisions
could also make it more difficult for existing stockholders or another party to effect a change in management. In addition, the authorization
of undesignated preferred stock makes it possible for our board of directors to issue preferred stock with voting or other rights or preferences
that could impede the success of any attempt to change our control.
These provisions are intended
to enhance the likelihood of continued stability in the composition of our board of directors and its policies and to discourage coercive
takeover practices and inadequate takeover bids. These provisions are also designed to reduce our vulnerability to hostile takeovers and
to discourage certain tactics that may be used in proxy fights. However, such provisions could have the effect of discouraging others
from making tender offers for our shares of Class A Common Stock and may have the effect of delaying changes in our control or management.
As a consequence, these provisions may also inhibit fluctuations in the market price of our Class A Common Stock.
Our charter provides that
the Court of Chancery of the State of Delaware will be the exclusive forum for actions or proceedings brought under Delaware statutory
or common law: (1) any derivative claim or cause of action brought on behalf of the Company; (B) 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 the Company or the Company’s
stockholders; (C) any claim or cause of action against the Company or any current or former director, officer or other employee of the
Company, arising out of or pursuant to any provision of the DGCL, the charter or the bylaws of the Company (as each may be amended from
time to time); (D) any claim or cause of action seeking to interpret, apply, enforce or determine the validity of the charter or the bylaws
of the Company (as each may be amended from time to time, including any right, obligation, or remedy thereunder); (E) any claim or cause
of action as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware; and (F) any claim or cause of action
against the Company or any current or former director, officer or other employee of the Company, governed by the internal-affairs doctrine,
in all cases to the fullest extent permitted by law and subject to the court having personal jurisdiction over the indispensable parties
named as defendants. Our charter further provides that the federal district courts of the United States of America will be the exclusive
forum for resolving any complaint asserting a cause of action arising under the Securities Act or Exchange Act.
Section 27 of the Exchange
Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the
rules and regulations thereunder. As a result, the exclusive forum provision of our charter will not apply to suits brought to enforce
any duty or liability created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction.
Although we believe this provision
benefits us by providing increased consistency in the application of Delaware law in the types of lawsuits to which it applies, a court
may determine that this provision is unenforceable, and to the extent it is enforceable, the provision may have the effect of discouraging
lawsuits against our directors and officers, although our stockholders will not be deemed to have waived our compliance with federal securities
laws and the rules and regulations thereunder and therefore bring a claim in another appropriate forum. Additionally, we cannot be certain
that a court will decide that this provision is either applicable or enforceable, and if a court were to find the choice of forum provision
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, operating results and financial condition.
Limitations of Liability and Indemnification
See “Management —
Limitation on Liability and Indemnification.”
Transfer Agent and Warrant Agent
The transfer agent for Class
A Common Stock and warrant agent for warrants is Continental Stock Transfer & Trust Company.
Material United
States Federal Income Tax Consequences
The following discussion is
a summary of material U.S. federal income tax considerations generally applicable to the purchase, ownership and disposition of our Class
A Common Stock and the purchase, exercise, disposition and lapse of our warrants. The Class A Common Stock and the warrants are collectively
referred to herein as our securities. All prospective holders of our securities should consult their tax advisors with respect to the
U.S. federal, state, local and non-U.S. tax consequences of the purchase, ownership and disposition of our securities.
This discussion is not a complete
analysis of all potential U.S. federal income tax consequences relating to the purchase, ownership and disposition of our securities.
This summary is based upon current provisions of the U.S. Internal Revenue Code of 1986, as amended, which we refer to as the Code, existing
U.S. Treasury Regulations promulgated thereunder, published administrative pronouncements and rulings of the U.S. Internal Revenue Service,
which we refer to as the IRS, and judicial decisions, all as in effect as of the date of this prospectus. These authorities are subject
to change and differing interpretation, possibly with retroactive effect. Any change or differing interpretation could alter the tax consequences
to holders described in this discussion. There can be no assurance that a court or the IRS will not challenge one or more of the tax consequences
described herein, and we have not obtained, nor do we intend to obtain, a ruling with respect to the U.S. federal income tax consequences
to a holder of the purchase, ownership or disposition of our securities. We assume in this discussion that a holder holds our securities
as a “capital asset” within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion
does not address all aspects of U.S. federal income taxation that may be relevant to a particular holder in light of that holder’s
individual circumstances, nor does it address the special tax accounting rules under Section 451(b) of the Code, any alternative minimum,
Medicare contribution, estate or gift tax consequences, or any aspects of U.S. state, local or non-U.S. taxes or any other U.S. federal
tax laws. This discussion also does not address consequences relevant to holders subject to special tax rules, such as holders that own,
or are deemed to own, more than 5% of our capital stock (except to the extent specifically set forth below), corporations that accumulate
earnings to avoid U.S. federal income tax, tax-exempt organizations, governmental organizations, banks, financial institutions, investment
funds, insurance companies, brokers, dealers or traders in securities, commodities or currencies, regulated investment companies or real
estate investment trusts, persons that have a “functional currency” other than the U.S. dollar, tax- qualified retirement
plans, holders who hold or receive our securities pursuant to the exercise of employee stock options or otherwise as compensation, holders
holding our securities as part of a hedge, straddle or other risk reduction strategy, conversion transaction or other integrated investment,
holders deemed to sell our securities under the constructive sale provisions of the Code, passive foreign investment companies, controlled
foreign corporations, and certain former U.S. citizens or long-term residents.
In addition, this discussion
does not address the tax treatment of partnerships (or entities or arrangements that are treated as partnerships for U.S. federal income
tax purposes) or persons that hold our securities through such partnerships. If a partnership, including any entity or arrangement treated
as a partnership for U.S. federal income tax purposes, holds our securities, the U.S. federal income tax treatment of a partner in such
partnership will generally depend upon the status of the partner and the activities of the partnership. Such partners and partnerships
should consult their tax advisors regarding the tax consequences of the purchase, ownership and disposition of our securities.
For purposes of this discussion,
a “U.S. Holder” means a beneficial owner of our securities (other than a partnership or an entity or arrangement treated as
a partnership for U.S. federal income tax purposes) that is, for U.S. federal income tax purposes:
| ● | an individual who is a citizen or resident of the United States; |
| ● | a corporation, or an entity treated as a corporation for U.S. federal income tax purposes, created or
organized in the United States or under the laws of the United States or of any state thereof or the District of Columbia; |
| ● | an estate, the income of which is subject to U.S. federal income tax regardless of its source; or |
| ● | a trust if (a) a U.S. court can exercise primary supervision over the trust’s administration and
one or more U.S. persons have the authority to control all of the trust’s substantial decisions or (b) the trust has a valid election
in effect under applicable U.S. Treasury Regulations to be treated as a U.S. person. |
For purposes of this discussion,
a “non-U.S. Holder” is a beneficial owner of our securities that is neither a U.S. Holder nor a partnership or an entity
or arrangement treated as a partnership for U.S. federal income tax purposes.
Tax Considerations Applicable to U.S. Holders
Taxation of Distributions
If we pay distributions or
make constructive distributions (other than certain distributions of our stock or rights to acquire our stock) to U.S. Holders of shares
of our Class A Common Stock, such distributions generally will constitute dividends for U.S. federal income tax purposes to the extent
paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Distributions in excess
of our current and accumulated earnings and profits will constitute a return of capital that will be applied against and reduce (but not
below zero) the U.S. Holder’s adjusted tax basis in our Class A Common Stock. Any remaining excess will be treated as gain realized
on the sale or other disposition of the Class A Common Stock and will be treated as described under “U.S. Holders — Gain
or Loss on Sale, Taxable Exchange or Other Taxable Disposition of Class A Common Stock” below.
Dividends we pay to a U.S.
Holder that is a taxable corporation will generally qualify for the dividends received deduction if the requisite holding period is satisfied.
With certain exceptions (including dividends treated as investment income for purposes of investment interest deduction limitations),
and provided certain holding period requirements are met, dividends we pay to a non-corporate U.S. Holder will generally constitute “qualified
dividends” that will be subject to tax at the maximum tax rate accorded to long-term capital gains. If the holding period requirements
are not satisfied, a corporation may not be able to qualify for the dividends received deduction and would have taxable income equal to
the entire dividend amount, and non-corporate holders may be subject to tax on such dividend at ordinary income tax rates instead of the
preferential rates that apply to qualified dividend income.
Gain or Loss on Sale, Taxable Exchange or Other Taxable
Disposition of Class A Common Stock
A U.S. Holder generally will
recognize gain or loss on the sale, taxable exchange or other taxable disposition of our Class A Common Stock. Any such gain or loss will
be capital gain or loss, and will be long-term capital gain or loss if the U.S. Holder’s holding period for the Class A Common Stock
so disposed of exceeds one year. The amount of gain or loss recognized will generally be equal to the difference between (1) the sum of
the amount of cash and the fair market value of any property received in such disposition and (2) the U.S. Holder’s adjusted tax
basis in its Class A Common Stock so disposed of. A U.S. Holder’s adjusted tax basis in its Class A Common Stock will generally
equal the U.S. Holder’s acquisition cost for such Class A Common Stock (or, in the case of Class A Common Stock received upon exercise
of a warrant, the U.S. Holder’s initial basis for such Class A Common Stock, as discussed below), less any prior distributions treated
as a return of capital. Long-term capital gains recognized by non-corporate U.S. Holders are generally eligible for reduced rates of tax.
If the U.S. Holder’s holding period for the Class A Common Stock so disposed of is one year or less, any gain on a sale or other
taxable disposition of the shares would be subject to short-term capital gain treatment and would be taxed at ordinary income tax rates.
The deductibility of capital losses is subject to limitations.
Exercise of a Warrant
Except as discussed below
with respect to the cashless exercise of a warrant, a U.S. Holder generally will not recognize taxable gain or loss upon exercise of a
warrant for cash. The U.S. Holder’s initial tax basis in the share of our Class A Common Stock received upon exercise of the warrant
will generally be an amount equal to the sum of the U.S. Holder’s acquisition cost of the warrant and the exercise price of
such warrant. It is unclear whether a U.S. Holder’s holding period for the Class A Common Stock received upon exercise of the
warrant would commence on the date of exercise of the warrant or the day following the date of exercise of the warrant; however, in either
case the holding period will not include the period during which the U.S. Holder held the warrants.
In certain circumstances,
the warrants may be exercised on a cashless basis. The U.S. federal income tax treatment of an exercise of a warrant on a cashless basis
is not clear, and could differ from the consequences described above. It is possible that a cashless exercise could be a taxable event.
U.S. holders are urged to consult their tax advisors as to the consequences of an exercise of a warrant on a cashless basis, including
with respect to their holding period and tax basis in the Class A Common Stock received upon exercise of the warrant.
Sale, Exchange, Redemption or Expiration of a Warrant
Upon a sale, exchange (other
than by exercise), redemption, or expiration of a warrant, a U.S. Holder will recognize taxable gain or loss in an amount equal to the
difference between (1) the amount realized upon such disposition or expiration and (2) the U.S. Holder’s adjusted tax basis in the
warrant. A U.S. Holder’s adjusted tax basis in its warrants will generally equal the U.S. Holder’s acquisition cost, increased
by the amount of any constructive distributions included in income by such U.S. Holder (as described below under “U.S. Holders —
Possible Constructive Distributions”). Such gain or loss generally will be treated as long-term capital gain or loss if the warrant
is held by the U.S. Holder for more than one year at the time of such disposition or expiration.
If a warrant is allowed to
lapse unexercised, a U.S. Holder will generally recognize a capital loss equal to such holder’s adjusted tax basis in the warrant.
Any such loss generally will be a capital loss and will be long-term capital loss if the warrant is held for more than one year. Because
the term of the warrants is more than one year, a U.S. Holder’s capital loss will be treated as a long-term capital loss. The
deductibility of capital losses is subject to certain limitations.
Possible Constructive Distributions
The terms of each warrant
provide for an adjustment to the number of shares of Class A Common Stock for which the warrant may be exercised or to the exercise price
of the warrant in certain events, as discussed in the section of this prospectus entitled “Description of our Securities —
warrants — Public Stockholders’ warrants.” An adjustment which has the effect of preventing dilution generally should
not be a taxable event. Nevertheless, a U.S. Holder of warrants would be treated as receiving a constructive distribution from us if,
for example, the adjustment increases the holder’s proportionate interest in our assets or earnings and profits (e.g., through an
increase in the number of shares of Class A Common Stock that would be obtained upon exercise or an adjustment to the exercise price of
the warrant) as a result of a distribution of cash to the holders of shares of our Class A Common Stock which is taxable to such holders
as a distribution. Such constructive distribution would be subject to tax as described above under “U.S. Holders —
Taxation of Distributions” in the same manner as if such U.S. Holder received a cash distribution from us on Class A Common Stock
equal to the fair market value of such increased interest.
Information Reporting and Backup Withholding.
In general, information reporting
requirements may apply to dividends paid to a U.S. Holder and to the proceeds of the sale or other disposition of our shares of Class
A Common Stock and warrants, unless the U.S. Holder is an exempt recipient. Backup withholding may apply to such payments if the U.S.
Holder fails to provide a taxpayer identification number (or furnishes an incorrect taxpayer identification number) or a certification
of exempt status, or has been notified by the IRS that it is subject to backup withholding (and such notification has not been withdrawn).
Backup withholding is not
an additional tax. Any amounts withheld under the backup withholding rules will be allowed as a credit against a U.S. Holder’s U.S.
federal income tax liability and may entitle such holder to a refund, provided the required information is timely furnished to the IRS.
Taxpayers should consult their tax advisors regarding their qualification for an exemption from backup withholding and the procedures
for obtaining such an exemption.
Tax Considerations Applicable to Non-U.S. Holders
Taxation of Distributions
In general, any distributions
(including constructive distributions) we make to a non-U.S. Holder of shares on our Class A Common Stock, to the extent paid out of our
current or accumulated earnings and profits (as determined under U.S. federal income tax principles), will constitute dividends for U.S.
federal income tax purposes and, provided such dividends are not effectively connected with the non-U.S. Holder’s conduct of a trade
or business within the United States, we will be required to withhold tax from the gross amount of the dividend at a rate of 30%, unless
such non-U.S. Holder is eligible for a reduced rate of withholding tax under an applicable income tax treaty and provides proper certification
of its eligibility for such reduced rate (usually on an IRS Form W-8BEN or W-8BEN-E, as applicable). In the case of any constructive dividend
(as described below under “Non-U.S. Holders — Possible Constructive Distributions”), it is possible that this tax would
be withheld from any amount owed to a non-U.S. Holder by the applicable withholding agent, including cash distributions on other property
or sale proceeds from warrants or other property subsequently paid or credited to such holder. Any distribution not constituting a dividend
will be treated first as reducing (but not below zero) the non-U.S. Holder’s adjusted tax basis in its shares of our Class A Common
Stock and, to the extent such distribution exceeds the non-U.S. Holder’s adjusted tax basis, as gain realized from the sale or other
disposition of the Class A Common Stock, which will be treated as described under “Non-U.S. Holders — Gain on Sale, Taxable
Exchange or Other Taxable Disposition of Class A Common Stock and warrants” below. In addition, if we determine that we are likely
to be classified as a “United States real property holding corporation” (see the section entitled “Non-U.S. Holders
— Gain on Sale, Exchange or Other Taxable Disposition of Class A Common Stock and warrants” below), we will withhold 15% of
any distribution that exceeds our current and accumulated earnings and profits.
Dividends we pay to a non-U.S.
Holder that are effectively connected with such non-U.S. Holder’s conduct of a trade or business within the United States (or if
a tax treaty applies are attributable to a U.S. permanent establishment or fixed base maintained by the non-U.S. Holder) will generally
not be subject to U.S. withholding tax, provided such non-U.S. Holder complies with certain certification and disclosure requirements
(generally by providing an IRS Form W-8ECI). Instead, such dividends generally will be subject to U.S. federal income tax, net of certain
deductions, at the same individual or corporate rates applicable to U.S. Holders. If the non-U.S. Holder is a corporation, dividends that
are effectively connected income may also be subject to a “branch profits tax” at a rate of 30% (or such lower rate as may
be specified by an applicable income tax treaty).
Exercise of a Warrant
The U.S. federal income tax
treatment of a non-U.S. Holder’s exercise of a warrant will generally correspond to the U.S. federal income tax treatment of the
exercise of a warrant by a U.S. Holder, as described under “U.S. Holders — Exercise of a warrant” above, although
to the extent a cashless exercise results in a taxable exchange, the tax consequences to the non-U.S. Holder would be the same as those
described below in “Non-U.S. Holders — Gain on Sale, Exchange or Other Taxable Disposition of Class A Common Stock and warrants.”
Gain on Sale, Exchange or Other Taxable Disposition
of Class A Common Stock and Warrants
A non-U.S. Holder generally
will not be subject to U.S. federal income or withholding tax in respect of gain recognized on a sale, taxable exchange or other taxable
disposition of our Class A Common Stock or warrants or an expiration or redemption of our warrants, unless:
| ● | the gain is effectively connected with the conduct of a trade or business by the non-U.S. Holder within
the United States (and, if an applicable tax treaty so requires, is attributable to a U.S. permanent establishment or fixed base maintained
by the non-U.S. Holder); |
| ● | the non-U.S. Holder is an individual who is present in the United States for 183 days or more in the taxable
year of disposition and certain other conditions are met; or |
| ● | we are or have been a “United States real property holding corporation” for U.S. federal income
tax purposes at any time during the shorter of the five-year period ending on the date of disposition or the period that the non-U.S.
Holder held our Class A Common Stock or warrants and, in the case where shares of our Class A Common Stock are regularly traded on an
established securities market, (i) the non-U.S. Holder is disposing of our Class A Common Stock and has owned, directly or constructively,
more than 5% of our Class A Common Stock at any time within the shorter of the five-year period preceding the disposition or such Non-U.S.
Holder’s holding period for the shares of our Class A Common Stock or (ii), in the case where our warrants are regularly traded
on an established securities market, the non-U.S. Holder is disposing of our warrants and has owned, directly or constructively, more
than 5% of our warrants at any time within the shorter of the five-year period preceding the disposition or such Non-U.S. Holder’s
holding period for the shares of our warrants. There can be no assurance that our Class A Common Stock will be treated as regularly traded
or not regularly traded on an established securities market for this purpose. |
Gain described in the first
bullet point above will be subject to tax at generally applicable U.S. federal income tax rates as if the non-U.S. Holder were a U.S.
resident. Any gains described in the first bullet point above of a non-U.S. Holder that is a foreign corporation may also be subject to
an additional “branch profits tax” at a 30% rate (or lower applicable treaty rate). Gain described in the second bullet point
above will generally be subject to a flat 30% U.S. federal income tax. Non-U.S. Holders are urged to consult their tax advisors regarding
possible eligibility for benefits under income tax treaties.
If the third bullet point
above applies to a non-U.S. Holder and applicable exceptions are not available, gain recognized by such holder on the sale, exchange or
other disposition of our Class A Common Stock or warrants, as applicable, will be subject to tax at generally applicable U.S. federal
income tax rates. In addition, a buyer of our Class A Common Stock or warrants from such holder may be required to withhold U.S. income
tax at a rate of 15% of the amount realized upon such disposition. We will be classified as a United States real property holding corporation
if the fair market value of our “United States real property interests” equals or exceeds 50% of the sum of the fair market
value of our worldwide real property interests plus our other assets used or held for use in a trade or business, as determined for U.S.
federal income tax purposes. We do not believe we currently are or will become a United States real property holding corporation, however
there can be no assurance in this regard. Non-U.S. Holders are urged to consult their tax advisors regarding the application of these
rules.
Possible Constructive Distributions
The terms of each warrant
provide for an adjustment to the number of shares of Class A Common Stock for which the warrant may be exercised or to the exercise price
of the warrant in certain events, as discussed in the section entitled “Description of our Securities — Warrants — Public
Stockholders’ Warrants.” An adjustment which has the effect of preventing dilution generally should not be a taxable event.
Nevertheless, a non-U.S. Holder of warrants would be treated as receiving a constructive distribution from us if, for example, the adjustment
increases the holder’s proportionate interest in our assets or earnings and profits (e.g., through an increase in the number of
shares of Class A Common Stock that would be obtained upon exercise or an adjustment to the exercise price of the warrant) as a result
of a distribution of cash to the holders of shares of our Class A Common Stock which is taxable to such holders as a distribution. A non-U.S.
Holder would be subject to U.S. federal income tax withholding as described above under “Non-U.S. Holders — Taxation of Distributions”
under that section in the same manner as if such non-U.S. Holder received a cash distribution from us on Class A Common Stock equal to
the fair market value of such increased interest.
Foreign Account Tax Compliance Act
Provisions of the Code and
Treasury Regulations and administrative guidance promulgated thereunder commonly referred as the “Foreign Account Tax Compliance
Act” (“FATCA”) generally impose withholding at a rate of 30% in certain circumstances on dividends (including constructive
dividends) in respect of our securities which are held by or through certain foreign financial institutions (including investment funds),
unless any such institution (1) enters into, and complies with, an agreement with the IRS to report, on an annual basis, information with
respect to interests in, and accounts maintained by, the institution that are owned by certain U.S. persons and by certain non-U.S. entities
that are wholly or partially owned by U.S. persons and to withhold on certain payments, or (2) if required under an intergovernmental
agreement between the United States and an applicable foreign country, reports such information to its local tax authority, which will
exchange such information with the U.S. authorities. An intergovernmental agreement between the United States and an applicable foreign
country may modify these requirements. Accordingly, the entity through which our securities are held will affect the determination of
whether such withholding is required. Similarly, dividends (including constructive dividends) in respect of our securities held by an
investor that is a non-financial non-U.S. entity that does not qualify under certain exceptions will generally be subject to withholding
at a rate of 30%, unless such entity either (1) certifies to us or the applicable withholding agent that such entity does not have any
“substantial United States owners” or (2) provides certain information regarding the entity’s “substantial United
States owners,” which will in turn be provided to the U.S. Department of Treasury. Withholding under FATCA was scheduled to apply
to payments of gross proceeds from the sale or other disposition of property that produces U.S.-source interest or dividends, however,
the IRS released proposed regulations that, if finalized in their proposed form, would eliminate the obligation to withhold on such gross
proceeds. Although these proposed Treasury Regulations are not final, taxpayers generally may rely on them until final Treasury Regulations
are issued. Prospective investors should consult their tax advisors regarding the possible implications of FATCA on their investment in
our securities.
Information Reporting and Backup Withholding.
Information returns will be
filed with the IRS in connection with payments of dividends and the proceeds from a sale or other disposition of our Class A Common Stock
and warrants. A non-U.S. Holder may have to comply with certification procedures to establish that it is not a United States person in
order to avoid information reporting and backup withholding requirements. The certification procedures required to claim a reduced rate
of withholding under a treaty generally will satisfy the certification requirements necessary to avoid the backup withholding as well.
Backup withholding is not an additional tax. The amount of any backup withholding from a payment to a non-U.S. Holder will be allowed
as a credit against such holder’s U.S. federal income tax liability and may entitle such holder to a refund, provided that the required
information is timely furnished to the IRS.
Plan of Distribution
We are registering the issuance
by us of an aggregate of 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 the holders thereof and (ii) 8,050,000 shares of Class A Common Stock issuable upon
exercise of the public warrants by the holders thereof. We are also registering the resale by the selling securityholders or their permitted
transferees from time to time of up to (a) 38,532,805 shares of Class A Common Stock, consisting of (i) 35,721,555 issued and outstanding
shares of Class A Common Stock, (ii) 2,811,250 shares of Class A Common Stock issuable upon exercise of the private warrants, and (b)
2,811,250 private warrants.
We are required to pay all
fees and expenses incident to the registration of the securities to be offered and sold pursuant to this prospectus. The selling securityholders
will bear all commissions and discounts, if any, attributable to their sale of securities.
We will not receive any of
the proceeds from the sale of the securities by the selling securityholders. We will receive proceeds from warrants exercised in the event
that such warrants are exercised for cash. The aggregate proceeds to the selling securityholders will be the purchase price of the securities
less any discounts and commissions borne by the selling securityholders.
The shares of Class A Common
Stock beneficially owned by the selling securityholders covered by this prospectus may be offered and sold from time to time by the selling
securityholders. The term “selling securityholders” includes donees, pledgees, transferees or other successors in interest
selling securities received after the date of this prospectus from a selling securityholder as a gift, pledge, partnership distribution
or other transfer. The selling securityholders will act independently of us in making decisions with respect to the timing, manner and
size of each sale. Such sales may be made on one or more exchanges or in the over-the-counter market or otherwise, at prices and under
terms then prevailing or at prices related to the then current market price or in negotiated transactions. The selling securityholders
may sell their securities by one or more of, or a combination of, the following methods:
| ● | purchases by a broker-dealer as principal and resale by such broker-dealer for its own account pursuant
to this prospectus; |
| ● | ordinary brokerage transactions and transactions in which the broker solicits purchasers; |
| ● | block trades in which the broker-dealer so engaged will attempt to sell the shares as agent but may position
and resell a portion of the block as principal to facilitate the transaction; |
| ● | an over-the-counter distribution in accordance with the rules of Nasdaq; |
| ● | through trading plans entered into by a selling securityholder pursuant to Rule 10b5-1 under the Exchange
Act, that are in place at the time of an offering pursuant to this prospectus and any applicable prospectus supplement hereto that provide
for periodic sales of their securities on the basis of parameters described in such trading plans; |
| ● | distribution to employees, members, limited partners or stockholders of the selling securityholders; |
| ● | through the writing or settlement of options or other hedging transaction, whether through an options
exchange or otherwise; |
| ● | by pledge to secured debts and other obligations; |
| ● | delayed delivery arrangements; |
| ● | to or through underwriters or broker-dealers; |
| ● | in “at the market” offerings, as defined in Rule 415 under the Securities Act, at negotiated
prices, at prices prevailing at the time of sale or at prices related to such prevailing market prices, including sales made directly
on a national securities exchange or sales made through a market maker other than on an exchange or other similar offerings through sales
agents; |
| ● | in privately negotiated transactions; |
| ● | in options transactions; |
| ● | through a combination of any of the above methods of sale; or |
| ● | any other method permitted pursuant to applicable law. |
In addition, any securities
that qualify for sale pursuant to Rule 144 or another exemption from registration under the Securities Act or other such exemption may
be sold under Rule 144 rather than pursuant to this prospectus.
To the extent required, this
prospectus may be amended or supplemented from time to time to describe a specific plan of distribution. In connection with distributions
of the securities or otherwise, the selling securityholders may enter into hedging transactions with broker-dealers or other financial
institutions. In connection with such transactions, broker-dealers or other financial institutions may engage in short sales of the securities
in the course of hedging the positions they assume with selling securityholders. The selling securityholders may also sell the securities
short and redeliver the securities to close out such short positions. The selling securityholders may also enter into option or other
transactions with broker-dealers or other financial institutions which require the delivery to such broker-dealer or other financial institution
of securities offered by this prospectus, which securities such broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such transaction). The selling securityholders may also pledge securities to a broker-dealer
or other financial institution, and, upon a default, such broker-dealer or other financial institution, may effect sales of the pledged
securities pursuant to this prospectus (as supplemented or amended to reflect such transaction).
In effecting sales, broker-dealers
or agents engaged by the selling securityholders may arrange for other broker-dealers to participate. Broker-dealers or agents may receive
commissions, discounts or concessions from the selling securityholders in amounts to be negotiated immediately prior to the sale.
In offering the securities
covered by this prospectus, the selling securityholders and any broker-dealers who execute sales for the selling securityholders may be
deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. Any profits realized by
the selling securityholders and the compensation of any broker-dealer may be deemed to be underwriting discounts and commissions.
In order to comply with the
securities laws of certain states, if applicable, the securities must be sold in such jurisdictions only through registered or licensed
brokers or dealers. In addition, in certain states the securities may not be sold unless they have been registered or qualified for sale
in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.
We have advised the selling
securityholders that the anti-manipulation rules of Regulation M under the Exchange Act may apply to sales of securities in the market
and to the activities of the selling securityholders and their affiliates. In addition, we will make copies of this prospectus available
to the selling securityholders for the purpose of satisfying the prospectus delivery requirements of the Securities Act. The selling securityholders
may indemnify any broker-dealer that participates in transactions involving the sale of the securities against certain liabilities, including
liabilities arising under the Securities Act.
At the time a particular offer
of securities is made, if required, a prospectus supplement will be distributed that will set forth the number of securities being offered
and the terms of the offering, including the name of any underwriter, dealer or agent, the purchase price paid by any underwriter, any
discount, commission and other item constituting compensation, any discount, commission or concession allowed or reallowed or paid to
any dealer, and the proposed selling price to the public.
A holder of warrants may exercise
its warrants in accordance with the Warrant Agreement on or before the expiration date set forth therein by surrendering, at the office
of the Warrant Agent, Continental Stock Transfer & Trust Company, the certificate evidencing such warrant, with the form of election
to purchase set forth thereon, properly completed and duly executed, accompanied by full payment of the exercise price and any and all
applicable taxes due in connection with the exercise of the warrant, subject to any applicable provisions relating to cashless exercises
in accordance with the Warrant Agreement.
Legal Matters
The validity of the securities
offered by this prospectus has been passed upon for us by Cooley LLP.
Experts
The consolidated financial
statements of AgileThought, Inc. as of December 31, 2021 and 2020, and for each of the years then ended, have been included herein and
in the registration statement in reliance upon the report of KPMG LLP, independent registered public accounting firm, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and auditing.
CHANGE IN REGISTRANT’S
CERTIFYING ACCOUNTANT
On August 23, 2021, our board
of directors approved the engagement of KPMG LLP (“KPMG”) as our independent registered public accounting firm to audit our
consolidated financial statements for the year ending December 31, 2021. KPMG served as the independent registered public accounting firm
of Legacy AT prior to the business combination. Accordingly, Marcum LLP (“Marcum”), the Company’s independent registered
public accounting firm prior to the business combination, was informed on August 23, 2021 that it would be dismissed and replaced by KPMG
as our independent registered public accounting firm.
Marcum’s report on the
Company’s balance sheets as of December 31, 2020 and 2019, the related statements of operations, stockholders’ equity and
cash flows for the year ended December 31, 2020 and for the period from October 2, 2019 (inception) to December 31, 2019, and the related
notes to the financial statements (collectively, the “financial statements”) did not contain any adverse opinion or disclaimer
of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles, except for the substantial doubt
about the Company’s ability to continue as a going concern.
During the period from October
2, 2019 (inception) to December 31, 2020 and the subsequent interim period through June 30, 2021, there were no: (i) disagreements with
Marcum on any matter of accounting principles or practices, financial statement disclosures or audited scope or procedures, which disagreements
if not resolved to Marcum’s satisfaction would have caused Marcum to make reference to the subject matter of the disagreement in
connection with its report or (ii) reportable events as defined in Item 304(a)(1)(v) of Regulation S-K under the Securities and Exchange
Act of 1934, as amended (the “Exchange Act”).
During the period from October
2, 2019 (inception) to December 31, 2020, and the interim period through June 30, 2021, the Company did not consult KPMG with respect
to either (i) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit
opinion that might be rendered on the Company’s financial statements, and no written report or oral advice was provided to the Company
by KPMG that KPMG concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing or
financial reporting issue; or (ii) any matter that was either the subject of a disagreement, as that term is described in Item 304(a)(1)(iv)
of Regulation S-K under the Exchange Act and the related instructions to Item 304 of Regulation S-K under the Exchange Act, or a reportable
event, as that term is defined in Item 304(a)(1)(v) of Regulation S-K under the Exchange Act.
We provided Marcum with a
copy of the disclosures made by us in response to Item 304(a) of Regulation S-K under the Exchange Act, and requested that Marcum furnish
us with a letter addressed to the SEC stating whether it agrees with the statements made by us in response to Item 304(a) of Regulation
S-K under the Exchange Act and, if not, stating the respects in which it does not agree. A letter from Marcum is attached hereto as Exhibit
16.1.
Where You Can Find
More Information
We have filed with the SEC
a registration statement on Form S-1 under the Securities Act, with respect to the securities being offered by this prospectus. This prospectus,
which constitutes part of the registration statement, does not contain all of the information in the registration statement and its exhibits.
For further information with respect to AgileThought and the securities offered by this prospectus, we refer you to the registration statement
and its exhibits. Statements contained in this prospectus as to the contents of any contract or any other document referred to are not
necessarily complete, and in each instance, we refer you to the copy of the contract or other document filed as an exhibit to the registration
statement. Each of these statements is qualified in all respects by this reference. You can read our SEC filings, including the registration
statement, over the internet at the SEC’s website at www.sec.gov.
We are subject to the information
reporting requirements of the Exchange Act, and we file reports, proxy statements and other information with the SEC. These reports, proxy
statements and other information will be available for review at the SEC’s website at www.sec.gov. We also maintain a website at
www.AgileThought.com, at which you may access these materials free of charge as soon as reasonably practicable after they are electronically
filed with, or furnished to, the SEC. The information contained in, or that can be accessed through, our website is not part of this prospectus.
INDEX
TO FINANCIAL STATEMENTS
AGILETHOUGHT, INC.
Report of Independent Registered Public Accounting
Firm
To the Stockholders and Board of Directors
AgileThought, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of AgileThought,
Inc. and subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive
loss, stockholders’ equity, and cash flows for each of the years then ended, and the related notes (collectively, the consolidated
financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position
of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the years then ended, in conformity
with U.S. generally accepted accounting principles.
Basis for Opinion
These consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required
to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations
of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for
our opinion.
/s/ KPMG LLP
We have served as the Company’s auditor since 2019.
Dallas, Texas
March 31, 2022
AgileThought, Inc.
Consolidated Balance Sheets
| |
December 31, | |
(in thousands USD, except share data) | |
2021 | | |
2020 | |
Assets | |
| | |
| |
Current assets: | |
| | |
| |
Cash, cash equivalents and restricted cash | |
$ | 8,640 | | |
$ | 9,432 | |
Accounts receivable, net | |
| 31,387 | | |
| 23,800 | |
Prepaid expenses and other current assets | |
| 7,490 | | |
| 3,940 | |
Current VAT receivables | |
| 9,713 | | |
| 10,776 | |
Total current assets | |
| 57,230 | | |
| 47,948 | |
Property and equipment, net | |
| 3,107 | | |
| 3,428 | |
Goodwill and indefinite-lived intangible assets | |
| 86,694 | | |
| 88,809 | |
Finite-lived intangible assets, net | |
| 66,233 | | |
| 71,511 | |
| |
| | | |
| | |
Operating lease right of use assets, net | |
| 6,434 | | |
| 8,123 | |
Other noncurrent assets | |
| 1,612 | | |
| 463 | |
Total noncurrent assets | |
| 164,080 | | |
| 172,334 | |
Total assets | |
$ | 221,310 | | |
$ | 220,282 | |
| |
| | | |
| | |
Liabilities and Stockholders’ Equity | |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Accounts payable | |
$ | 20,970 | | |
$ | 16,486 | |
Accrued liabilities | |
| 9,778 | | |
| 15,080 | |
Income taxes payable | |
| 97 | | |
| 164 | |
Other taxes payable | |
| 9,733 | | |
| 8,203 | |
Current portion of operating lease liabilities | |
| 2,834 | | |
| 3,286 | |
Deferred revenue | |
| 1,789 | | |
| 2,143 | |
Current portion of obligation for contingent purchase price | |
| 8,791 | | |
| 8,104 | |
Current portion of long-term debt | |
| 14,838 | | |
| 11,380 | |
Total current liabilities | |
| 68,830 | | |
| 64,846 | |
Obligation for contingent purchase price, net of current portion | |
| — | | |
| 2,200 | |
Long-term debt, net of current portion | |
| 42,274 | | |
| 125,963 | |
Deferred tax liabilities, net | |
| 2,762 | | |
| 3,073 | |
Operating lease liabilities, net of current portion | |
| 3,759 | | |
| 5,010 | |
Warrant liability | |
| 2,137 | | |
| — | |
Other noncurrent liabilities | |
| 6,900 | | |
| 992 | |
Total liabilities | |
| 126,662 | | |
| 202,084 | |
Commitments and contingencies (Note 19) | |
| | | |
| | |
| |
| | | |
| | |
Stockholders’ Equity | |
| | | |
| | |
Class A shares $.0001 par value, 210,000,000 shares authorized, 50,402,763 and 34,557,480 shares outstanding as of December 31, 2021 and 2020, respectively | |
| 5 | | |
| 3 | |
Treasury stock, 181,381 shares at cost | |
| (294 | ) | |
| — | |
Additional paid-in capital | |
| 198,649 | | |
| 101,494 | |
Accumulated deficit | |
| (86,251 | ) | |
| (66,181 | ) |
Accumulated other comprehensive loss | |
| (17,362 | ) | |
| (16,981 | ) |
Total stockholders’ equity attributable to the Company | |
| 94,747 | | |
| 18,335 | |
Noncontrolling interests | |
| (99 | ) | |
| (137 | ) |
Total stockholders’ equity | |
| 94,648 | | |
| 18,198 | |
Total liabilities and stockholders’ equity | |
$ | 221,310 | | |
$ | 220,282 | |
The accompanying notes are an integral part of
the Consolidated Financial Statements.
AgileThought, Inc.
Consolidated Statements of Operations
| |
Year ended December 31, | |
(in thousands USD, except share data) | |
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 | ) |
| |
| | | |
| | |
Loss per share (Note 17): | |
| | | |
| | |
Basic | |
$ | (0.54 | ) | |
$ | (0.76 | ) |
Diluted | |
$ | (0.54 | ) | |
$ | (0.76 | ) |
| |
| | | |
| | |
Weighted average number of shares: | |
| | | |
| | |
Basic | |
| 37,331,820 | | |
| 34,557,480 | |
Diluted | |
| 37,331,820 | | |
| 34,557,480 | |
The accompanying notes are an integral part of
the Consolidated Financial Statements.
AgileThought, Inc.
Consolidated Statements of Comprehensive Loss
| |
Year ended December 31, | |
(in thousands USD) | |
2021 | | |
2020 | |
Net loss | |
$ | (20,048 | ) | |
$ | (26,332 | ) |
Actuarial loss | |
| 62 | | |
| — | |
Foreign currency translation adjustments | |
| (427 | ) | |
| (14,052 | ) |
Comprehensive loss | |
| (20,413 | ) | |
| (40,384 | ) |
Less: Comprehensive income (loss) attributable to noncontrolling interests | |
| 38 | | |
| (300 | ) |
Comprehensive loss attributable to the Company | |
$ | (20,451 | ) | |
$ | (40,084 | ) |
The accompanying notes are an integral part of
the Consolidated Financial Statements.
AgileThought, Inc.
Consolidated Statements of Stockholders’ Equity
(in
thousands USD, except | |
Legacy
Class A | | |
Legacy
Class B | | |
Common
Stock | | |
Treasury
Stock | | |
Additional Paid-in | | |
Accumulated | | |
Accumulated
Other
Comprehensive | | |
Noncontrolling | | |
Total
Stockholders’ | |
share
data) | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Loss | | |
Interests | | |
Equity | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
December
31, 2019, as previously reported | |
| 431,682 | | |
| — | | |
| 37,538 | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 101,286 | | |
| (40,004 | ) | |
| (3,074 | ) | |
| 163 | | |
| 58,371 | |
Retroactive
application of recapitalization | |
| (431,682 | ) | |
| — | | |
| (37,538 | ) | |
| | | |
| 34,557,480 | | |
| 3 | | |
| 151,950 | | |
| — | | |
| (3 | ) | |
| — | | |
| — | | |
| — | | |
| — | |
December
31, 2019 as adjusted | |
| — | | |
| — | | |
| — | | |
| | | |
| 34,557,480 | | |
| 3 | | |
| 151,950 | | |
| — | | |
| 101,283 | | |
| (40,004 | ) | |
| (3,074 | ) | |
| 163 | | |
| 58,371 | |
Net
loss | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (26,177 | ) | |
| — | | |
| (155 | ) | |
| (26,332 | ) |
Equity-based
compensation | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 211 | | |
| — | | |
| — | | |
| — | | |
| 211 | |
Foreign
currency translation adjustments | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (13,907 | ) | |
| (145 | ) | |
| (14,052 | ) |
December
31, 2020 | |
| — | | |
| — | | |
| — | | |
| — | | |
| 34,557,480 | | |
| 3 | | |
| 151,950 | | |
| — | | |
| 101,494 | | |
| (66,181 | ) | |
| (16,981 | ) | |
| (137 | ) | |
| 18,198 | |
Net
(loss) income | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (20,070 | ) | |
| — | | |
| 22 | | |
| (20,048 | ) |
Issuance
of common stock in offering, net of transaction cost of $3.1 million | |
| — | | |
| — | | |
| — | | |
| — | | |
| 3,560,710 | | |
| — | | |
| — | | |
| — | | |
| 21,819 | | |
| — | | |
| — | | |
| — | | |
| 21,819 | |
Conversion
of convertible debt to common stock | |
| — | | |
| — | | |
| — | | |
| — | | |
| 461,236 | | |
| — | | |
| — | | |
| — | | |
| 4,700 | | |
| — | | |
| — | | |
| — | | |
| 4,700 | |
Issuance
of common stock due to closing of Business Combination, net of transaction costs of $13.0 million | |
| — | | |
| — | | |
| — | | |
| — | | |
| 7,413,435 | | |
| 1 | | |
| — | | |
| — | | |
| 65,840 | | |
| — | | |
| — | | |
| — | | |
| 65,841 | |
Issuance
of common stock to First Lien Facility administrative agent | |
| — | | |
| — | | |
| — | | |
| — | | |
| 4,439,333 | | |
| 1 | | |
| — | | |
| — | | |
| (1 | ) | |
| — | | |
| — | | |
| — | | |
| — | |
Equity-based
compensation | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 6,481 | | |
| — | | |
| — | | |
| — | | |
| 6,481 | |
Employee
withholding taxes paid related to net share settlements | |
| — | | |
| — | | |
| — | | |
| — | | |
| (29,431 | ) | |
| — | | |
| 29,431 | | |
| (294 | ) | |
| (1,684 | ) | |
| — | | |
| — | | |
| — | | |
| (1,978 | ) |
Other
comprehensive expense | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 62 | | |
| — | | |
| 62 | |
Foreign
currency translation adjustments | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (443 | ) | |
| 16 | | |
| (427 | ) |
December
31, 2021 | |
| — | | |
| — | | |
| — | | |
| — | | |
| 50,402,763 | | |
| 5 | | |
| 181,381 | | |
| (294 | ) | |
| 198,649 | | |
| (86,251 | ) | |
| (17,362 | ) | |
| (99 | ) | |
| 94,648 | |
The accompanying notes are an integral part of
the Consolidated Financial Statements
AgileThought, Inc.
Consolidated
Statements of Cash Flows
| |
Year ended December 31, | |
(in thousands USD) | |
2021 | | |
2020 | |
Operating Activities | |
| | |
| |
Net loss | |
$ | (20,048 | ) | |
$ | (26,332 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
Accretion of interest from convertible notes | |
| 3,068 | | |
| 4,380 | |
Gain on forgiveness of debt | |
| (1,306 | ) | |
| (142 | ) |
Provision for bad debt expense | |
| 1,307 | | |
| 11 | |
Impairment of goodwill and other intangible assets | |
| — | | |
| 16,699 | |
Equity-based compensation | |
| 6,481 | | |
| 211 | |
Loss on disposal of property and equipment | |
| — | | |
| 43 | |
Right-of-use asset amortization | |
| 3,125 | | |
| 2,899 | |
Foreign currency remeasurement | |
| 1,936 | | |
| (3,597 | ) |
Deferred income tax provision | |
| (242 | ) | |
| 1,398 | |
Obligations for contingent purchase price | |
| (1,464 | ) | |
| (6,240 | ) |
Embedded derivative liabilities | |
| (4,406 | ) | |
| — | |
Warrant liability | |
| (4,694 | ) | |
| — | |
Gain on divestiture, net of cash retained | |
| — | | |
| (1,302 | ) |
Amortization of debt issue costs | |
| 3,521 | | |
| 925 | |
Depreciation and amortization | |
| 6,984 | | |
| 6,959 | |
Changes in assets and liabilities: | |
| | | |
| | |
Accounts receivable | |
| (10,253 | ) | |
| 16,866 | |
Prepaid expenses and other assets | |
| (4,729 | ) | |
| (1,393 | ) |
Accounts payable | |
| 3,657 | | |
| (3,380 | ) |
Accrued liabilities | |
| (5,079 | ) | |
| (3,697 | ) |
Deferred revenues | |
| (271 | ) | |
| (1,103 | ) |
Other current tax assets and taxes payable | |
| 2,356 | | |
| 2,296 | |
Income taxes payable | |
| (29 | ) | |
| (3,729 | ) |
Lease liabilities | |
| (3,137 | ) | |
| (2,838 | ) |
Net cash used in operating activities | |
| (23,223 | ) | |
| (1,066 | ) |
Investing activities | |
| | | |
| | |
Purchase of property and equipment | |
| (916 | ) | |
| (1,585 | ) |
Net cash used in investing activities | |
| (916 | ) | |
| (1,585 | ) |
Financing activities | |
| | | |
| | |
Proceeds from loans | |
| 24,524 | | |
| 13,370 | |
Payments of debt issuance costs | |
| (1,453 | ) | |
| — | |
Repayments of borrowings | |
| (61,655 | ) | |
| (2,450 | ) |
Payments of PIPE transaction cost | |
| (13,033 | ) | |
| — | |
Proceeds from PIPE Investors | |
| 27,600 | | |
| — | |
Proceeds from follow-on public offering | |
| 24,925 | | |
| — | |
Share issuance transaction costs | |
| (3,106 | ) | |
| — | |
Payments of contingent consideration | |
| — | | |
| (4,314 | ) |
Proceeds from capital contribution | |
| 25,749 | | |
| — | |
Net cash provided by financing activities | |
| 23,551 | | |
| 6,606 | |
Effect of exchange rates on cash | |
| (204 | ) | |
| (889 | ) |
Increase (decrease) in cash and cash equivalents | |
| (792 | ) | |
| 3,066 | |
Cash, cash equivalents and restricted cash at beginning of the year | |
| 9,432 | | |
| 6,366 | |
Cash, cash equivalents and restricted cash at end of the year (1) | |
$ | 8,640 | | |
$ | 9,432 | |
| |
| | | |
| | |
(1) Amount of restricted cash at end of period | |
$ | 177 | | |
$ | 176 | |
The accompanying notes are an integral part of
the Consolidated Financial Statements
AgileThought,
Inc.
Notes to Consolidated Financial Statements
Note 1 – Organization and Basis of Consolidation and
Presentation
Organization
AgileThought, Inc. (the “Company”
or “AgileThought”) is a global provider of agile-first, end-to-end digital transformation services in the North American market
using on-shore and near-shore delivery. The Company’s headquarters is in Irving, Texas. AgileThought’s Class A common stock
is listed on the NASDAQ Capital Market (“NASDAQ”) under the symbol “AGIL.”
On August 23, 2021 (the “Closing Date”),
LIV Capital Acquisition Corp. (“LIVK”), a special purpose acquisition company, and AgileThought (“Legacy AgileThought”)
consummated the transactions contemplated by the definitive agreement and plan of merger (“Merger Agreement”), dated May 9,
2021 (“Business Combination”). Pursuant to the terms, Legacy AgileThought merged with and into LIVK, whereupon the separate
corporate existence of Legacy AgileThought ceased, with LIVK surviving such merger (the “Surviving Company”). On the Closing
Date, the Surviving Company changed its name to AgileThought, Inc. (the “Company”, “AgileThought”, “we”
or “us”).
Basis of Consolidation and Presentation
The accompany consolidated financial statements
are prepared in accordance with the U.S generally accepted accounting principles (“GAAP”) and in accordance with the rules
and regulations of the Securities and Exchange Commission (“SEC.”) The consolidated financial statements included in this
Annual Report present the Company’s financial position, results of operations and cash flows for the periods of the Company and
its subsidiaries. All intercompany accounts and transactions have been eliminated. The ownership interest of noncontrolling investors
of the Company’s subsidiaries are recorded as noncontrolling interest.
The Business Combination was accounted for as
a reverse capitalization in accordance with U.S. GAAP (the “Recapitalization”). Under this method of accounting, LIVK is treated
as the acquired company and Legacy AgileThought is treated as the accounting acquirer for financial reporting purposes, resulting in no
change in the carrying amount of the Company’s assets and liabilities. The consolidated assets, liabilities and results of operations
prior to the Recapitalization are those of Legacy AgileThought. The shares and corresponding capital amounts and losses per share, prior
to the Business Combination, have been retroactively restated based on shares reflecting the exchange ratio established in the Business
Combination.
The Company evaluated subsequent events, if any,
that would require an adjustment to the Company’s consolidated financial statements or require disclosure in the notes to the consolidated
financial statements through the date of issuance of the consolidated financial statements. Where applicable, the notes to these consolidated
financial statements have been updated to discuss all significant subsequent events which have occurred.
Note 2 – Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in accordance
with U.S. GAAP requires management to make estimates and assumptions about future events that affect the amounts reported in the Consolidated
Financial Statements. Further, certain estimates and assumptions include the direct and indirect impact of the COVID-19 pandemic on the
Company’s business, financial condition and results of operations. We make significant estimates with respect to intangible assets,
goodwill, depreciation, amortization, income taxes, equity-based compensation, contingencies, fair value of assets and liabilities acquired,
obligations related to contingent consideration in connection with business combinations, fair value of embedded derivative liabilities,
and fair value of warrant liability. The economic impact of the pandemic on the Company’s business depends on its severity and duration,
which in turn depend on highly uncertain factors such as the nature and extent of containment efforts, the spread and effects of variants,
and the timing and efficacy of vaccines. The high level of uncertainty regarding this economic impact means that management’s estimates
and assumptions are subject to change as the situation develops and new information becomes available. To the extent the actual results
differ materially from these estimates and assumptions, the Company’s future financial statements could be materially affected.
Revenue Recognition
The Company recognizes revenue in accordance with
Financial Accounting Standards Board’s (“FASB”) Accounting 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.
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.
Segments
Operating segments are defined as components of
an enterprise for which discrete financial information is available that is evaluated regularly by the Chief Operating Decision Maker
(“CODM”) for purposes of allocating resources and evaluating financial performance. The Company’s Chief Executive Officer,
who has been identified as the CODM, reviews financial information at the consolidated group level in order to assess Company performance
and allocate resources. As such, the Company has determined that it operates a single operating and reporting segment.
Fair Value Measurements
The Company records fair value of assets and liabilities
in accordance with FASB ASC 820, Fair Value Measurement. ASC 820 defines fair value as the price received to sell an asset
or paid to transfer a liability in an orderly transaction between market participants at the measurement date and in the principal or
most advantageous market for that asset or liability. The fair value should be calculated based on assumptions that market participants
would use in pricing the asset or liability, not on assumptions specific to the entity.
ASC 820 includes disclosures around fair value
and establishes a fair value hierarchy for valuation inputs. The hierarchy prioritizes the inputs into three levels based on the extent
to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reporting in one of three levels,
which is determined by the lowest level input that is significant to the fair value measurement in its entirety. These levels are as follows:
| Level 1: | Quoted prices for identical instruments in active markets. |
| | |
| Level 2: | Other valuations that include quoted prices for similar
instruments in active markets that are directly or indirectly observable. |
| | |
| Level 3: | Valuations made through techniques in which one or more
of its significant data are not observable. |
See Note 4, Fair Value Measurements,
for further discussion.
Cash, Cash Equivalents and Restricted Cash
Cash
and cash equivalents include highly liquid investments with an original maturity of three months or less when purchased. The Company
maintains cash and cash equivalents balances with major financial institutions. At times, these balances exceed federally insured limits.
The Company periodically assesses the financial condition of these financial institutions where the funds are held and believes the credit
risk is remote. In 2021 and 2020, the Company held restricted cash in connection with litigation.
Accounts Receivable and Allowance for Doubtful
Accounts
Accounts receivable are recorded at the invoiced
or to be invoiced amount, do not bear interest, and are due within one year or less. Amounts collected on trade accounts receivable are
included in net cash flows from operating activities in the Consolidated Statements of Cash Flows. The Company maintains an allowance
for doubtful accounts for estimated credit losses inherent in its accounts receivable portfolio consistent with the requirements of Accounting
Standard Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses of
Financial Instruments. In establishing the required reserve, management considers historical experience, the age of the accounts receivable
balances and current payment patterns, and current economic conditions that may affect a client’s ability to pay. Account balances are
charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.
The Company does not have any off-balance-sheet credit exposure related to its clients.
Property and Equipment
Property and equipment are measured at cost less
accumulated depreciation or amortization. Expenditures for replacements and improvements are capitalized, whereas the costs of maintenance
and repairs are charged to earnings as incurred. The Company depreciates property and equipment using the straight-line method over
the following estimated economic useful lives of the assets:
| |
Useful life (years) | |
Furniture and fixtures | |
5 - 10 | |
Computer equipment | |
3 - 5 | |
Computer software | |
3 | |
Leasehold improvements are amortized over the
lease term or the useful life of the asset, whichever is shorter. When these assets are sold or otherwise disposed of, the asset and related
depreciation and amortization is relieved, and any gain or loss is included in the Consolidated Statements of Operations.
The Company capitalizes certain development costs
incurred in connection with its internal-use software. Costs incurred in the preliminary stages of development are expensed as incurred.
Once an application has reached the development stage, payroll and payroll-related expenses of employees, are capitalized until the software
is substantially complete and ready for its intended use. Capitalized costs are amortized on a straight-line basis over three years,
the estimated useful life of the software.
Long-lived assets are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. We test for recoverability
by comparing the sum of estimated future discounted cash flows to an asset’s carrying value. If we determine the carrying value
is not recoverable, we calculate an impairment loss based on the excess of the asset’s carrying value over its fair value. The fair
value is determined using a discounted cash flow approach.
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 in the Consolidated Statement of Operations.
Goodwill
Goodwill represents the cost of acquired businesses
in excess of the fair value of identifiable tangible and intangible net assets purchased and is allocated to a reporting unit when the
acquired business is integrated into the Company. Goodwill is not amortized but is tested for impairment annually on October 1st. The
Company will also perform an assessment whenever events or changes in circumstances indicate that the carrying amount of a reporting unit
may be more than its recoverable amount. Under FASB guidance, management may first assess certain qualitative factors to determine whether
it is necessary to perform a quantitative goodwill impairment test.
When needed, the Company performs a quantitative
assessment of goodwill impairment if it determines that it is more likely than not that the fair value of a reporting unit is less than
its carrying amount. In the quantitative test, we compare the fair value of the reporting unit with the respective carrying value. Management
uses a combined income and public company market approach to estimate the fair value of each reporting unit. If the carrying value of
a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to the excess, limited to the total amount
of goodwill allocated to that reporting unit.
This analysis requires significant assumptions,
such as estimated future cash flows, long-term growth rate estimates, weighted average cost of capital, and market multiples. The estimates
used to calculate the fair value of a reporting unit change from year to year based on operating results, market conditions, and other
factors.
Intangible Assets
The Company has customer relationships (finite-lived
intangible assets) and trade names (indefinite-lived intangible assets) on its Consolidated Balance Sheets.
Intangible assets with finite lives are amortized
on a straight-line basis over their estimated useful lives using a method of amortization that reflects the pattern in which the economic
benefits of the intangible assets are consumed. We test for impairment when events or circumstances indicate the carrying value of a finite-lived
intangible asset may not be recoverable. Consistent with other long-lived assets, if the carrying value is not determined to be recoverable,
we calculate an impairment loss based on the excess of the asset’s carrying value over its fair value. The fair value is determined
using the discounted cash flow approach of multi-period excess earnings.
During the first quarter of 2021, the Company
reassessed and changed the estimated economic life of a certain trade name from indefinite to finite-lived as a result of the shift in
operations towards a global strategy as “One AgileThought.” As a result, the Company began amortizing a certain trade name
using straight-line method over their average remaining economic life of five years.
Indefinite-lived intangible assets are not amortized
but are instead assessed for impairment annually and as needed whenever events or circumstances leads to a determination that it is more
likely than not that the fair value of a reporting unit is less than its carrying amount. An impairment loss is recognized if the asset’s
carrying value exceeds its fair value. The Company uses the relief from royalty method to determine the fair value of its indefinite-lived
intangible assets. Refer to Note 7, Goodwill and Intangible Assets, for additional information.
Leases
The Company is a lessee in several non-cancellable
leases, primarily for office space and computer equipment. The Company accounts for leases under ASC Topic 842, Leases. We
determine if an arrangement is or contains a lease at inception. For operating leases, the lease liability is initially measured at the
present value of future lease payments at the lease commencement date. Lease payments included in the measurement of the lease liability
are comprised of the following:
| ○ | Fixed payments, including in-substance fixed payments, owed
over the lease term; |
| | |
| ○ | Variable lease payments that depend on an index or rate,
initially measured using the index or rate at the lease commencement date; |
| | |
| ○ | Amounts expected to be payable under a Company-provided residual
value guarantee; and |
| | |
| ○ | The exercise price of a Company option to purchase the underlying
asset if the Company is reasonably certain to exercise the option. |
Key estimates and judgments include how the Company
determines (1) the discount rate it uses to calculate the present value of future lease payments and (2) lease term. These are described
in more detail as follows:
| ● | ASC 842 requires a lessee to calculate its lease liability
using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. Generally,
the Company cannot determine the interest rate implicit in the lease because it does not have access to the lessor’s estimated
residual value or the amount of the lessor’s deferred initial direct costs. Therefore, the Company generally uses its incremental
borrowing rate as the discount rate for the lease. This is the rate the Company would have to pay on a collateralized basis to borrow
an amount equal to the lease payments under similar terms. |
| ● | The lease term for all of the Company’s leases includes
the non-cancellable period of the lease plus any periods covered by a Company option to extend (or not to terminate) the lease that the
Company is reasonably certain to exercise, or an option to extend (or not to terminate) the lease controlled by the lessor. |
The right of use (“ROU”) asset is
initially measured at the initial amount of the lease liability, adjusted for lease payments made at or before the lease commencement
date, plus any initial direct costs incurred less any lease incentives received. The ROU asset is subsequently amortized over the lease
term. Lease expense for lease payments is recognized on a straight-line basis over the lease term in selling, general and administrative
expenses in the Consolidated Statements of Operations.
Variable lease payments are immaterial and our
lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The Company uses the long-lived assets impairment
guidance in ASC Subtopic 360-10, Property, Plant, and Equipment – Overall, to determine whether an ROU asset is impaired,
and if so, the amount of the impairment loss to recognize.
The Company has elected to apply the short-term
lease recognition and measurement exemption and not recognize ROU assets and lease liabilities for leases with a lease term of 12 months
or less. The Company recognizes the lease payments associated with its short-term leases as an expense on a straight-line basis over the
lease term. Variable lease payments associated with these leases are recognized and presented in the same manner as for all other Company
leases.
We have lease agreements with lease and non-lease
components, for which we have elected the practical expedient to account for as a single lease component. Additionally, for certain equipment
leases, we apply a portfolio approach to effectively account for the operating lease ROU assets and operating lease liabilities. Refer
to Note 8, Leases, for additional information.
Foreign Currency
The Company’s Consolidated Financial Statements
are reported in US dollars. The Company has determined that its international subsidiaries’ functional currency is the local currency
in each country. The translation of the functional currencies of subsidiaries into US dollars is performed for balance sheet accounts
using the exchange rates in effect as of the balance sheet date and for revenues and expense accounts using a monthly average exchange
rate prevailing during the respective period. The gains or losses resulting from such translation are reported as foreign currency translation
adjustments within accumulated other comprehensive income (loss) as a separate component of equity.
Monetary assets and liabilities of each subsidiary
denominated in currencies other than the subsidiary’s functional currency are translated into their respective functional currency
at the rates of exchange prevailing on the balance sheet date. Transactions of each subsidiary in currencies other than the subsidiary’s
functional currency are translated into the respective functional currencies at the average monthly exchange rate prevailing during the
period of the transaction. The gains or losses resulting from foreign currency transactions are included in the Consolidated Statements
of Operations.
Income Taxes
The Company accounts for income taxes using the
asset and liability method of accounting for income taxes. Under this method, income tax expense is recognized for taxes payable or refundable
for the current year. In addition, deferred tax assets and liabilities are recognized for future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and liabilities and their tax bases and all operating loss and tax
credit carry forwards, if any. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities
of a change in tax laws or rates is recognized in the Consolidated Statements of Operations in the period that includes the enactment
date. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not
that some or all the deferred tax assets will not be realized. Pursuant to FASB guidance related to accounting for uncertainty in income
taxes, we may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be
sustained upon examination by the taxing authorities, based on the technical merits of the tax position and also the past administrative
practices and precedents of the taxing authority.
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.
Prior to the Business Combination, the Company
determined 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. Following the closing of the Business Combination,
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.
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. Determining the fair value of equity-based awards requires estimates and assumptions,
including estimates of the period the awards will be outstanding before they are exercised and future volatility in the price of our common
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.
Defined Contribution Plan
The Company maintains a 401(k) savings plan covering
all U.S. employees. Participating employees may contribute a portion of their salary into the savings plan, subject to certain limitations.
The Company matches 100% of the first 4% of each employee’s contributions and 50% of the next 1% of the employee’s
base compensation contributed, with a maximum contribution of $6,000 per employee. For the fiscal years ended December 31, 2021
and 2020, the Company’s matching contributions totaled $1.3 million and $1.5 million, respectively, and were expensed as incurred.
Earnings (Loss) Per Share
Basic and diluted earnings (loss) per share attributable
to common stockholders is presented in conformity with the two-class method required for participating securities. Class A common shares
have identical liquidation and distribution rights. The net earnings (loss) is allocated on a proportionate basis to Class A. Basic net
earnings (loss) per share attributable to common stockholders is computed by dividing the net earnings (loss) by the weighted-average
number of shares of common stock outstanding during the period. The diluted net loss per share attributable to common stockholders is
computed by giving effect to all potential dilutive common stock equivalents outstanding for the period using the if-converted or treasury
stock method, as applicable. For purpose of this calculation, the convertible notes, contingent consideration payable in shares, and outstanding
stock awards are considered and included in the computation of diluted earnings (loss) per share, except for where the result would be
anti-dilutive or the required conditions for issuance of common shares have not been met as of the balance sheet date. Diluted earnings
(loss) per share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the
period.
Commitments and Contingencies
Liabilities for loss contingencies arising from
claims, assessments, litigation, fines and penalties, and other sources are recorded when it is probable that a liability has been incurred
and the amount of the assessment and/or remediation can be reasonably estimated. Legal costs incurred in connection with such liabilities
are expensed as incurred.
Embedded Derivative Liabilities
The Company does not use derivative instruments
to hedge exposures to interest rate, market, or foreign currency risks. The Company has evaluated the terms and features of its redeemable
convertible preferred stock issued in February 2021 and identified two embedded derivatives requiring bifurcation from the underlying
host instrument pursuant to ASC 815-15, Embedded Derivatives. Embedded derivatives met the criteria for bifurcation due
to the instruments containing conversion options and mandatory redemption features that are not clearly and closely related to the host
instrument.
Embedded derivatives are bifurcated from the underlying
host instrument and accounted for as separate financial instruments. Embedded derivatives are recognized at fair value, with changes in
fair value during the period are recognized in “Change in fair value of embedded derivative liabilities” in the Consolidated
Statements of Operations. As of December 31, 2021 and in connection with the consummation of the Business Combination that occurred
on August 23, 2021, the preferred stock was converted into common stock of the Company and the embedded derivative ceased to exist. Refer
to Note 4, Fair Value Measurements, for additional information.
Warrants
The Company accounts 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 FASB ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”).
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 in “Change in fair value of warrant liability” in the Company’s
Consolidated Statements 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.
Accounting Pronouncements
The authoritative bodies release standards and
guidance, which are assessed by management for impact on the Company’s Consolidated Financial Statements. Accounting Standards Updates
(“ASUs”) not listed below were assessed and determined to be not applicable to the Company’s Consolidated Financial
Statements.
The following standards were recently adopted by the Company:
| ● | In December 2019, the FASB issued ASU No. 2019-12, Income
Taxes, to simplify the accounting for income taxes based on changes suggested by stakeholders as part of the FASB’s simplification
initiative. This guidance is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted.
This ASU was adopted by the Company on January 1, 2021, resulting in no material impact to the Consolidated Financial Statements. |
| | |
| ● | In March 2020, the FASB issued ASU No. 2020-04, Reference
Rate Reform. In response to concerns about structural risks of interbank offered rates (IBORs), and, particularly, the risk of cessation
of the London Interbank Offered Rate (LIBOR), regulators in several jurisdictions around the world have undertaken reference rate reform
initiatives to identify alternative reference rates that are more observable or transaction based and less susceptible to manipulation.
This may impact the Company’s borrowing costs in which LIBOR is used as a reference. The amendments in this update are effective
immediately for all entities. This ASU was adopted by the Company on January 1, 2021, resulting in no material impact to the Consolidated
Financial Statements. |
| | |
| ● | In August 2020, the FASB issued ASU No. 2020-06, Debt-Debt
with Conversion and Other Options and Derivatives and Hedging-Contracts in Entity’s Own Equity. The amendments in this update
simplify the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments
and contracts in an entity’s own equity. This guidance is effective for annual periods beginning after December 15, 2021, with
early adoption permitted. This ASU was adopted by the Company on January 1, 2021, resulting in no material impact to the Consolidated
Financial Statements. |
| | |
| ● | In January 2021, the FASB issued ASU No. 2021-01, Reference
Rate Reform, that refined the scope of ASU No. 2020-04 and clarified some of its provisions. The amendments permit entities
to elect certain optional expedients and exceptions when accounting for derivative contracts and certain hedging relationships affected
by the discounting transition. The amendments in this update are effective for all entities for fiscal years beginning after December
15, 2021, including interim periods within those fiscal years. Early adoption is permitted for all entities, including adoption in an
interim period. This ASU was adopted by the Company during the second quarter of 2021, resulting in no material impact to the Consolidated
Financial Statements. |
The following recently released accounting standards have not yet been
adopted by the Company:
| ● | In May 2021, the FASB issued ASU 2021-04, Earnings
Per Share, Debt-Modifications and Extinguishments, Compensation-Stock Compensation, and Derivatives and Hedging-Contracts in Entity’s
Own Equity. This ASU reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified
written call options (for example, warrants) that remain equity classified after modification or exchange. This ASU is effective for fiscal years beginning after December
15, 2021 on a prospective basis. Early adoption is permitted for all entities, including adoption in an interim period. The Company is
evaluating the effect the adoption of this ASU will have on the Consolidated Financial Statements. |
| ● | In October 2021, the FASB issued ASU 2021-08, Business
Combinations: Accounting for Contract Asset and Contract Liabilities from Contracts with Customers. This ASU requires an entity to
recognize and measure contract assets and liabilities acquired in a business combination in accordance with ASU 2014-09, Revenue from
Contracts with Customers. This ASU is expected to reduce diversity in practice and increase comparability for both the recognition and
measurement of acquired revenue contracts with customers at the date of and after a business combination. This standard is effective
for annual periods beginning after December 15, 2022, including interim periods therein, with early adoption permitted. The Company plans
to adopt this pronouncement for the fiscal year beginning January 1, 2022, and does not expect it to have a material effect on the consolidated
financial statements. |
Note 3 – Business Combination
As discussed in Note 1, Organization
and Basis of Consolidation and Presentation, the Company consummated the Business Combination on August 23, 2021, pursuant to
the Merger Agreement dated May 9, 2021. In connection with the Business Combination, the following occurred:
| ● | On August 20, 2021, LIVK changed 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. As a result, each of LIVK’s issued and outstanding
Class A ordinary shares and 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. |
| | |
| ● | LIVK entered into subscription agreements with certain investors
pursuant to which such investors collectively subscribed for 2,760,000 shares of the Company’s Class A common stock at $10.00 per
share for aggregate proceeds of $27,600,000 (the “PIPE Financing”). |
| | |
| ● | Holders of 7,479,065 of LIVK’s Class A ordinary
shares originally sold in LIVK’s initial public offering, 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 $75.3 million. |
| | |
| ● | The Business Combination was effected through the merger of
Legacy AgileThought with and into LIVK, whereupon the separate corporate existence of Legacy AgileThought ceased and LIVK was the surviving
corporation. |
| | |
| ● | On the Closing Date, the Company changed its name from LIV
Capital Acquisition Corp. to AgileThought, Inc. |
| | |
| ● | 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. |
| | |
| ● | After adjusting its embedded derivative liabilities to fair
value, upon conversion of the preferred stock, the Company’s embedded derivative liabilities were extinguished during the third quarter
of 2021. Refer to Note 4, Fair Value Measurements for additional information. |
| | |
| ● | The Company’s private placement warrants meet the criteria
for liability classification. During 2021, the Company recognized a gain of $4.7 million on private placement warrants to reflect
the change in fair value. For additional information on our warrants, refer to Note 15, Warrants, and Note 4, Fair
Value Measurements. |
The following table reconciles the elements of the Business Combination
to the additional paid-in capital in the Consolidated Statement of Stockholders’ Equity for the year ended December 31, 2021:
(in thousands USD) | |
Business
Combination | |
Cash - LIVK trust and cash, net of redemptions | |
$ | 5,749 | |
Cash - PIPE Financing | |
| 27,600 | |
Less: Transaction costs | |
| (13,033 | ) |
Net proceeds from the Business Combination | |
| 20,316 | |
Less: Initial fair value of warrant liabilities recognized in the Business Combination | |
| (15,123 | ) |
Equity classification of Public Warrants | |
| 8,292 | |
Surrender of related party receivables | |
| (1,359 | ) |
Debt conversion | |
| 38,120 | |
Conversion of mezzanine equity1 | |
| 15,594 | |
Net adjustment to total equity from the Business Combination | |
$ | 65,840 | |
1 | Relates to the transfer from mezzanine equity to permanent
equity of the preferred contribution received from LIV Capital on February 02, 2021, which was considered part of the PIPE financing
and upon the transaction close, was reclassified to permanent equity of the Company. |
The number of shares of Class A common stock issued
immediately following the consummation of the Business Combination:
| |
Number of
Shares | |
Class A ordinary shares of LIVK outstanding prior to the Business Combination | |
| 8,050,000 | |
Less: redemption of LIVK’s Class A ordinary shares | |
| (7,479,065 | ) |
Shares of LIVK’s Class A ordinary shares | |
| 570,935 | |
Shares held by LIVK’s sponsor and its affiliates | |
| 2,082,500 | |
Shares issued in the PIPE Financing | |
| 2,760,000 | |
Shares issued to convert Legacy AgileThought’s preferred stock to Class A common stock | |
| 2,000,000 | |
Shares issued to Legacy AgileThought’s common stock holders | |
| 34,557,480 | |
Total shares of Class A common stock immediately after the Business Combination | |
| 41,970,915 | |
Note 4 – Fair Value Measurements
The carrying amount of assets and liabilities
including cash and cash equivalents, accounts receivable and accounts payable approximated their fair value as of December 31, 2021,
and December 31, 2020, due to the relative short maturity of these instruments.
Long-term Debt
Our debt is not actively traded and the fair value
estimate is based on discounted estimated future cash flows or a fair value in-exchange assumption, which are significant unobservable
inputs in the fair value hierarchy. Our convertible notes payable included the probability of a liquidity event. As such, these estimates
are classified as Level 3 in the fair value hierarchy. During the third quarter of 2021, the Company’s convertible notes payable were
converted into shares of the Company Class A common stock. Refer to Note 3, Business Combination and Note 9, Long-term
Debt, for additional information.
The following table summarizes our debt instruments
where fair value differs from carrying value:
| |
| |
December 31, 2021 | | |
December 31, 2020 | |
(in thousands USD) | |
Fair Value
Hierarchy Level | |
Carry
Amount | | |
Fair Value | | |
Carry Amount | | |
Fair Value | |
Bank credit agreement | |
Level 3 | |
$ | 31,882 | | |
$ | 31,897 | | |
$ | 93,388 | | |
$ | 92,363 | |
New Second Lien Facility | |
Level 3 | |
| 16,120 | | |
| 16,214 | | |
| — | | |
| — | |
Convertible notes payable | |
Level 3 | |
| — | | |
| — | | |
| 32,930 | | |
| 43,303 | |
The above table excludes our revolving
credit facility, subordinated promissory note payable and subordinated zero-coupon loan as these balances approximate fair value due
to the short-term nature of our borrowings. The above table also excludes our Paycheck Protection Program loans (“PPP
loans”) as the carrying value of the Company’s PPP loans approximates fair value based on the current yield for debt
instruments with similar terms. Refer to Note 9, Long-term Debt, for additional information.
Embedded Derivative Liabilities
In connection with the issuance of redeemable
convertible preferred stock, the Company bifurcated embedded derivatives associated with redemption and conversion features. Embedded
derivative liabilities are carried at fair value and classified as Level 3 in the fair value hierarchy. The Company determined the fair
values of the bifurcated embedded derivatives by using a scenario-based analysis that estimated the fair value of each embedded derivative
based on a probability-weighted present value of all possible outcomes related to the features.
The significant unobservable inputs used in the
fair value of the Company’s embedded derivative liabilities include the probabilities of the Company’s change in control or
qualified financing events, the period in which the outcomes are expected to be achieved and the discount rate. As a result of the Business
Combination, the Company settled its embedded derivative liabilities and wrote off the remaining fair value during the third quarter of
2021.
(in thousands USD) | |
Redemption & Conversion
Feature | |
Opening balance, January 1, 2021 | |
$ | — | |
Recognition of embedded derivative liabilities | |
| 4,406 | |
Change in fair value | |
| (4,406 | ) |
Ending balance, December 31, 2021 | |
| — | |
Contingent Purchase Price
The Company carries its obligations for contingent
purchase price at fair value. The Company recorded the acquisition-date fair value of these contingent liabilities based on the likelihood
of contingent earn-out payments and stock issuances based on the underlying agreement terms. The earn-out payments and value of stock
issuances are subsequently remeasured to fair value each reporting date using an income approach that is determined based on the present
value of future cash flows using internal models. This estimate is classified as Level 3 in the fair value hierarchy. The significant
unobservable inputs used in the fair value of the Company’s obligation for contingent purchase price are the discount rate, growth
assumptions, and earnings thresholds. As of December 31, 2021, the fair value of the contingent liability used a discount rate of 13.5%.
For all significant unobservable inputs used in the fair value measurement of the Level 3 liabilities, a change in one of the inputs would
not necessarily result in a directionally similar change in the other inputs. Significant increases (decreases) in the discount rate would
have resulted in a lower (higher) fair value measurement. Significant increases (decreases) in the forecasted financial information would
have resulted in a higher (lower) fair value measurement. For the year ended 2021, no additional earn-out payments were deemed eligible
based performance thresholds.
The following table provides a roll-forward of
the obligations for contingent purchase price:
(in thousands USD) | |
2021 | | |
2020 | |
Opening balance, January 1 | |
$ | 10,304 | | |
$ | 22,621 | |
| |
| | | |
| | |
Cash payments | |
| — | | |
| (4,314 | ) |
| |
| | | |
| | |
Contingent consideration derecognized in connection with divesture of a business | |
| — | | |
| (1,413 | ) |
Change in fair value | |
| (2,200 | ) | |
| (6,600 | ) |
Accrued interest on the contingent consideration | |
| 736 | | |
| 360 | |
Effect of exchange rate fluctuations | |
| (49 | ) | |
| (350 | ) |
Ending balance, December 31 | |
| 8,791 | | |
| 10,304 | |
Less: Current portion | |
| 8,791 | | |
| 8,104 | |
Obligation for contingent purchase price, net of current portion | |
$ | — | | |
$ | 2,200 | |
Warrant Liability
As of December 31, 2021, the Company has
private placement warrants, which are liability classified, as discussed in Note 15, Warrants. The Company’s private
placement warrants are classified as Level 3 of the fair value hierarchy due to use of significant inputs that are unobservable in the
market. Private placement warrants are fair valued using the Black-Scholes model, which required a risk-free rate assumption based upon
constant-maturity treasury yields. Other significant inputs and assumptions in the model are the stock price, exercise price, volatility,
and term or maturity. The volatility input was determined using the historical volatility of comparable publicly traded companies which
operate in a similar industry or compete directly against the Company.
The following table presents the changes in the fair value of private
warrant liability at December 31, 2021:
(in thousands USD) | |
2021 | |
Beginning balance, January 1 | |
$ | — | |
Assumed in business combination | |
| 6,831 | |
Change in fair value | |
| (4,694 | ) |
Ending balance, December 31, 2021 | |
$ | 2,137 | |
Note 5 – Balance Sheet Details
The following table provides detail of selected
balance sheet items:
| |
December 31, | |
(in thousands USD) | |
2021 | | |
2020 | |
Cash and cash equivalents | |
$ | 8,463 | | |
$ | 9,256 | |
Restricted cash | |
| 177 | | |
| 176 | |
Total cash, cash equivalents and restricted cash | |
$ | 8,640 | | |
$ | 9,432 | |
| |
December 31, | |
(in thousands USD) | |
2021 | | |
2020 | |
Accounts receivables | |
$ | 19,173 | | |
$ | 13,974 | |
Unbilled accounts receivables | |
| 11,716 | | |
| 7,578 | |
Related party receivables - shareholders & key personnel | |
| — | | |
| 1,305 | |
Other receivables | |
| 686 | | |
| 1,210 | |
Allowance for doubtful accounts | |
| (188 | ) | |
| (267 | ) |
Total accounts receivable, net | |
$ | 31,387 | | |
$ | 23,800 | |
| |
December 31, | |
(in thousands USD) | |
2021 | | |
2020 | |
Income tax receivables | |
$ | 2,369 | | |
$ | 1,119 | |
Prepaid expenses and other current assets | |
| 5,121 | | |
| 2,821 | |
Total prepaid expenses and other current assets | |
$ | 7,490 | | |
$ | 3,940 | |
| |
December 31, | |
(in thousands USD) | |
2021 | | |
2020 | |
Accrued wages, vacation & other employee related items | |
$ | 2,387 | | |
$ | 5,871 | |
Accrued interest | |
| 381 | | |
| 2,223 | |
Accrued incentive compensation | |
| 654 | | |
| 795 | |
Receipts not vouchered | |
| 5,872 | | |
| 1,791 | |
Accrued liabilities - Related Party | |
| 17 | | |
| — | |
Other accrued liabilities | |
| 467 | | |
| 4,400 | |
Total accrued liabilities | |
$ | 9,778 | | |
$ | 15,080 | |
The following table is a rollforward of the allowance for doubtful
accounts:
(in thousands USD) | |
2021 | | |
2020 | |
Beginning balance, January 1 | |
$ | 267 | | |
$ | 388 | |
Charges to expense | |
| 1,307 | | |
| 11 | |
Write-offs and recoveries | |
| (1,382 | ) | |
| (126 | ) |
Foreign currency translation | |
| (4 | ) | |
| (6 | ) |
Ending balance, December 31 | |
$ | 188 | | |
$ | 267 | |
Note 6 – Property and Equipment, Net
Property and equipment, net consist of the following:
| |
December 31, | |
(in thousands USD) | |
2021 | | |
2020 | |
Computer equipment | |
$ | 4,210 | | |
$ | 3,727 | |
Leasehold improvements | |
| 2,179 | | |
| 2,333 | |
Furniture and equipment | |
| 1,691 | | |
| 1,631 | |
Computer software | |
| 2,240 | | |
| 1,475 | |
Transportation equipment | |
| 55 | | |
| 107 | |
| |
| 10,375 | | |
| 9,273 | |
Less: accumulated depreciation | |
| (7,268 | ) | |
| (5,845 | ) |
Property and equipment, net | |
$ | 3,107 | | |
$ | 3,428 | |
Depreciation expense was $1.2 million and
$1.0 million for the years 2021 and 2020, respectively. The Company did not recognize impairment charges related to property
and equipment in 2021 and 2020.
Note
7 – Goodwill and Intangible Assets, Net
The
Company performs an assessment each year to test goodwill for impairment, or more frequently in certain circumstances where impairment
indicators arise. In the second quarter of 2020, the Company determined a triggering event had occurred requiring an interim impairment
assessment resulting from the disposition of a business within the Commerce reporting unit. As a result, the Company recognized a $4.9 million
non-cash impairment charge related to goodwill allocated to its Commerce reporting unit which is included within Impairment charges in
the Consolidated Statement of Operations for the year ended December 31, 2020.
In
the third quarter of 2020, we made organizational changes to adopt a customer-centric model and align operations around the two primary
regions in which we operate (Latin America and the United States), resulting in a change in our reporting unit structure from five to two reporting
units. Accordingly, we first assessed our goodwill for impairment under our previous five reporting unit structure as of September
30, 2020. Upon completion of this assessment, the Company determined that impairments existed in our Analytics and Cloud reporting units,
resulting from negative impacts of the COVID-19 pandemic. Accordingly, we recognized a $6.7 million non-cash impairment charge as
of September 30, 2020, which is included within Impairment charges in the Consolidated Statement of Operations for the year ended December
31, 2020.
Subsequent
to this review and after allocating goodwill to the two reporting units based on relative fair value, the Company reassess
goodwill for impairment under the new regional reporting unit structure as of October 1st, our new annual testing date. The Company
historically tested goodwill for impairment as of December 31st each year; however, in 2020, we elected to change the date of our
annual goodwill impairment test to October 1st. We believe this new testing date allows the Company to better align the annual
goodwill impairment testing procedures with the Company’s year-end financial reporting, as well as its annual budgeting and
forecasting process. This change does not delay, accelerate or avoid an impairment charge. Based upon the October 1st
assessment, no impairment existed for the new Latin America (“LATAM”) and United States (“USA”) reporting
units.
The
following table presents goodwill by reporting unit and changes in goodwill through September 30, 2020:
(in thousands USD) | |
Analytics | | |
Commerce | | |
Cloud | | |
Agile Nearshore | | |
Transformation | | |
Total | |
December 31, 2019 | |
| 15,566 | | |
| 6,878 | | |
| 5,965 | | |
| 30,694 | | |
| 27,881 | | |
| 86,984 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Disposals | |
| — | | |
| (69 | ) | |
| — | | |
| — | | |
| — | | |
| (69 | ) |
Impairments | |
| (5,652 | ) | |
| (4,915 | ) | |
| (1,027 | ) | |
| — | | |
| — | | |
| (11,594 | ) |
Foreign currency translation | |
| (2,431 | ) | |
| (1,243 | ) | |
| (932 | ) | |
| — | | |
| (3,716 | ) | |
| (8,322 | ) |
September 30, 2020 | |
$ | 7,483 | | |
$ | 651 | | |
$ | 4,006 | | |
$ | 30,694 | | |
$ | 24,165 | | |
$ | 66,999 | |
As
discussed above, we revised our reporting unit structure on October 1, 2020. The following table presents changes in the goodwill balances
for the fourth quarter of 2020:
(in thousands USD) | |
LATAM | | |
USA | | |
Total | |
October 1, 2020 | |
$ | 36,305 | | |
$ | 30,694 | | |
$ | 66,999 | |
Foreign currency translation | |
| 4,165 | | |
| — | | |
| 4,165 | |
December 31, 2020 | |
$ | 40,470 | | |
$ | 30,694 | | |
$ | 71,164 | |
During
2021, the Company reassessed goodwill for impairment as of October 1st, 2021 and identified no impairment charges to be recognized.
The following table presents changes in the goodwill balances during 2021.
(in thousands USD) | |
LATAM | | |
USA | | |
Total | |
December 31, 2020 | |
$ | 40,470 | | |
$ | 30,694 | | |
$ | 71,164 | |
Foreign currency translation | |
| (819 | ) | |
| — | | |
| (819 | ) |
December 31, 2021 | |
$ | 39,651 | | |
$ | 30,694 | | |
$ | 70,345 | |
The
Company’s indefinite-lived intangible assets relate to trade names acquired in connection with business combinations. The indefinite-lived
trade names balance was $16.3 million and $17.6 million as of December 31, 2021 and 2020, respectively. We recognized
impairment expense of $1.6 million during 2020, which is recorded within Impairment charges in the Consolidated Statements of Operations. No impairment
expense was recognized in 2021.
Changes
in our finite-lived intangible assets is as follows:
| |
As of December 31, 2021 | | |
Weighted Average | |
(in thousands USD) | |
Gross Carrying Amount | | |
Currency Translation Adjustment | | |
Accumulated Amortization | | |
Net Carrying Amount | | |
Remaining Useful Life (Years) | |
Customer relationships | |
$ | 89,915 | | |
$ | (973 | ) | |
$ | (23,669 | ) | |
| 65,273 | | |
| 11.8 | |
Tradename | |
| 1,234 | | |
| (31 | ) | |
| (243 | ) | |
| 960 | | |
| 3.9 | |
Total | |
$ | 91,149 | | |
$ | (1,004 | ) | |
$ | (23,912 | ) | |
$ | 66,233 | | |
| 11.7 | |
| |
As of December 31, 2020 | | |
Weighted Average | |
(in thousands USD) | |
Gross Carrying Amount | | |
Currency Translation Adjustment | | |
Accumulated Amortization | | |
Net Carrying Amount | | |
Remaining Useful Life (Years) | |
Customer relationships | |
$ | 89,915 | | |
$ | 4,040 | | |
$ | (22,444 | ) | |
| 71,511 | | |
| 12.8 | |
In
2021, the Company changed the estimated life of a certain trade name from indefinite to finite-lived and began amortizing it over the
average remaining economic life of five years (See Note 2, Summary of Significant Accounting Policies). The
Company recorded $5.8 million and $5.5 million in finite-lived intangible asset amortization expense for the years
ended December 31, 2021 and 2020. No impairment charges were recognized related to finite-lived intangible assets for
the year ended December 31, 2021.
The
impairment of goodwill in the Commerce reporting unit as of June 30, 2020, signaled us to test its long-lived asset group in accordance
with ASC 360. Upon completion of this testing, the Company determined that the customer relationship within the Commerce reporting unit
was fully impaired, resulting from the disposition of a business within the Commerce reporting unit, the termination of the relationships
with established customers in this reporting unit and the negative impacts of COVID-19 on this reporting unit. Accordingly, we recognized
a $3.5 million non-cash impairment charge as of June 30, 2020, which is included within Impairment charges in the Consolidated Statement
of Operations for the year ended December 31, 2020.
The
estimated amortization schedule for the Company’s intangible assets for future periods is as follows:
(in thousands USD) | |
Year ending December 31, | |
2022 | |
$ | 5,794 | |
2023 | |
| 5,794 | |
2024 | |
| 5,794 | |
2025 | |
| 5,794 | |
2026 | |
| 5,554 | |
Thereafter | |
| 37,503 | |
Total | |
$ | 66,233 | |
Note
8 – Leases
The
Company enters into operating leases for office space, IT equipment, and furniture and equipment used in operations. As of December 31,
2021, these leases have remaining terms of up to 5 years, some of which may contain options to extend or terminate the lease
before the expiration date. As of December 31, 2021 the Company did not have any finance lease arrangements. Total lease expense,
net was $3.8 million and $3.2 million for the years ended December 31, 2021 and 2020, respectively, and include short-term
and variable lease costs.
Supplemental
information related to our operating leases is as follows for the year ended:
| |
December 31, | |
| |
2021 | | |
2020 | |
Weighted average remaining lease term, in years: | |
| 2.91 | | |
| 3.39 | |
Weighted average discount rate: | |
| 8.4 | % | |
| 8.5 | % |
Cash flows from operating activities, (in thousands USD) | |
| | | |
| | |
Cash paid for operating leases included in the measurement of lease liabilities | |
$ | 3,711 | | |
$ | 3,699 | |
Future
expected maturities of lease obligations as of December 31, 2021 are as follows:
(in thousands USD) | |
Lease
Payments | |
2022 | |
$ | 3,234 | |
2023 | |
| 1,844 | |
2024 | |
| 1,197 | |
2025 | |
| 763 | |
2026 | |
| 289 | |
Thereafter | |
| — | |
Total undiscounted lease payments | |
| 7,327 | |
Less: imputed interest | |
| 734 | |
Present value of operating lease liability | |
$ | 6,593 | |
Note
9 – Long-term Debt
Long-term
debt at December 31, 2021 and 2020 consists of the following:
| |
December 31, | |
(in thousands USD) | |
2021 | | |
2020 | |
Borrowings under bank revolving credit agreement, principal due Nov. 10, 2023 | |
$ | 5,000 | | |
$ | 5,000 | |
Borrowings under bank credit agreement, principal due Nov. 10, 2023 | |
| 31,882 | | |
| 93,388 | |
Unamortized debt issuance costs(a) | |
| (6,915 | ) | |
| (2,978 | ) |
Borrowing under bank credit agreements, net of unamortized debt issuance costs | |
| 29,967 | | |
| 95,410 | |
| |
| | | |
| | |
Borrowings under convertible note payable to related party, 13.73% interest capitalized every six months, principal due July 18, 2024 | |
| — | | |
| 16,465 | |
Borrowings under convertible note payable to related party, 13.73% interest capitalized every six months, principal due July 18, 2024 | |
| — | | |
| 16,465 | |
Unamortized debt issuance costs(a) | |
| — | | |
| (126 | ) |
Convertible notes payable, net of unamortized debt issuance costs | |
| — | | |
| 32,804 | |
| |
| | | |
| | |
Paycheck Protection Program loans, 1% interest, due May 1, 2022 | |
| 7,673 | | |
| 9,129 | |
| |
| | | |
| | |
Subordinated promissory note payable with a related party, 20% effective December 21, 2021, principal due May 12, 2022 | |
| 673 | | |
| — | |
| |
| | | |
| | |
Subordinated debt, guaranteed by a related party, principal due July 26, 2022 | |
| 3,700 | | |
| — | |
Unamortized debt issuance costs(a) | |
| (76 | ) | |
| — | |
Subordinated debt, guaranteed by a related party, net of unamortized debt issuance costs | |
| 3,624 | | |
| — | |
| |
| | | |
| | |
Borrowings under convertible note payable with a related party, 11% interest capitalized every three months, principal due March 15, 2023 | |
| 6,372 | | |
| — | |
Borrowings under convertible note payable with a related party, 17.41% interest capitalized every three months, principal due March 15, 2023 | |
| 9,748 | | |
| — | |
Unamortized debt issuance costs(a) | |
| (945 | ) | |
| — | |
New Second Lien Facility, net of unamortized debt issuance costs | |
| 15,175 | | |
| — | |
| |
| | | |
| | |
Total debt | |
| 57,112 | | |
| 137,343 | |
Less: current portion of debt | |
| 14,838 | | |
| 11,380 | |
Long-term debt, net of unamortized debt issuance costs and current portion | |
$ | 42,274 | | |
$ | 125,963 | |
| (a) | Debt issuance
costs are presented as a reduction of the Company’s long-term debt in the Consolidated Balance Sheets. $3.5 million and $0.9 million
of debt issuance cost amortization was charged to interest expense for the years ended December 31, 2021 and 2020, respectively. |
Credit
Agreements
In
2018, the Company entered into a revolving credit agreement with Monroe Capital Management Advisors LLC that permits the Company to borrow
up to $1.5 million through November 10, 2023. In 2019, the agreement was amended 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 calculated
in the most recent Compliance Certificate. An additional 2.0% interest may be incurred during periods of loan covenant default.
At December 31, 2021, the interest rate was 10.0%. The Company must pay an annual commitment fee of 0.5% on the unused
portion of the commitment. At December 31, 2021 and 2020, the Company had no availability under this facility.
In
2018, the Company entered into a term loan credit agreement with Monroe Capital Management Advisors LLC (“First Lien Facility”)
that permits the Company to borrow up to $75.0 million through November 10, 2023. In 2019, the agreement was amended 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 calculated in the most recent Compliance Certificate. An additional 2.0% interest may
be incurred during periods of loan covenant default. At December 31, 2021, the interest rate was 10.0%. Principal payments
of $0.6 million are due quarterly until maturity, at which time the remaining outstanding balance is due. Based on amendments dated
February 2, 2021, the Company shall pay, in place of the first two regular quarterly principal installments of 2021, from February 2021
through and including July 2021, monthly principal installments of $1.0 million on the last business day of each of these six calendar
months.
On
March 22, 2021, the Company used $20.0 million from proceeds of issuance of preferred stock to partially pay the First Lien Facility.
Refer to Note 16, Stockholders’ Equity, for additional information on issuance of preferred stock.
On
June 24, 2021, an amendment was signed to modify the debt covenants for the periods June 30, 2021 and thereafter. In addition to the
covenant modifications, the amendment also established the deferral of the monthly $1.0 million principal payments previously due
in April and May, along with the $1.0 million payments due in June and July to September 30, 2021. As a result, the regular quarterly
principal installments resumed, and the First Lien lenders charged a $4.0 million fee paid upon the end of the term loan in exchange
for the amended terms. The amendment resulted in a debt modification, thus the fees payable to the First Lien lenders were capitalized
and are amortized over the remaining life of the First Lien Facility. The fees have been netted against the debt as of December 31,
2021.
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 and Fixed Charge
Coverage Ratio covenants for the quarterly periods of September 30, 2021 to December 31, 2022.
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 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, the Company entered into separate credit agreements with Nexxus Capital and Credit Suisse (“the
Creditors”) that permits the Company to borrow $12.5 million from each bearing 13.73% interest. On January 31, 2020,
the agreements were amended to increase the borrowing amount by $2.05 million under each agreement. Interest is capitalized
every six months and is payable when the note is due. Immediately prior to the Business Combination, the Creditors
exercised their option to convert their combined $38.1 million of debt outstanding (including interest)
into 115,923 shares of the Company’s Class A ordinary shares, which were converted into the Company’s Class A common stock
as a result of the Business Combination. As a result, the Company amortized the remaining $0.1 million of unamortized debt
issuance costs and recognized incremental interest expense in the Consolidated Statements of Operations.
New
Second Lien Facility
On
November 22, 2021, the Company entered into a new Second Lien Facility (the “New Second Lien Facility”) with 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 11.00% for the US denominated loan and 17.41% for the Mexican Peso denominated Loan.
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. The Company recognized $0.9 million
in debt issuance costs with the issuance.
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, at a conversion price equal to the closing price of one share
of our Class A Common Stock on the trading day immediately prior to the conversion date. The amounts outstanding under the New Second
Lien Facility will only convert into up to 2,098,545 shares of our Class A Common Stock and will only convert at a price per
share equal to the then-current market value. On December 27, 2021, Manuel Senderos and Kevin Johnston exercised the conversion options
for their respective loan amounts of $4.5 million and $0.2 million, respectively. See Note 16, Stockholders’ Equity, for
additional information.
Paycheck
Protection Program Loans
On
April 30, 2020 and May 1, 2020, the Company received Paycheck Protection Program loans (“PPP loans”) through four of
its subsidiaries for a total amount of $9.3 million. The PPP loans bear a fixed interest rate of 1% over a two-year term, are guaranteed
by the United States federal government, and do not require collateral. The loans may be forgiven, in part or whole, if the proceeds
are used to retain and pay employees and for other qualifying expenditures. The $9.3 million in PPP loans are eligible for forgiveness,
and the Company expects a significant amount to be forgiven which would result in a gain to the Consolidated Statement of Operations.
The Company submitted its forgiveness applications to the Small Business Administration (“SBA”) between November 2020 and
January 2021. The monthly repayment terms will be established in the notification letters with the amount of loan forgiveness. 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 quarterly until May 2, 2025. All loan forgiveness was recognized in
Other income (expense), net of the Consolidated Statements of Operations.
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 matures on December 20, 2021 (“Original Maturity Date”) and 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 20.0% per annum from the Original Maturity Date to the Extended Maturity
Date calculated on the actual number of days elapsed.
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.
Financial
Covenants
The
First Lien Facility and the New Second Lien Facility establish the following financial covenants for the consolidated group:
Fixed
Charge Coverage Ratio. The Fixed Charge Coverage Ratio applies to the consolidated group. For each Computation Period, it is
the ratio of (a) EBITDA (as defined in the credit agreement) minus permitted tax distributions (or other provisions for taxes based on
income) made during the Computation Period, minus all unfinanced capital expenditures made thereby in such Computation Period to (b)
fixed charges (as defined in the credit agreement).
Capital
Expenditures. Requires the Company’s aggregate capital expenditures in any fiscal year to not exceed the capital expenditures
limit for that fiscal year.
Total
Leverage Ratio. The Total Leverage Ratio applies to the consolidated group and is determined in accordance with US GAAP. It
is calculated as of the last day of any Computation Period as the ratio of (a) total debt (as defined in credit agreement) to (b) EBITDA
for the Computation Period ending on such day.
The
Company was compliant with all debt covenants as of December 31, 2021.
The
capital expenditure annual limit under the First Lien Facility and New Second Lien Facility in place as of December 31, 2021 is as follows:
Computation Period Ending | |
| Capital Expenditure Annual Limit | |
December 31, 2021 and the Computation Periods ending March 31, June 30, and September 30, 2022 | |
$ | 2.10 million | |
December 31, 2022 and each Computation Period ending thereafter | |
$ | 2.20 million | |
On
March 30, 2022, the Company amended the Fixed Charge Coverage Ratio and the Total Leverage Ratio of the First Lien Facility to the following:
Computation Period Ending | |
Fixed Charge Coverage Ratio to exceed | |
Total Leverage Ratio not to exceed |
March 31, 2022 | |
Not Tested | |
7.15:1.00 |
June 30, 2022 and September 30, 2022 | |
0.20:1.00 | |
4.00:1.00 |
December 31, 2022 and each Computation Period ending thereafter | |
1.00:1.00 | |
4.00:1.00 |
On
March 30, 2022, the Company amended the Fixed Charge Coverage Ratio and the Total Leverage Ratio of the New Second Lien Facility to the
following:
Computation Period Ending | |
Fixed Charge Coverage Ratio to exceed | |
Total
Leverage Ratio
not to exceed |
March 31, 2022 | |
Not Tested | |
19.15:1.00 |
June 30, 2022 and September 30, 2022 | |
0.20:1.00 | |
10.00:1.00 |
December 31, 2022 and each Computation Period ending thereafter | |
1.00:1.00 | |
10.00:1.00 |
The
annual maturities of our long-term debt for the next five years and beyond are as follows:
Year, (in thousands USD) | |
Amount | |
2022 | |
$ | 14,287 | |
2023 | |
| 50,626 | |
2024 | |
| 95 | |
2025 | |
| 40 | |
Thereafter | |
| — | |
Total debt | |
| 65,048 | |
Less: unamortized debt issuance cost | |
| (7,936 | ) |
Total debt, net of unamortized debt issuance costs | |
$ | 57,112 | |
Note
10 – Other Income (Expense)
Items
included in other income (expense) in the Consolidated Statements of Operations are as follows:
| |
Year ended December 31, | |
(in thousands USD) | |
2021 | | |
2020 | |
Foreign exchange (loss) gain, net | |
$ | (1,936 | ) | |
$ | 3,597 | |
Forgiveness of PPP loan | |
| 1,306 | | |
| 142 | |
Gain on disposition of a business | |
| — | | |
| 1,110 | |
Interest income | |
| 70 | | |
| 112 | |
Other non-operating expense | |
| (524 | ) | |
| (436 | ) |
Total other income (expense) | |
$ | (1,084 | ) | |
$ | 4,525 | |
Note
11 – Income Taxes
Loss
before income tax for the years 2021 and 2020 is allocated as follows:
| |
Year ended December 31, | |
(in thousands USD) | |
2021 | | |
2020 | |
USA | |
$ | (15,021 | ) | |
$ | (2,608 | ) |
Mexico | |
| (5,111 | ) | |
| (22,082 | ) |
Other Countries | |
| 544 | | |
| 699 | |
Total | |
$ | (19,588 | ) | |
$ | (23,991 | ) |
Income
tax expense for the years 2021 and 2020 is allocated as follows:
| |
Year ended December 31, | |
(in thousands USD) | |
2021 | | |
2020 | |
Current income tax | |
$ | 702 | | |
$ | 943 | |
Deferred income tax | |
| (242 | ) | |
| 1,398 | |
Total income tax expense | |
$ | 460 | | |
$ | 2,341 | |
The
reconciliation between our effective income tax rate and the statutory tax rates were as follows:
| |
December 31, | |
(in thousands USD) | |
2021 | | |
2020 | |
(Loss) before income tax expense | |
$ | (19,588 | ) | |
$ | (23,991 | ) |
Statutory tax rates | |
| 21 | % | |
| 21 | % |
| |
| | | |
| | |
Computed expected income tax benefit | |
| (4,113 | ) | |
| (5,038 | ) |
Increase (decrease) in income taxes resulting from: | |
| | | |
| | |
Change in deferred tax asset valuation allowance | |
| 5,509 | | |
| 4,751 | |
Permanent amortization | |
| — | | |
| 3,498 | |
Non-deductible expenses | |
| 1,001 | | |
| 1,724 | |
Foreign tax rate differential | |
| (376 | ) | |
| (2,320 | ) |
State and local income taxes, net of federal income tax benefit | |
| 84 | | |
| (51 | ) |
Taxable inflation adjustment | |
| (597 | ) | |
| 23 | |
Non deductible interest | |
| 172 | | |
| 210 | |
Provision to return | |
| — | | |
| 483 | |
Effect of change in state rate | |
| (4 | ) | |
| (167 | ) |
CARES Act | |
| — | | |
| (337 | ) |
| |
| | | |
| | |
Non-taxable income | |
| (1,229 | ) | |
| — | |
| |
| | | |
| | |
Other, net | |
| 13 | | |
| (435 | ) |
Reported income tax expense | |
$ | 460 | | |
$ | 2,341 | |
Effective tax rate | |
| 2.3 | % | |
| (9.8 | )% |
The
Company has the following tax rates in relevant jurisdictions:
| |
Tax rates | |
| |
2021 | | |
2020 | |
United States | |
| 21 | % | |
| 21 | % |
Mexico | |
| 30 | % | |
| 30 | % |
Brazil | |
| 34 | % | |
| 34 | % |
Argentina | |
| 30 | % | |
| 30 | % |
The
components of the Company’s deferred tax balances are as follows:
| |
December 31, | |
(in thousands USD) | |
2021 | | |
2020 | |
Deferred tax assets: | |
| | |
| |
Tax loss carryforward | |
$ | 13,425 | | |
$ | 6,353 | |
Provision for doubtful accounts | |
| 45 | | |
| 67 | |
Fixed assets | |
| 218 | | |
| 250 | |
Accrued liabilities and other expenses | |
| 2,434 | | |
| 3,444 | |
Deferred revenues | |
| 376 | | |
| 445 | |
Business interest limitation | |
| 4,805 | | |
| 2,225 | |
Operating lease liability | |
| 1,735 | | |
| 2,178 | |
Equity-based compensation | |
| — | | |
| 648 | |
Intangible assets | |
| 138 | | |
| 177 | |
Other | |
| 1,023 | | |
| 369 | |
Gross deferred tax assets: | |
| 24,199 | | |
| 16,156 | |
Less: Valuation allowance | |
| (15,612 | ) | |
| (10,010 | ) |
Total deferred tax assets | |
| 8,587 | | |
| 6,146 | |
| |
| | | |
| | |
Deferred tax liabilities: | |
| | | |
| | |
Intangible assets | |
| 6,838 | | |
| 5,123 | |
Operating lease ROU assets | |
| 1,695 | | |
| 2,130 | |
Property and Equipment | |
| 153 | | |
| 515 | |
Obligation for contingent purchase price | |
| 2,128 | | |
| 777 | |
Other | |
| 535 | | |
| 674 | |
Total deferred tax liabilities | |
| 11,349 | | |
| 9,219 | |
Net deferred tax liabilities | |
$ | (2,762 | ) | |
$ | (3,073 | ) |
The
change in the total valuation allowance for deferred tax assets is as follows:
| |
December 31, | |
(in thousands USD) | |
2021 | | |
2020 | |
Opening balance January 1, | |
$ | 10,010 | | |
$ | 5,124 | |
Utilization during the year | |
| — | | |
| (99 | ) |
Increases during the year | |
| 5,602 | | |
| 4,985 | |
Closing balance December 31, | |
$ | 15,612 | | |
$ | 10,010 | |
In
assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax assets depends on the generation of future taxable income during
the periods in which temporary differences are deductible.
Management
considers the scheduled reversal of deferred tax liabilities and projected taxable income in making this assessment. In order to fully
realize a deferred tax asset, the Company must generate future taxable income prior to the expiration of the deferred tax asset under
applicable law. Based on the level of historical taxable income and projections for future taxable income over the periods during which
the Company’s deferred tax assets are deductible, management believes that it is more likely than not that the Company will realize
the benefits of these deductible differences, net of the existing valuation allowances as of December 31, 2021. The amount of the
Company’s deferred tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable
income during the carryforward period are reduced.
As
of December 31, 2021, the Company is in a full valuation allowance for its deferred tax assets for which the Company does not
have enough evidence to support its realization. The total amount of valuation allowance as of December 31, 2021 is
$15.6 million, primarily related to a full valuation allowance on the Company’s tax loss carryforwards in Mexico and a
valuation allowance against the net deferred tax assets not expected to be utilized by the reversing of deferred income tax
liabilities in the U.S.
As
of December 31, 2021, the Company has federal, state, and foreign net operating loss carryforwards of approximately $24.9 million,
$10.3 million, and $25.4 million, respectively, that expire at various dates through 2041 unless indefinite in nature.
The
Company has not accrued any income, distribution or withholding taxes that would arise if the undistributed earnings of the Company’s
foreign subsidiaries, which cannot be repatriated in a tax-free manner, were repatriated.
The
Company accounts for tax contingencies by assessing all material positions, including all significant uncertain positions, for all tax
years that are open to assessment or challenge under tax statutes. Those positions that have only timing consequences are separately
analyzed based on the recognition and measurement model.
As
required by the uncertain tax position guidance, the Company recognizes the financial statement benefit of a position only after determining
that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more
likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent
likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company is subject to income taxes in the
U.S. federal jurisdiction, Mexico, and various state and foreign jurisdictions. Tax regulations within each jurisdiction are subject
to the interpretation of the related tax laws and regulations and require significant judgment to apply. Under the tax statute of limitations
applicable to the Internal Revenue Code, the Company is no longer subject to U.S. federal income tax examinations for years before 2018.
Under the statute of limitations applicable to most state income tax laws, the Company is no longer subject to state income tax examinations
by tax authorities for years before 2017 in states which the Company has filed income tax returns. Certain states may take the position
that the Company is subject to income tax in such states even though the Company has not filed income tax returns in such states, depending
on the varying state income tax statutes and administrative practices, the statute of limitations in such states may extend to years
before 2017. Under the statute of limitations applicable to our foreign operations, we are generally no longer subject to tax examination
for years before 2016 in jurisdictions where we have filed income tax returns. The Company applies the uncertain tax position guidance
to all tax positions for which the statute of limitations remains open. The Company’s policy is to classify interest accrued as
interest expense and penalties as other (expense) income. As of December 31, 2021 and 2020, the Company did not have any amounts
accrued for interest and penalties or recorded for uncertain tax positions.
Note
12 – Net Revenues
Disaggregated
revenues by contract type and the timing of revenue recognition are as follows:
| |
| |
Year ended December 31, | |
(in thousands USD) | |
Timing of
Revenue
Recognition | |
2021 | | |
2020 | |
Time and materials | |
over time | |
$ | 130,603 | | |
$ | 144,658 | |
Fixed price | |
over time | |
| 28,065 | | |
| 19,329 | |
Total | |
| |
$ | 158,668 | | |
$ | 163,987 | |
Liabilities
by contract related to contracts with customers
Details
of our liabilities related to contracts with customers and related timing of revenue recognition are as follows:
| |
December 31, | |
(in thousands USD) | |
2021 | | |
2020 | |
Deferred revenues | |
$ | 1,789 | | |
$ | 2,143 | |
Revenue recognized, that was deferred in the previous year | |
| 1,299 | | |
| 1,649 | |
Major
Customers
The
Company derived 13% and 10% of its revenues
for the year ended December 31, 2021 from two significant customers. In addition, 18%, 13%,
and 12% of our revenues for 2020 were from three significant customers. Sales
to these customers occur at multiple locations and we believe that the loss of these customers would have only a short-term impact on
our operating results. There is risk, however, that we would not be able to identify and access a replacement market at comparable margins.
Note
13 – Segment Reporting and Geographic Information
The
Company operates as a single operating 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.
The
following table presents the Company’s geographic net revenues based on the geographic market where revenues are accumulated, as determined
by customer location:
| |
Year ended December 31, | |
(in thousands USD) | |
2021 | | |
2020 | |
United States | |
$ | 103,436 | | |
$ | 113,073 | |
Latin America | |
| 55,232 | | |
| 50,914 | |
Total | |
$ | 158,668 | | |
$ | 163,987 | |
The
following table presents certain of our long-lived assets by geographic area, which includes property and equipment, net and operating
lease right of use assets, net:
| |
December 31, | |
(in thousands USD) | |
2021 | | |
2020 | |
United States | |
$ | 5,837 | | |
$ | 7,748 | |
Latin America | |
| 3,704 | | |
| 3,803 | |
Total long-lived assets | |
$ | 9,541 | | |
$ | 11,551 | |
Note
14 – Restructuring
Restructuring
expenses consist of costs associated with the ongoing reorganization of our business operations and expense re-alignment efforts, which
primarily relate to severance costs from workforce reductions due to the impacts of the COVID-19 pandemic and organizational changes
to capture synergies from past acquisitions as we move toward one global AgileThought. We also incurred an immaterial amount of facility-related
exit costs. When business slowed as a result of COVID-19, there was a reduction in force to control expenses, as not all resources could
be usefully reallocated. As of December 31, 2021, all of the COVID-related expenses had been paid. At this time, we do not anticipate
material additional restructuring charges related to COVID-19.
In
December 2020, we communicated a restructuring plan to transition to an integrated, one AgileThought approach rather than managing recent
acquisitions and regions separately. By creating a global organization for the information technology, human resources, and finance functions,
we were able to capture synergies, resulting in the elimination of certain positions. The Company incurred severance costs related to
these terminations, and all amounts were paid in 2021.
In
November 2021, we communicated efforts to streamline our operating model further by reducing layers of management and reducing our cost
structure. These restructuring efforts included consolidating the Chief Revenue Officer’s responsibilities with the Chief Operating
Officer position, consolidating span of control of sales managers from eight to four, and a reduction of underutilized
bench personnel. The Company exited employees in the last half of the three months ended December 31, 2021. The Company incurred severance
costs related to these terminations, and all activity is expected to be completed by the first quarter of 2022.
The
following table summarizes the Company’s restructuring activities included in accrued liabilities:
(in thousands USD) | |
Organization Restructuring | | |
One AgileThought | | |
COVID Plan | | |
Restructuring Total | |
Balance as of December 31, 2020 | |
$ | — | | |
$ | 2,222 | | |
$ | 717 | | |
$ | 2,939 | |
Restructuring charges | |
| 782 | | |
| — | | |
| 129 | | |
| 911 | |
Payments | |
| 230 | | |
| 2,222 | | |
| 846 | | |
| 3,298 | |
Balance as of December 31, 2021 | |
$ | 552 | | |
$ | — | | |
$ | — | | |
$ | 552 | |
Note
15 – Warrants
The
Company reviewed the accounting for both its public warrants and private warrants and determined that its public warrants should be accounted
for as equity while the private warrants should be accounted for as liabilities in the Consolidated Balance Sheets.
In
connection with the Business Combination, each public and private placement warrant of LIVK was assumed by the Company and represents
the right to purchase one share of the Company’s Class A common stock upon exercise of such warrant. The fair value of private
placement warrants is remeasured quarterly. Refer to Note 4, Fair Value Measurements, for additional information.
As
of December 31, 2021, there were 8,050,000 public warrants and 2,811,250 private placement warrants outstanding.
As
part of LIVK’s initial public offering, 8,050,000 public warrants (“Public Warrants”) were sold. The Public Warrants
entitle the holder to purchase one share of Class A common stock at a price of $11.50 per share. Public Warrants may only
be exercised for a whole number of shares. No fractional shares will be issued upon exercise of the Public Warrants. The Public Warrants
became exercisable when the Company completed an effective registration statement. The Public Warrants will expire five years from
the completion of a Business Combination or earlier upon redemption or liquidation.
Following
the closing of the merger between LIV Capital and AgileThought and the filing of the registration statement, the Company now has one
single class of voting common stock (Class A shares) and as such the Company would not be precluded from classifying the public
warrants as equity as those warrants are indexed to the Company’s own stock and a net cash settlement could only be triggered
in circumstances in which the holders of the shares underlying the contract (Class A shares) would also receive cash.
Additionally,
LIVK consummated a private placement of 2,811,250 warrants (“Private Placement Warrants”). The Private Placement
Warrants entitle the holder to purchase one share of Class A common stock at a price of $11.50 per share. The Private
Placement Warrants are identical to the Public Warrants, except that the Private Placement Warrants and the Class A common stock issuable
upon the exercise of the Private Placement Warrants were not be transferable, assignable or salable until 30 days after the
completion of a Business Combination. Additionally, the Private Placement Warrants are exercisable on a cashless basis and are non-redeemable
so long as they are held by the initial purchasers or their permitted transferees. If the Private Placement Warrants are held by someone
other than the initial purchasers or their permitted transferees, the Private Placement Warrants are redeemable by the Company and exercisable
by such holders on the same basis as the Public Warrants.
The
Company will not be obligated to deliver any Class A common stock pursuant to the exercise of a Public Warrant and will have no obligation
to settle such Public Warrant exercise unless a registration statement under the Securities Act covering the issuance of the Class A
common stock issuable upon exercise of the Public Warrants is then effective and a prospectus relating thereto is current, subject to
the Company satisfying its obligations with respect to registration. The Company filed a Form S-1 to register the shares issuable upon
exercise of the Pubic Warrants which was declared effective on September 27, 2021. No Public Warrant will be exercisable for cash or
on a cashless basis, and the Company will not be obligated to issue any shares to holders seeking to exercise their Public Warrants,
unless the issuance of the shares upon such exercise is registered or qualified under the securities laws of the state of the exercising
holder, or an exemption from registration is available.
Once
the warrants become exercisable, the Company may redeem the Public Warrants:
| ● | in
whole and not in part; |
| ● | at
a price of $0.01 per warrant; |
| ● | upon
not less than 30 days’ prior written notice of redemption to each warrant holder and if, and only if, the reported last
sale price of the Class A common stock equals or exceeds $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations
and recapitalizations), for any 20 trading days within a 30 trading day period commencing after the warrants become
exercisable and ending on the third business day prior to the notice of redemption to warrant holders; and |
| ● | if,
and only if, there is a current registration statement in effect with respect to the Class A common stock underlying such warrants. |
If
and when the Public Warrants become redeemable by the Company, the Company may exercise its redemption right even if it is unable to
register or qualify the underlying securities for sale under all applicable state securities laws.
If
the Company calls the Public Warrants for redemption, management will have the option to require all holders that wish to exercise the
Public Warrants to do so on a “cashless basis,” as described in the warrant agreement. The exercise price and number of ordinary
shares issuable upon exercise of the Public Warrants may be adjusted in certain circumstances including in the event of a share dividend,
extraordinary dividend or recapitalization, reorganization, merger or consolidation. However, the Public Warrants will not be adjusted
for issuances of ordinary shares at a price below its exercise price. Additionally, in no event will the Company be required to net cash
settle the Public Warrants.
Note
16 – Stockholders’ Equity
As
a result of the Business Combination, the Company authorized two classes of common stock: Class A common stock and preferred
stock.
Class
A Common Stock
As
of December 31, 2021, the Company has 210,000,000 shares of Class A common stock authorized, and 50,402,763 shares
issued and outstanding. Class A common stock has par value of $0.0001 per share. Holders of Class A common stock are entitled to one vote
per share.
On
December 21, 2021, AgileThought, Inc. entered into an underwriting agreement with A.G.P./Alliance Global Partners as representatives
of the underwriters (the “Underwriters”), relating to the sale and issuance of 3,560,710 shares of the Company’s
Class A common stock. The offering price to the public of the shares is $7.00 per share, and the Underwriters have agreed to purchase
the shares from the Company pursuant to the underwriting agreement at a price of $6.51 per share. The Company’s net proceeds
from the offering are approximately $21.8 million.
On
December 27, 2021, the Company issued 461,236 shares of Class A Common Stock (the “Conversion Shares”) to Mr. Senderos
and Mr. Johnston upon conversion of their loans under the New Second Lien Facility in the amount of $4,500,000 and $200,000, respectively.
Mr. Senderos received 441,409 Conversion Shares, and Mr. Johnston received 19,827 Conversion Shares.
On
December 28, 2021, the Company issued 4,439,333 shares of Class A Common Stock to the administrative agent for the First Lien
Facility in accordance with the amendment dated November 15, 2021. As these common shares have been issued to and are held by the lender,
and are contingently returnable to the Company under certain conditions, such shares are considered as issued and outstanding on the
Company’s balance sheet, but are not included in earnings per share calculations for all periods presented. See Note 9, Long-Term
Debt, for further information.
Preferred
Stock
Under
the Company’s certificate of incorporation, the Company is authorized to issue 10,000,000 shares of preferred stock having
par value of $0.0001 per share. The Company’s Board of Directors has the authority to issue shares of preferred stock in one or
more series and to determine preferences, privileges, and restrictions, including voting rights, of those shares. As of December 31,
2021, no preferred stock shares were issued and outstanding.
Prior
to the Business Combination, the Company had three classes of equity: Class A ordinary shares, Class B ordinary shares and
redeemable convertible preferred stock.
Legacy
Class A and Class B Shares
As of December 31, 2020, the capital
stock is represented by 431,682 Class A Shares and 37,538 Class B Shares. Holders of Class A Shares were entitled
to one vote per share and Holders of Class B Shares are not entitled to vote. The common shares have no preemptive, subscription,
redemption or conversion rights. In connection with the Business Combination, the Company converted its Class A and Class B ordinary shares
outstanding into shares of the Company’s Class A common stock. As of December 31, 2021, no shares of Class A and
Class B ordinary shares were outstanding.
Redeemable
Convertible Preferred Stock
On
February 2, 2021, LIV Capital Acquisition Corp (“LIVK”), related parties to LIVK (and together with LIVK, the “Equity
Investors”) and the Company entered into an equity contribution agreement. Per the agreement, the Equity Investors purchased 2,000,000 shares
of a newly created class of preferred stock at a purchase price of $10.00 per share for an aggregate purchase price of $20 million.
The
redeemable convertible preferred stock would be redeemable for an amount in cash equal to the greater of $15.00 per share (the “Required
Price”), or $10.00 per share of redeemable convertible preferred stock plus 18% interest if the Business Combination
did not occur (defined in the agreement as the “Required Return”), other than as a result of LIVK’s failure to negotiate
in good faith or failure to satisfy or perform any of its obligations under the merger agreement.
Additionally,
the redeemable convertible preferred stock would be convertible into common shares of the Company either on a one to one
basis in the event of the closing of the merger agreement, or if the merger agreement were terminated and the Company subsequently
consummated an initial public offering, into a number of common shares of the Company equal to the Required Return divided
by 0.9, or $16.6667, multiplied by the price at which the shares of voting common stock of the Company are initially priced in
such initial public offering.
The
redeemable convertible preferred stock had no voting and dividend rights until converted into common stock and had a liquidation
preference equal to the amount of the Required Return.
The
Company concluded that because the redemption and conversion features of the Preferred Stock were outside of the control of the Company,
the instrument was recorded as temporary or mezzanine equity in accordance with the provisions of Accounting Series Release No. 268, Presentation
in Financial Statements of Redeemable Preferred Stocks.
In
connection with the Business Combination, all redeemable convertible preferred stock was converted into shares of Class A common stock
on a one for one basis. As of December 31, 2021, no shares of redeemable convertible preferred stock were outstanding.
Note
17 – Loss Per Share
The
following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders:
| |
Year Ended December 31, | |
(in thousands USD, except share and loss per share data) | |
2021 | | |
2020 | |
Net loss attributable to common stockholders - basic and diluted | |
$ | (20,070 | ) | |
$ | (26,177 | ) |
| |
| | | |
| | |
Weighted average number of common stock - basic and diluted | |
| 37,331,820 | | |
| 34,557,480 | |
| |
| | | |
| | |
Net loss per common stock - basic and diluted | |
$ | (0.54 | ) | |
$ | (0.76 | ) |
As
of December 31, 2021 and December 31, 2020, the Company’s potentially dilutive securities were private and public warrants,
and granted but unvested stock awards which have been excluded from diluted loss per share because the conditions for issuance of common
shares had not been met at the balance sheet date. The potential shares of common stock that were antidilutive are as follows:
| |
December 31, | |
| |
2021 | | |
2020 | |
Public and private warrants | |
| 10,861,250 | | |
| — | |
Class A common stock held by administrative agent with restricted resale rights | |
| 4,439,333 | | |
| — | |
Unvested stock based compensation awards for Class A common stock with service and performance vesting conditions | |
| — | | |
| 1,500 | |
Note
18 – Equity-based Arrangements
The
Company has granted various equity-based awards to its employees and board members as described below. The Company issues, authorized
but unissued shares, for the settlement of equity-based awards.
2021
Equity Incentive Plan
In
connection with the Business Combination, on August 18, 2021, the Company adopted the 2021 Equity Incentive Plan (the “2021
Plan”) on August 18, 2021, which became effective immediately upon the Closing. The 2021 Plan provides the Company with
flexibility to use various equity-based incentive awards as compensation tools to motivate and retain the Company’s workforce.
The Company initially reserved 5,283,216 shares of Class A common stock for the issuance of awards under the 2021 Equity
Plan. The number of shares of Class A common stock available for issuance under the 2021 Plan automatically increases on the first
day of each calendar year, beginning January 1, 2022 and ending on and including January 1, 2031, in an amount equal to 5% of
the total number of shares of Class A common stock outstanding on December 31 of the preceding year; provided that the Board may act
prior to January 1 of a given year to provide that the increase of such year will be a lesser amount of shares of Class A common
stock. No awards have been issued under the 2021 Plan during the year ended December 31, 2021.
Employee
Stock Purchase Plan
In
connection with the Business Combination, on August 18, 2021, the Company adopted the 2021 Employee Stock Purchase Plan (the “ESPP”)
for the issuance of up to a total of 1,056,643 shares of Class A common stock. The number of shares reserved for issuance will
automatically increase on January 1 of each calendar year, from January 1, 2022 through January 1, 2031, by the lesser of (i) 1%
of the total number of shares of our capital stock outstanding on December 31 of the preceding calendar year, and (ii) the number of
shares equal to 200% of the initial share reserve, unless a smaller number of shares may be determined by the Board. The purchase
price of Class A Common Stock will be 85% of the lesser of the fair market value of Class A Common Stock on the first trading date
or on the date of purchase. No purchases have been made under the ESPP during the year ended December 31, 2021.
2020
Equity Plan
On
August 4, 2020, the Company adopted the 2020 Equity Plan with the intent to encourage and retain certain of the Company’s
senior employees, as well as board members. Pursuant to the 2020 Equity Plan, senior employees may receive up to 7,465 of Class
A restricted stock units (RSUs) subject to time-based vesting and the occurrence of a liquidity event while board members may receive
up to 300 Class A RSUs subject to time-based vesting. The awards were granted on August 4, 2020 and generally vest ratably
over a three-year service period on each successive August 4th. The grant date fair value for the RSUs under the 2020 Equity
Plan was approximately $5.8 million.
On
May 9, 2021, the Company announced the acceleration of 1,372 performance-based RSUs that the Board previously granted
which covered shares of the Company’s Class A common stock pursuant to the Company’s 2020 Equity Plan. The liquidity requirement
of the accelerated of RSU’s was removed per the Board approval on August 19, 2021. The acceleration of RSUs became effective immediately
prior to the Business Combination. During the year ended December 31, 2021, the Company recognized $1.0 million of equity-based
compensation expense related to acceleration of RSUs pursuant to the 2020 Equity Plan.
On
May 9, 2021 and August 16, 2021, the Company entered into RSU cancellation agreements with existing shareholders, cancelling a total
of 4,921 RSUs. The RSU cancellation agreements were effective immediately prior to the Business Combination. Additionally,
the remaining 1,472 RSUs were forfeited.
Additionally,
during the year ended December 31, 2021, the Company granted additional fully vested stock awards covering shares of Class A common
stock pursuant to the 2020 Equity Incentive Plan. The compensation expense related to this award recognized during the year ended December 31,
2021 was $5.5 million.
Expense
during the year ended December 31, 2020 related to board members’ RSUs pursuant to the 2020 Equity Incentive Plan was $0.2 million.
AgileThought,
LLC PIP
In
connection with the AgileThought, LLC acquisition in July 2019, the Company offered a performance incentive plan (“AT PIP”)
to key AgileThought, LLC employees. Pursuant to the AT PIP, participants may receive up to an aggregate of 3,150 Class A shares
based on the achievement of certain EBITDA -based performance metrics during each of the fiscal years as follows: 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 metrics were
not met in 2021 or 2020 and the related awards were cancelled. The remaining awards were cancelled in 2021.
Participants
do not begin to vest in the performance share units (“PSUs”) granted under the AT PIP until January 1, 2020. In order to
qualify for payment, the Participant: (a) has to be actively employed by the Company or one of its affiliates, and (b) has to not have
breached any of his or her noncompetition covenants in the definitive documents. During the year ended December 31, 2021, the Company
did not recognize any equity-based compensation expense related to this plan as performance metrics for 2022 were not probable of being
achieved. The grant date fair value for the PSUs under the AT PIP was approximately $1.2 million.
4th
Source Performance Incentive Plan
On
November 15, 2018, the Company acquired 4th Source and offered shares to key 4th Source employees under a Performance Incentive Plan
(“the 4th Source PIP”).
Pursuant
to the 4th Source PIP, participants may receive up to an aggregate of 8,394 shares based on the achievement of certain EBITDA-based
performance metrics during each of the fiscal years as follows: 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 for the PSUs was approximately $2.9 million. The Company estimated the fair value of the awards that are subject
to service-based vesting requirements and performance vesting requirements, based upon our common shares’ fair value, as of the grant
dates.
AgileThought
Inc. Management Performance Share Plan
In
2018, the Company adopted the Management Performance Share Plan, which provides for the issuance of PSUs. These awards representing an
aggregate of 1,232 Class A shares vest upon the occurrence of a liquidity event, attainment of certain performance metrics
and service-based vesting criteria. On May 9, 2021 and August 16, 2021, the Company entered into RSU cancellation agreements with existing
shareholders, cancelling a total of 1,232 RSUs pursuant to the 2018 AN Management Compensation Plan. The RSU cancellation agreements
were effective immediately prior to the Business Combination.
2017
AN Management Stock Compensation Plan
On
May 9, 2021 and August 16, 2021, the Company entered into RSU cancellation agreements with existing shareholders, cancelling a total
of 1,880 RSUs pursuant to the 2017 AN Management Compensation Plan. The RSU cancellation agreements were effective immediately
prior to the Business Combination.
The
following table summarizes all of our equity-based awards activity for the plans described above:
| |
Number of Awards | | |
Weighted Average Grant Date Fair Value | |
Awards outstanding as of December 31, 2020 | |
| 20,127 | | |
$ | 577.18 | |
Awards granted | |
| — | | |
$ | — | |
Awards forfeited / cancelled | |
| (18,755 | ) | |
$ | 558.20 | |
Awards vested | |
| (1,372 | ) | |
$ | 745.92 | |
Awards outstanding as of December 31, 2021 | |
| — | | |
$ | — | |
| |
| | | |
| | |
Awards vested as of December 31, 2021 | |
| 1,372 | | |
$ | 745.92 | |
Awards expected to vest as of December 31, 2021 | |
| — | | |
$ | — | |
As
of December 31, 2021, the Company had no unrecognized stock-based compensation expense.
Note
19 – Commitments and Contingencies
The
Company is, from time to time, involved in certain legal proceedings, inquiries, claims and disputes, which arise in the ordinary course
of business. Although management cannot predict the outcomes of these matters, management does not believe these actions will have a
material, adverse effect on the Company’s consolidated balance sheets, consolidated statements of operations or consolidated statements
of cash flows. As of December 31, 2021 and 2020, the Company had labor lawsuits in process, whose resolution is pending. As of December 31,
2021 and 2020, the Company has recorded liabilities for labor lawsuits and/or litigation of less than $1.4 million and $0.8 million
for 2021 and 2020, respectively.
As
part of the amendment entered into on November 15, 2021, the Company agreed to issue warrants to the administrative agent to purchase
$7 million worth of AgileThought’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.
Note
20 – Supplemental Cash Flows
The
following table provides detail of non-cash activity and cash flow information:
| |
Year ended December 31, | |
(in thousands USD) | |
2021 | | |
2020 | |
Supplemental disclosure of non-cash investing activities & cash flow information | |
| | |
| |
Assumption of merger warrants liability | |
$ | 15,123 | | |
$ | — | |
Contingent consideration forgiven upon disposition of business | |
| — | | |
| 1,413 | |
Right-of-use assets obtained in exchange for operating lease liabilities | |
| 1,573 | | |
| 572 | |
Forgiveness of loans | |
| 1,306 | | |
| 142 | |
Cash paid during the year for interest | |
| 7,864 | | |
| 10,289 | |
Cash paid during the year for income tax | |
| 2,025 | | |
| 2,532 | |
Fees due to creditor | |
| 6,900 | | |
| — | |
Convertible notes exchanged for Class A common stock | |
| 4,700 | | |
| — | |
Note
21 – Subsequent Events
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.
On January 31, 2022 the Company received an extension on the maturity date of the remaining balance to May 2, 2025. Payments will be
made quarterly, of which $0.1 million is due within the next year.
On
January 25, 2022, the Company exercised its option to extend the maturity date of the Subordinated Debt an additional six months to July
26, 2022. The Company recognized an additional $0.5 million in debt issuance costs related to the loan extension.
On
January 27, 2022, the Company filed a S-8 registering 13,900,557 shares, of which 12,843,914 and 1,056,643 are
available for issuance under the 2021 Equity Incentive Plan and 2021 Employee Stock Purchase Plan, respectively. The Company also granted 2,328,000 shares
of which, 87,999 shares vested immediately. The total fair value of the vested shares, net of tax withholding was $0.3 million.
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.
Management
has evaluated all subsequent events until March 31, 2021, when the consolidated financial statements were issued. Accordingly, where
applicable, the notes to these consolidated financial statements have been updated and adjustments to the Company’s consolidated financial
statements have been reflected.
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