The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS
Kaleyra, Inc., formerly GigCapital, Inc., (“Kaleyra,” the “Company,” “we,” “us,” and “our” refer to Kaleyra, Inc. and all of its consolidated subsidiaries) was incorporated in Delaware on October 9, 2017. The Company was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses.
On February 22, 2019, the Company entered into a stock purchase agreement (the “Stock Purchase Agreement”) by and among the Company, Kaleyra S.p.A., Shareholder Representative Services LLC, as representative for the holders of the ordinary shares of Kaleyra S.p.A. immediately prior to the closing of a business combination (the “Business Combination”), and all of the stockholders of all of the Kaleyra S.p.A. stock (collectively, such Kaleyra S.p.A. stockholders, the “Sellers”), for the purpose of the Company acquiring all of the shares of Kaleyra S.p.A.
As a result of the Business Combination, the Company (headquartered in Milan, Italy) became a cloud communications software provider delivering secure Application Protocol Interfaces (“APIs”) and user interface based tools for business-to-consumer communications on a global basis. Kaleyra operates in the Communication Platform as a Service (“CPaaS”) market with operations in Italy, India, Dubai and the United States.
Kaleyra’s underlying technology used in the platform is the same across all of its communication services which can generally be described as “omni-channel mobile first interactive notifications via a public or private cloud implementation”. These services include programmable voice/Interactive Voice Response (IVR) configurations, inbound/outbound messaging capabilities, hosted telephone numbers, conversational marketing solutions, and other types of IP communications services such as e-mail, push notifications, and WhatsApp®.
On February 18, 2021, Kaleyra entered into an Agreement and Plan of Merger (the “Merger Agreement”), by and among Kaleyra, its wholly-owned subsidiary, Volcano Merger Sub, Inc. (“Merger Sub”), Vivial Inc. (“Vivial”) and GSO Special Situations Master Fund LP, solely in its capacity as the Stockholder Representative (the “Stockholder Representative”), for the acquisition of the business owned by Vivial known as mGage (“mGage”), a leading global mobile messaging provider (the transaction contemplated by the Merger Agreement, the “mGage Merger”). Kaleyra will acquire mGage for a total purchase price of approximately $215 million, subject to adjustments. The consideration to mGage shareholders will consist of cash in the amount of $195 million and 1,600,000 shares of Kaleyra common stock. The mGage Merger is expected to be consummated in the second fiscal quarter of 2021. In support of the consummation of the mGage Merger, on February 18, 2021, Kaleyra entered into subscription agreements (the “PIPE Subscription Agreements”), each dated February 18, 2021, with certain institutional investors (the “PIPE Investors”), pursuant to which, among other things, Kaleyra agreed to issue and sell, in private placements to close immediately prior to the closing of the mGage Merger, an aggregate of 8,400,000 shares of Kaleyra common stock (the “PIPE Shares”) to the PIPE Investors at $12.50 per share. Kaleyra also entered into convertible note subscription agreements (the “Convertible Notes”), each dated February 18, 2021, with certain institutional investors (the “Convertible Note Investors”), pursuant to which Kaleyra agreed to issue and sell, in private placements to close immediately prior to the closing of the mGage Merger, $200 million aggregate principal amount of unsecured convertible notes (the “Merger Convertible Notes”).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying condensed consolidated financial statements of the Company are unaudited, and have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, this interim quarterly financial report does not include all disclosures required by US GAAP. In the opinion of our management, the unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, considered necessary to present fairly the financial position, results of operations and cash flows of Kaleyra and our consolidated subsidiaries for all periods presented. The results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results to be expected in the future or for the full fiscal year. It is recommended that these condensed consolidated financial statements be read in conjunction with our consolidated financial statements and the notes thereto included in our 2020 Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 16, 2021.
These condensed consolidated financial statements have been prepared in conformity with US GAAP applicable for an “emerging growth company” as defined in the Jumpstart Our Business Startups Act (“JOBS Act”). The JOBS Act provides that an
7
emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. In particular, an emerging growth company can delay the adoption of certain accounting standards until those standards would apply to private companies. For the purpose of these condensed consolidated financial statements, the Company availed itself of an extended transition period for complying with new or revised accounting standards and, as a result, did not adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for public companies.
Liquidity
In connection with Accounting Standards Update (“ASU”) 2014-15, Presentation of Financial Statements-Going Concern (Subtopic 205-40), Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern, the Company evaluated its ability to continue as a going concern. The Company has negative cash flows from operating activities as of March 31, 2021. The condensed consolidated balance sheet as of March 31, 2021 includes total current assets of $87.9 million and total current liabilities of $71.7 million, resulting in net current assets of $16.2 million.
The Business Combination generated significant obligations including (i) $13.1 million of liabilities related to non-recurring Business Combination transaction related costs; (ii) $15.0 million of deferred consideration to the Sellers in the Business Combination transaction; (iii) $13.2 million of net obligations under certain Shares Purchase Forward Agreements entered into by GigCapital, Inc. prior to the Business Combination; and (iv) $3.6 million of notes payable acquired as a result of the Business Combination. As of March 31, 2021, the Company still had the following remaining obligations as a result of the Business Combination:
|
(i)
|
$405,000 of liabilities related to non-recurring Business Combination transaction related costs;
|
|
(ii)
|
$3.75 million of deferred consideration to the Sellers in the Business Combination transaction.
|
Subsequent to March 31, 2021, the Company entered into a new loan agreement with Simest S.p.A., and entered into an agreement to postpone repayment of the principal amounts due under the existing Line 3 of the long-term unsecured financing agreement with Banco Popolare di Milano S.p.A. for a period of six (6) months. See Note 21 – Subsequent Events – for further details.
Considering the effects of the new financing and the renegotiation described above, and the typical financial cycle of the Company, management believes that the Company’s cash, cash flows from operations, debt and equity financings and availability of borrowings, will be sufficient to support its planned operations for at least the next 12 months from the date these condensed consolidated financial statements were issued.
Business seasonality
Historically, Kaleyra has experienced clear seasonality in its revenue generation, with slower traction in the first calendar quarter, and increasing revenues as the year progresses toward the higher revenues in messaging and notification services during the fourth calendar quarter. This patterned revenue generation behavior takes place due to Kaleyra’s customers sending more messages to their end-user customers who are engaged in consumer transactions at the end of the calendar year, resulting in an increase in notifications of electronic payments, credit card transactions and e-commerce.
Principles of Consolidation
The condensed consolidated financial statements include the Company and its wholly owned subsidiaries, including Kaleyra S.p.A., Solutions Infini, Buc Mobile and The Campaign Registry, which represent its major operations. All significant intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are used for, but not limited to, allowance for doubtful accounts; valuation of the Company’s stock-based awards; recoverability of long-lived and intangible assets; capitalization and useful life of the Company’s capitalized internal-use software development costs; fair value of acquired intangible assets and goodwill; accruals and contingencies, including tax related provisions and the valuation allowance on deferred taxes. Estimates are based on historical experience and on various assumptions that the Company believes are reasonable under current circumstances. However, future events are subject to change and best estimates and judgments may require further adjustments; therefore, actual results could differ materially from those estimates. Management periodically evaluates such estimates and they are adjusted prospectively based upon such periodic evaluation. Actual results and outcomes may differ from management’s estimates and assumptions due to risks and uncertainties, including uncertainty in the current economic environment due to the recent outbreak of a novel strain of the coronavirus (“COVID-19”).
8
Concentration of Credit Risk
Financial instruments that potentially expose the Company to a concentration of credit risk consist primarily of cash, restricted cash and cash equivalents, short-term investments and trade receivables. The Company maintains cash and cash equivalents and short-term investments with financial institutions that management believes are financially sound.
The Company sells its services to a wide variety of customers. If the financial condition or results of operations of any significant customers deteriorate substantially, operating results could be adversely affected. To reduce credit risk, management performs ongoing credit evaluations of the financial condition of significant customers. The Company maintains reserves for estimated credit losses on customer accounts when considered necessary. Actual credit losses may differ from the Company’s estimates. In the three months ended March 31, 2021 and 2020, there were no customers that individually accounted for more than 10% of the Company’s consolidated total revenue. As of March 31, 2021 and December 31, 2020, no customers and one individual customer, respectively, accounted for more than 10% of the Company’s consolidated total trade receivables. As of December 31, 2020, trade receivables accounted for by that one customer amounted to $4.5 million.
Warrant Liability
The Company accounts for warrants for shares of the Company’s common stock that are not indexed to its own stock as liabilities at fair value on the condensed consolidated balance sheets. The warrants are subject to remeasurement at each balance sheet date and any change in fair value is recognized in “Financial expense, net” on the condensed consolidated statements of operations. The liability is included in the condensed consolidated balance sheet line item “Other long-term liabilities”. The Company will continue to adjust the liability for changes in fair value until the earlier of the exercise or expiration of the common stock warrants. At that time, the portion of the warrant liability related to the common stock warrants will be reclassified to additional paid-in capital.
Recent Accounting Pronouncements
In May 2021, the Financial Accounting Standards Board (“FASB”) issued ASU 2021-04 “Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation— Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815- 40) Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options” which clarifies and 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. An entity should measure the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange as follows: i) for a modification or an exchange that is a part of or directly related to a modification or an exchange of an existing debt instrument or line-of-credit or revolving-debt arrangements (hereinafter, referred to as a “debt” or “debt instrument”), as the difference between the fair value of the modified or exchanged written call option and the fair value of that written call option immediately before it is modified or exchanged; ii) for all other modifications or exchanges, as the excess, if any, of the fair value of the modified or exchanged written call option over the fair value of that written call option immediately before it is modified or exchanged. 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. An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of the amendments. The Company is currently evaluating the impact of this standard on its condensed consolidated financial statements.
In January 2021, the FASB issued ASU 2021-01 “Reference Rate Reform (Topic 848)”, which clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. Specifically, certain provisions in Topic 848, if elected by an entity, apply to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. Amendments in this Update to the expedients and exceptions in Topic 848 capture the incremental consequences of the scope clarification and tailor the existing guidance to derivative instruments affected by the discounting transition. The amendments in this Update apply to all entities that elect to apply the optional guidance in Topic 848. The amendments do not apply to contract modifications made after December 31, 2022 or new hedging relationships entered into after December 31, 2022. For existing hedging relationships evaluated for effectiveness in periods after December 31, 2022, an exception is made for those hedging relationships that apply certain optional expedients in which the accounting effects are recorded through the end of the hedging relationship (including periods after December 31, 2022). The Company is currently evaluating the impact of the optional expedients and exceptions of this standard on its condensed consolidated financial statements.
In June 2020, the FASB issued ASU 2020-05 “Revenue from contracts with customers (Topic 606) and Leases (Topic 842): Effective dates for certain entities” (“ASU 2020-05”), which provides a limited one year deferral of the effective dates of the following updates (including amendments issued after the issuance of the original update) to provide immediate, near-term relief for certain entities for whom these updates are either currently effective or imminently effective: i) ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“Revenue”); ii) ASU No. 2016-02, Leases (Topic 842) (“Leases”). In November 2019, the FASB issued ASU 2019-10 “Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates” (“ASU 2019-10”). The amendments in this ASU amended certain effective dates for the above ASU
9
2016-02, Leases (including amendments issued after the issuance of the original ASU). The effective dates for Leases after applying ASU 2019-10 were as follows: public business entities, excluding emerging growth companies and smaller reporting companies, for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. All other entities for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. Early application continues to be allowed. In ASU 2019-10, the FASB noted that challenges associated with transition to a major update are often magnified for private companies and smaller public companies. Those challenges have been significantly amplified by the current business and capital market disruptions caused by the COVID-19 pandemic. For this reason, the FASB issued the amendments in ASU 2020-05 by deferring the effective date for one additional year for entities in the “all other” category that have not yet issued their financial statements (or made financial statements available for issuance) reflecting the adoption of Leases. Therefore, under the amendments, Leases (Topic 842) is effective for entities within the “all other” category for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early application continues to be permitted, which means that an entity may choose to implement Leases before those deferred effective dates. While the Company expects the adoption of the Leases standard (Leases Topic 842) to result in a material increase to the reported assets and liabilities, the Company has not yet determined the full impact that the adoption of this standard will have on its condensed consolidated financial statements.
In February 2020, the FASB issued ASU 2020-02 “Financial Instruments—Credit Losses (Topic 326) and Leases (Topic 842), Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842). This ASU applies to all registrants that are creditors in loan transactions that, individually or in the aggregate, have a material effect on the registrant’s financial condition. This ASU guidance is applicable upon a registrant’s adoption of Accounting Standards Codification (“ASC”) Topic 326. On November 15, 2019, the FASB delayed the effective date of ASC Topic 326 for certain small public companies and other private companies. As amended, the effective date of ASC Topic 326 was delayed until fiscal years beginning after December 15, 2022 for U.S. Securities and Exchange Commission (“SEC”) filers that are eligible to be smaller reporting companies under the SEC’s definition, as well as private companies and not-for-profit entities. The Company is currently evaluating the impact of this standard on its condensed consolidated financial statements.
In November 2019, the FASB issued ASU 2019-10 “Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates”. The amendments in ASU 2019-10 amend certain effective dates for the following major ASUs (including amendments issued after the issuance of the original ASU):
a)ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (Credit Losses) (“ASU 2016-13”). The amendments in this ASU amend the mandatory effective dates for Credit Losses for all entities as follows: Public business entities that meet the definition of a Securities and Exchange Commission (SEC) filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. All other entities for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early application continues to be allowed. The Company is currently evaluating the impact of this standard on its condensed consolidated financial statements.
b)ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (Hedging). The effective dates for Hedging after applying this ASU are as follows: Public business entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. All other entities for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. Early application continues to be allowed. The Company is currently evaluating the impact of this standard on its condensed consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract”. This standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The standard is effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. For all other entities, the amendments in this ASU are effective for annual reporting periods beginning after December 15, 2020, and interim periods within annual periods beginning after December 15, 2021. Early adoption is permitted, including adoption in any interim period, for all entities. The amendments in this ASU should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company adopted the amendments, and the adoption did not have a material impact on its condensed consolidated financial statements.
In August 2018, the FASB issued ASU 2018-14, “Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20)”, which modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The amendments are effective for fiscal years ending after December 15, 2020 for public business entities and for fiscal years ending after December 15, 2021 for all other entities. Early adoption is permitted for all entities. The Company adopted the amendments, and the adoption did not have a material impact on its condensed consolidated financial statements.
10
In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment”, which removes the second step of the goodwill impairment test that requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. This guidance is effective prospectively for public business entities for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2020 and for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2021 for other entities. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the impact of this standard on its condensed consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments”, which changes the impairment model for most financial assets. The new model uses a forward-looking expected loss method, which will generally result in earlier recognition of allowances for losses. In November 2018, the FASB issued ASU 2018-19, “Codification Improvements to Topic 326, Financial Instruments— Credit Losses”, which clarifies that receivables arising from operating leases are not within the scope of Topic 326, Financial Instruments—Credit Losses. Instead, impairment of receivables arising from operating leases should be accounted for in accordance with Topic 842, Leases. These ASUs are effective for public entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, and for other entities for fiscal years beginning after December 15, 2020 and interim periods within fiscal years beginning after December 15, 2021. Earlier application is permitted. As noted above, the effective date of this ASU has now been delayed for two years by the issuance of ASU 2019-10. The Company is currently evaluating the impact of this standard on its condensed consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, “Leases”, which was further clarified by ASU 2018-10, “Codification Improvements to Topic 842, Leases”, and ASU 2018-11, “Leases—Targeted Improvements”, both issued in July 2018. ASU 2016-02 affects all entities that lease assets and will require lessees to recognize a lease liability and a right-of-use asset for all leases (except for short-term leases that have a duration of less than one year) as of the date on which the lessor makes the underlying asset available to the lessee. For lessors, accounting for leases is substantially the same as in prior periods. ASU 2018-10 clarifies or corrects unintended application of guidance related to ASU 2016-02. The amendment affects narrow aspects of ASU 2016-02 related to the implicit rate in the lease, impairment of the net investment in the lease, lessee reassessment of lease classification, lessor reassessment of lease term and purchase options, variable payments that depend on an index or rate and certain transition adjustments. ASU 2018-11 adds a transition option for all entities and a practical expedient only for lessors. The transition option allows entities to not apply the new lease standard in the comparative periods they present in their financial statements in the year of adoption. Under the transition option, entities can opt to continue to apply the legacy guidance in ASC 840, “Leases”, including its disclosure requirements, in the comparative prior periods presented in the year they adopt the new lease standard. Entities that elect this transition option will still be required to adopt the new leases standard using the modified retrospective transition method required by the standard, but they will recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption rather than in the earliest period presented. The new standards are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years for a public business entity. For all other entities, the amendments in this ASU are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Earlier application is permitted. As noted above, the effective date of this ASU has now been delayed for two years by the issuance of ASU 2020-05. While the Company expects the adoption of these standards to result in a material increase to the reported assets and liabilities, the Company has not yet determined the full impact that the adoption of this standard will have on its condensed consolidated financial statements.
3. FAIR VALUE MEASUREMENTS
The following tables provide the assets and liabilities measured at fair value on a recurring basis as of March 31, 2021 and December 31, 2020 (in thousands):
|
|
Fair Value Hierarchy as of March 31, 2021
|
|
|
Aggregate
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Fair Value
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds (1)
|
|
$
|
593
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
593
|
|
Certificates of deposit (2)
|
|
|
—
|
|
|
|
3,694
|
|
|
|
—
|
|
|
|
3,694
|
|
Total Assets
|
|
$
|
593
|
|
|
$
|
3,694
|
|
|
$
|
—
|
|
|
$
|
4,287
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swap (3)
|
|
$
|
—
|
|
|
$
|
92
|
|
|
$
|
—
|
|
|
$
|
92
|
|
Warrant liability (4)
|
|
|
—
|
|
|
|
1,589
|
|
|
|
—
|
|
|
|
1,589
|
|
Total Liabilities
|
|
$
|
—
|
|
|
$
|
1,681
|
|
|
$
|
—
|
|
|
$
|
1,681
|
|
|
(1)
|
Included in the condensed consolidated balance sheet line item “Short-term investments”.
|
11
|
(2)
|
Included in the condensed consolidated balance sheet line item “Short-term investments”, with maturity terms between 4 and 12 months held in India.
|
|
(3)
|
Included in the condensed consolidated balance sheet line item “Other long-term liabilities”.
|
|
(4)
|
Included in the condensed consolidated balance sheet line item “Other long-term liabilities”. See Note 17 – Warrants – for further details.
|
|
|
Fair Value Hierarchy as of December 31, 2020
|
|
|
Aggregate
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Fair Value
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds (1)
|
|
$
|
590
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
590
|
|
Certificates of deposit (2)
|
|
|
—
|
|
|
|
4,253
|
|
|
|
—
|
|
|
|
4,253
|
|
Total Assets
|
|
$
|
590
|
|
|
$
|
4,253
|
|
|
$
|
—
|
|
|
$
|
4,843
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swap (3)
|
|
$
|
—
|
|
|
$
|
109
|
|
|
$
|
—
|
|
|
$
|
109
|
|
Debt for forward share purchase agreements (4)
|
|
|
—
|
|
|
|
483
|
|
|
|
—
|
|
|
|
483
|
|
Total Liabilities
|
|
$
|
—
|
|
|
$
|
592
|
|
|
$
|
—
|
|
|
$
|
592
|
|
|
(1)
|
Included in the condensed consolidated balance sheet line item “Short-term investments”.
|
|
(2)
|
Included in the condensed consolidated balance sheet line item “Short-term investments”, with maturity terms between 4 and 12 months held in India.
|
|
(3)
|
Included in the condensed consolidated balance sheet line item “Other long-term liabilities”.
|
|
(4)
|
Based on the information available at the reporting date, debt for forward share purchase agreements have been determined as the present value to be paid at settlement in case the counterparty exercises the put option.
|
The values of short-term investments as of March 31, 2021 and as of December 31, 2020 were as follows (in thousands):
|
|
As of March 31,
|
|
|
As of December 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
Cost
|
|
|
Unrealized
gains
|
|
|
Unrealized
losses
|
|
|
Fair value
|
|
|
Cost
|
|
|
Unrealized
gains
|
|
|
Unrealized
losses
|
|
|
Fair value
|
|
Mutual funds
|
|
$
|
587
|
|
|
$
|
6
|
|
|
$
|
—
|
|
|
$
|
593
|
|
|
$
|
580
|
|
|
$
|
10
|
|
|
$
|
—
|
|
|
$
|
590
|
|
Certificates of deposit
|
|
|
3,694
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,694
|
|
|
|
4,253
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,253
|
|
There were no transfers of liabilities into or out of Level 2 or Level 3 for the three months ended March 31, 2021 and the year ended December 31, 2020.
Net realized and unrealized (gains) and losses related to the Company’s preference shares, which were classified as Level 3 liabilities during the quarter ended March 31, 2020, are reported in the condensed consolidated statements of operations as follows (in thousands):
|
|
Research
and
development
|
|
|
Sales
and
marketing
|
|
|
General
and
administrative
|
|
|
Financial income
(expense), net
|
|
|
Foreign
currency
Income (loss)
|
|
|
Total
|
|
Three months ended March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preference shares
|
|
$
|
(941
|
)
|
|
$
|
(372
|
)
|
|
$
|
(756
|
)
|
|
$
|
(417
|
)
|
|
$
|
—
|
|
|
$
|
(2,486
|
)
|
4. DERIVATIVE FINANCIAL INSTRUMENTS
The gross notional amount of interest rate swap derivative contracts not designated as hedging instruments, outstanding as of March 31, 2021 and December 31, 2020, was €8.6 million ($10.0 million) and €9.5 million ($11.6 million), respectively.
The amount and location of the gains (losses) in the condensed consolidated statements of operations related to derivative contracts is as follows (in thousands):
12
|
|
|
|
Three Months Ended March 31,
|
|
Derivatives Not Designed As Hedging Instruments
|
|
Line Items
|
|
2021
|
|
|
2020
|
|
Interest Rate Swap
|
|
Financial expense, net
|
|
$
|
13
|
|
|
$
|
7
|
|
Total
|
|
|
|
$
|
13
|
|
|
$
|
7
|
|
The following table presents the fair value and the location of derivative contracts reported in the condensed consolidated balance sheets (in thousands):
|
|
|
|
As of
March 31,
|
|
|
As of
December 31,
|
|
Derivatives Not Designed As Hedging Instruments
|
|
Line Items
|
|
2021
|
|
|
2020
|
|
Interest Rate Swap
|
|
Other long-term liabilities
|
|
$
|
92
|
|
|
$
|
109
|
|
Total
|
|
|
|
$
|
92
|
|
|
$
|
109
|
|
5. GOODWILL AND INTANGIBLE ASSETS, NET
Goodwill
Goodwill as of March 31, 2021 and December 31, 2020 was as follows (in thousands):
Balance as of December 31, 2020
|
|
$
|
16,657
|
|
Effect of exchange rate
|
|
|
(45
|
)
|
Balance as of March 31, 2021
|
|
$
|
16,612
|
|
Intangible assets, net
Intangible assets consisted of the following (in thousands):
|
|
As of March 31, 2021
|
|
|
As of December 31, 2020
|
|
|
|
Gross
|
|
|
Accumulated
amortization
|
|
|
Net
|
|
|
Gross
|
|
|
Accumulated
amortization
|
|
|
Net
|
|
Amortizable Intangible Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Developed technology
|
|
$
|
2,737
|
|
|
$
|
1,731
|
|
|
$
|
1,006
|
|
|
$
|
2,742
|
|
|
$
|
1,576
|
|
|
$
|
1,166
|
|
Customer relationships
|
|
|
8,903
|
|
|
|
2,829
|
|
|
|
6,074
|
|
|
|
8,925
|
|
|
|
2,598
|
|
|
|
6,327
|
|
Patent
|
|
|
127
|
|
|
|
51
|
|
|
|
76
|
|
|
|
130
|
|
|
|
49
|
|
|
|
81
|
|
Total amortizable intangible assets
|
|
$
|
11,767
|
|
|
$
|
4,611
|
|
|
$
|
7,156
|
|
|
$
|
11,797
|
|
|
$
|
4,223
|
|
|
$
|
7,574
|
|
Amortization expense was $403,000 and $422,000 for the three months ended March 31, 2021 and 2020, respectively.
Total estimated future amortization expense as of March 31, 2021 is as follows (in thousands):
|
|
As of
March 31, 2021
|
|
2021 (remaining nine months)
|
|
$
|
1,004
|
|
2022
|
|
|
1,160
|
|
2023
|
|
|
1,056
|
|
2024
|
|
|
853
|
|
2025
|
|
|
639
|
|
2026 and thereafter
|
|
|
2,444
|
|
Total
|
|
$
|
7,156
|
|
13
6. OTHER ASSETS
Other current assets consisted of the following (in thousands):
|
|
As of March 31,
|
|
|
As of December 31,
|
|
|
|
2021
|
|
|
2020
|
|
VAT receivables
|
|
$
|
236
|
|
|
$
|
1,347
|
|
Receivables from suppliers
|
|
|
1,249
|
|
|
|
542
|
|
Credit for tax other than income tax
|
|
|
589
|
|
|
|
119
|
|
Income tax receivables
|
|
|
94
|
|
|
|
69
|
|
Other receivables
|
|
|
3,054
|
|
|
|
57
|
|
Total other current assets
|
|
$
|
5,222
|
|
|
$
|
2,134
|
|
Other long-term assets consisted of the following (in thousands):
|
|
As of March 31,
|
|
|
As of December 31,
|
|
|
|
2021
|
|
|
2020
|
|
Non-current income tax credit (advances and tax reduced at sources)
|
|
$
|
54
|
|
|
$
|
1,509
|
|
Miscellaneous
|
|
|
245
|
|
|
|
288
|
|
Total other long-term assets
|
|
$
|
299
|
|
|
$
|
1,797
|
|
7. BANK AND OTHER BORROWINGS
Credit line facilities
As of March 31, 2021, the Company had credit line facilities granted for a total amount of $7.5 million, of which $4.4 million had been used. As of December 31, 2020, the Company had available credit line facilities for $7.7 million, of which $5.3 million had been used.
The credit lines denominated in Euro may be drawn upon at variable interest rates in the following range: 0.6% - 7.6%. The weighted average interest rate on the credit line facilities outstanding as of March 31, 2021, was 1.11%.
14
Long-term bank and other borrowings
Long-term bank and other borrowings consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Interest Nominal Rate
|
|
|
|
As of
March 31,
|
|
|
As of
December 31,
|
|
|
|
|
Interest
|
|
|
As of
March 31,
|
|
|
As of
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
|
Maturity
|
|
Contractual Rate
|
|
|
2021
|
|
|
2020
|
|
UniCredit S.p.A.
(Line A Tranche (1)
|
|
$
|
2,750
|
|
|
$
|
3,235
|
|
|
July 2023
|
|
Euribor 3 months + 3.10%
|
|
|
|
2.80
|
%
|
|
|
2.80
|
%
|
UniCredit S.p.A.
(Line A Tranche (2)
|
|
|
132
|
|
|
|
153
|
|
|
November 2023
|
|
Euribor 3 months + 3.10%
|
|
|
|
2.80
|
%
|
|
|
2.80
|
%
|
UniCredit S.p.A. (Line B)
|
|
|
2,656
|
|
|
|
3,030
|
|
|
May 2024
|
|
Euribor 3 months + 2.90%
|
|
|
|
2.60
|
%
|
|
|
2.60
|
%
|
UniCredit S.p.A. (Line C)
|
|
|
2,153
|
|
|
|
2,521
|
|
|
August 2023
|
|
Euribor 3 months + 3.90%
|
|
|
|
3.36
|
%
|
|
|
3.36
|
%
|
Intesa Sanpaolo S.p.A.
(Line 1)
|
|
|
744
|
|
|
|
931
|
|
|
April 2022
|
|
Euribor 3 months + 1.80%
|
|
|
|
1.26
|
%
|
|
|
1.26
|
%
|
Intesa Sanpaolo S.p.A.
(Line 2)
|
|
|
3,824
|
|
|
|
4,292
|
|
|
April 2024
|
|
Euribor 3 months + 2.60%
|
|
|
|
2.06
|
%
|
|
|
2.06
|
%
|
Intesa Sanpaolo S.p.A.
(Line 3)
|
|
|
9,265
|
|
|
|
9,688
|
|
|
June 2026
|
|
Euribor 3 months + 1.65%
|
|
|
|
1.11
|
%
|
|
|
1.11
|
%
|
Intesa Sanpaolo S.p.A.
(Line 4)
|
|
|
6,439
|
|
|
|
6,734
|
|
|
July 2026
|
|
Euribor 3 months + 1.70%
|
|
|
|
1.16
|
%
|
|
|
1.16
|
%
|
UBI Banca S.p.A. (Line 1)
|
|
|
125
|
|
|
|
209
|
|
|
August 2021
|
|
Euribor 3 months + 1.25%
|
|
|
|
1.25
|
%
|
|
|
1.25
|
%
|
UBI Banca S.p.A. (Line 2)
|
|
|
692
|
|
|
|
1,031
|
|
|
October 2021
|
|
Euribor 3 months +1.95%
|
|
|
|
1.41
|
%
|
|
|
1.41
|
%
|
Monte dei Paschi di
Siena S.p.A. (Line 1)
|
|
|
256
|
|
|
|
328
|
|
|
April 2022
|
|
|
0.95
|
%
|
|
|
0.95
|
%
|
|
|
0.95
|
%
|
Monte dei Paschi di
Siena S.p.A. (Line 2)
|
|
|
1,949
|
|
|
|
2,037
|
|
|
June 2023
|
|
|
1.50
|
%
|
|
|
1.50
|
%
|
|
|
1.50
|
%
|
Banco BPM S.p.A. (Line 1)
|
|
|
912
|
|
|
|
1,056
|
|
|
June 2023
|
|
Euribor 3 months + 2.00%
|
|
|
|
2.00
|
%
|
|
|
2.00
|
%
|
Banco BPM S.p.A. (Line 3)
|
|
|
6,086
|
|
|
|
6,355
|
|
|
September 2024
|
|
Euribor 3 months + 3.00%
|
|
|
|
2.46
|
%
|
|
|
2.46
|
%
|
Simest 1
|
|
|
293
|
|
|
|
307
|
|
|
December 2023
|
|
|
0.50
|
%
|
|
|
0.50
|
%
|
|
|
0.50
|
%
|
Simest 2
|
|
|
291
|
|
|
|
305
|
|
|
December 2023
|
|
|
0.50
|
%
|
|
|
0.50
|
%
|
|
|
0.50
|
%
|
Simest 3
|
|
|
535
|
|
|
|
560
|
|
|
December 2023
|
|
|
0.50
|
%
|
|
|
0.50
|
%
|
|
|
0.50
|
%
|
Total bank and other borrowings
|
|
|
39,102
|
|
|
|
42,772
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: current portion
|
|
|
8,082
|
|
|
|
10,798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term portion
|
|
$
|
31,020
|
|
|
$
|
31,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All bank and other borrowings are unsecured borrowings of Kaleyra.
On February 23, 2021, Kaleyra entered into an amendment to the existing unsecured loan agreement with Intesa Sanpaolo S.p.A. (the “Intesa Sanpaolo S.p.A. - Line 1”) and an amendment to the existing unsecured loan agreement with Intesa Sanpaolo S.p.A. (the “Intesa Sanpaolo S.p.A. - Line 2”). The amendments each provide that certain financial covenants be amended in order to make them less restrictive to the Company, in particular as they relate to the previously agreed net financial position/equity ratio and the net financial position/gross operating income ratio.
On March 9, 2021 and March 10, 2021, respectively, Kaleyra received the approval by UniCredit S.p.A. to postpone repayment of the principal amounts due under the existing Line A Tranche (2), Line B and Line C of the long-term financing agreements with UniCredit S.p.A. for a period of six (6) months starting from March 1, 2021 until August 8, 2021, and under Line A Tranche (1) of the long-term financing agreement with UniCredit S.p.A. starting from February 1, 2021 until July 31, 2021. Consequently, the repayment schedule under all financing agreements mentioned above has been extended for the period equal to that of the six (6) month suspension period.
Subsequent to March 31, 2021, Kaleyra received the approval by Banco Popolare di Milano S.p.A. to postpone repayment of the principal amounts due under the existing Line 3 of the long-term financing agreement with Banco Popolare di Milano S.p.A. for a period of six (6) months starting from March 31, 2021 until September 30, 2021. See Note 21 – Subsequent Events – for further details.
15
Subsequent to March 31, 2021, Kaleyra entered into a new general unsecured loan agreement with Simest S.p.A. for a total of $3.6 million (€3.0 million at the April 15, 2021 exchange rate). See Note 21 – Subsequent Events – for further details.
As of March 31, 2021, all of the available long-term facilities were drawn in full.
Interest expense on bank and other borrowings was $190,000 for the three months ended March 31, 2021 and $218,000 for the three months ended March 31, 2020.
As of March 31, 2021, the Company is obliged to make payments as follows (in thousands):
|
|
As of
March 31, 2021
|
|
2021 (remaining nine months)
|
|
$
|
5,807
|
|
2022
|
|
|
10,819
|
|
2023
|
|
|
10,537
|
|
2024
|
|
|
6,160
|
|
2025
|
|
|
3,626
|
|
2026 and thereafter
|
|
|
2,153
|
|
Total
|
|
$
|
39,102
|
|
8. DEBT FOR FORWARD SHARE PURCHASE AGREEMENTS
As of March 31, 2021, the Company’s debt for forward share purchase agreements amounted to zero.
Yakira Capital Management (“Yakira”)
During the period from January 25, 2021 through March 2, 2021, Yakira provided notice to the Company that it sold all but 219 of the 43,930 shares that it held on December 31, 2020 in the open market at a price above $11.00 per share that were subject to the Third Yakira Amendment. On March 29, 2021, Yakira provided notice to the Company that it would not require the Company to purchase its remaining 219 shares by the term date of March 31, 2021. Following the sale of shares and the lapse of the Third Yakira Amendment mentioned above, the forward share purchase agreement with Yakira was terminated pursuant to its terms, and, as a result, the Company has no further obligations under the Yakira Purchase Agreement.
Nomura Global Financial Products
On February 25, 2021, in accordance with the terms of the agreement (the “Confirmation”) with Nomura Global Financial Products, Inc. (“NGFP”), NGFP fully terminated the Forward Transaction and made a payment in the aggregate amount of $17.0 million to Kaleyra. Following the cash settlement of the Forward Transaction mentioned above, the Forward Transaction with NGFP has terminated pursuant to the terms of the Confirmation, and, as a result, the Company has no further obligations.
9. NOTES PAYABLE
Notes payable to the Sellers
As consideration for the Business Combination, on November 25, 2019 the Company issued unsecured convertible promissory notes to each of Esse Effe and Maya in the amount of $6.0 million and $1.5 million, respectively, (the “Business Combination Convertible Notes”) and also issued other unsecured promissory notes to each of Esse Effe and Maya in the identical respective amounts (the “Non-convertible Notes”). The Non-convertible Notes held by Esse Effe and Maya were paid in full during fiscal year 2020 and no amount remains outstanding for such notes as of March 31, 2021.
Business Combination Convertible Notes
As of March 31, 2021, the amount outstanding for the Business Combination Convertible Notes was $3.75 million and accrued interest on the Business Combination Convertible Notes was $65,000.
The Business Combination Convertible Notes are classified as “Notes payable due to related parties” in the accompanying condensed consolidated balance sheets. The accrued interest payable is included in “Other current liabilities” in the accompanying condensed consolidated balance sheets.
16
Interest on the Business Combination Convertible Notes will accrue at a fixed interest rate equal to the one-year US dollar LIBOR interest rate published in The Wall Street Journal on the Business Combination Date, plus a margin of one percent (1%) per annum. Interest will be due and payable annually on each of (1) the date which is the twelve-month anniversary of the Business Combination Date and (2) on the date which is the twenty-four-month anniversary of the Business Combination Date. All interest shall be computed on the basis of a 365-day year and the actual number of days elapsed.
Fifty percent (50%) of the outstanding principal balance of these notes was due and payable on the fifteen-month anniversary of the Business Combination Date. The remaining outstanding principal balance of these notes plus all accrued and unpaid interest and fees due under these notes will be due and payable in full on the twenty-four-month anniversary of the Business Combination Date.
In the event that the Company receives, at any time while principal on these notes remains outstanding, cash proceeds of an equity financing (the “Financing”) in an amount not less than $50.0 million (the “Notes Financing Proceeds”), fifty percent (50%) of the outstanding principal balance of these notes will be due and payable no later than ten business days after the Company receives such Notes Financing Proceeds. In the event of a Financing where at any time the Company receives cash proceeds of such Financing in an amount not less than $75.0 million (the “Payoff Financing Proceeds”), one hundred percent of the remaining outstanding principal balance of these notes, plus all accrued and unpaid interest and fees due under the notes will be due and payable no later than ten business days after the Company receives such Payoff Financing Proceeds. The date which is the earlier of (a) the twenty-four-month anniversary of the Business Combination Date, or (b) the date payment is received from Payoff Financing Proceeds, is the “Maturity Date”.
In the event that these Business Combination Convertible Notes are not paid in full on or before the applicable Maturity Date, then at any time after the sixtieth business day after the Maturity Date, assuming payment in full has not been made prior to such date, the outstanding principal amount of these notes, together with all accrued but unpaid interest on these notes, may be converted into shares of Company common stock, in part or in whole, at the option of the holder of these notes by providing written notice at least three business days prior to the date of conversion. A conversion of any portion of these notes into shares of Company common stock will be effected at a conversion price equal to the Current Market Price as of the date of such conversion (the “Conversion Price”). The term “Current Market Price” means, generally, the average VWAP for the twenty consecutive trading days ending on the date that is five trading days prior to the date of conversion. The term “VWAP” means, for any trading day, the volume weighted average trading price of the Company’s common stock for such trading day on the NYSE (or if the Company’s common stock is no longer traded on the NYSE, on such other exchange as the Company’s common stock is then traded).
On the fifteen-month anniversary of the Business Combination Date or February 25, 2021, the fifty percent (50%) of the previously outstanding amount of Business Combination Convertible Notes held by Esse Effe and Maya was repaid, with a total of $3.0 million and $750,000 in principal and $176,000 and $44,000 in accrued interest being paid to Esse Effe and Maya, respectively, pursuant to the terms of the Business Combination Convertible Notes.
Notes payable - Other
On April 16, 2020, the Company entered into a Settlement Agreement and Release (the “Settlement Agreement”) with its Business Combination financial advisory service firms, Cowen and Company, LLC (“Cowen”) and Chardan Capital Markets, LLC, (“Chardan” and collectively the “Service Firms”), pursuant to which it agreed to pay an affiliate of Cowen, Cowen Investments II LLC (“Cowen Investments”), and Chardan, in full satisfaction of all amounts owed to the Service Firms as of December 31, 2019, $5.4 million in the aggregate, as follows: (i) $2.7 million in the aggregate in common stock of the Company (the “Settlement Shares”) to be issued the business day prior to the filing of a resale registration statement for such Settlement Shares (the “Bank Resale Registration Statement”), (ii) convertible notes totaling $2.7 million in the aggregate with a maturity date three years after issuance and bearing interest at five percent (5%) per annum (but with lower interest rates if the notes are repaid earlier than one year or two years after issuance) and with interest paid in arrears to the payee on March 15, June 15, September 15 and December 15 of each year, with such convertible notes to also be issued the business day prior to the filing of the Resale Registration Statement and (iii) in the event that the Beneficial Ownership Limitation (as defined below) would otherwise be exceeded upon delivery of the Settlement Shares above, a warrant agreement also to be entered into with and issued to the Services Firms the business day prior to the filing of the Resale Registration Statement, whereby the amount of common stock of the Company by which the Beneficial Ownership Limitation would otherwise have been exceeded upon delivery of the Settlement Shares will be substituted for by warrants with an exercise price of $0.01 per share issued pursuant to a Warrant Agreement (the “Warrant Agreement”) and the common stock underlying the Warrant Agreement (the “Warrant Shares”). The Beneficial Ownership Limitation shall initially be 4.99% of the number of shares of the common stock outstanding of the Company immediately after giving effect to the issuance of these shares of common stock. The number of Settlement Shares was calculated using as the price per Settlement Share an amount equal to a fifteen percent (15%) discount to the ten-day (10-day) trailing dollar volume-weighted average price for the common stock of the Company on the NYSE American LLC stock exchange (the “VWAP”) on the business day immediately prior to the date on which Kaleyra filed the Resale Registration Statement. In addition, the price per share for determining the number of shares of common stock of the Company to be issued upon the conversion of the convertible notes shall be a five percent (5%) premium to the ten-day (10-day)
17
trailing VWAP as of the date immediately prior to the issuance date of the convertible notes, rounded down to the nearest whole number.
On May 1, 2020, in connection with the Settlement Agreement, the Company issued: (i) an aggregate of 440,595 Settlement Shares to Cowen Investments and Chardan, consisting of 374,506 Settlement Shares issued to Cowen Investments, and 66,089 Settlement Shares issued to Chardan, which resulted in a $0.2 million loss on settlement on the issuance date of May 1, 2020; and (ii) convertible promissory notes in the aggregate principal amount of $2.7 million to Cowen Investments and Chardan, consisting of a convertible promissory note in the principal amount of $2.3 million issued to Cowen Investments (the “Cowen Note”) and a convertible promissory note in the principal amount of $405,000 issued to Chardan (the “Chardan Note”). The unpaid principal of the Cowen Note is convertible at the option of Cowen Investments into 303,171 shares of common stock of the Company, if there has been no principal reduction, and the unpaid principal of the Chardan Note is convertible at the option of Chardan into 53,501 shares of common stock of the Company, if there has been no principal reduction. As the Beneficial Ownership Limitation was not triggered by the issuance of the Settlement Shares, no Warrant Agreement was necessary and no warrants were issued.
As of December 31, 2020, the outstanding amount of the Cowen Note was $2.3 million and accrued interest was $63,000. As of December 31, 2020, the outstanding amount of the Chardan Note was $405,000 and accrued interest was $14,000. These notes payable are included in “Long-term portion of notes payable” and the accrued interest payable is included in “Other current liabilities” in the accompanying condensed consolidated balance sheets.
On February 4, 2021, Cowen Investments elected to convert the outstanding amount of the Cowen Note into 303,171 shares of common stock pursuant to the terms of the Cowen Note, and, as a result, the Company has no further obligations with respect to the Cowen Note.
As of March 31, 2021, the outstanding amount of the Chardan Note was $405,000 and accrued interest was $19,000.
10. ACCUMULATED OTHER COMPREHENSIVE LOSS
The accumulated balances related to each component of accumulated other comprehensive loss are as follows (in thousands):
|
|
Cumulative
Foreign
Currency
Translation
Adjustment
|
|
|
Cumulative
net unrealized
gain (loss)
on marketable
securities,
net of tax
|
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
As of December 31, 2020
|
|
$
|
(2,836
|
)
|
|
$
|
10
|
|
|
$
|
(2,826
|
)
|
Other comprehensive income (loss), net of tax
|
|
|
1,105
|
|
|
|
(4
|
)
|
|
|
1,101
|
|
As of March 31, 2021
|
|
$
|
(1,731
|
)
|
|
$
|
6
|
|
|
$
|
(1,725
|
)
|
11. PREFERENCE SHARES LIABILITIES
Preference shares liabilities amounting to zero as of March 31, 2021 and December 31, 2020, represented the Company’s obligation to purchase in 2020 the preference shares from certain employees of Solutions Infini as a part of the Solutions Infini 2018 Purchase Agreement.
During fiscal year 2020, following the agreement with the eligible employees of the preference shares to pay performance bonuses for a total amount of $3.5 million, as a replacement of the preference shares obligation, the performance bonus obligation payable to the eligible employees was paid in two different installments of $1.4 million on August 31, 2020, and of $883,000 on November 30, 2020.
On February 3, 2021, the previously outstanding performance bonus obligation payable to the eligible employees was agreed to be paid in two different installments of $826,000 on February 15, 2021 and $340,000 (at the March 31, 2021 exchange rate) on April 15, 2021, under the full and final settlement agreements signed with the eligible employees. See Note 21 – Subsequent Events – for further details.
As of March 31, 2021, the outstanding performance bonus obligation payable to the eligible employees amounted to $340,000. This amount is included in the condensed consolidated balance sheets line item “Payroll and payroll related accrued liabilities”.
18
12. OTHER CURRENT AND LONG-TERM LIABILITIES
Other current liabilities consisted of the following (in thousands):
|
|
As of
March 31,
|
|
|
As of
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
Liabilities for tax other than income tax
|
|
$
|
437
|
|
|
$
|
2,942
|
|
Social security liabilities
|
|
|
295
|
|
|
|
383
|
|
Current tax liabilities
|
|
|
886
|
|
|
|
434
|
|
Accrued financial interest
|
|
|
265
|
|
|
|
1,066
|
|
Capital leases
|
|
|
125
|
|
|
|
138
|
|
Other miscellaneous
|
|
|
778
|
|
|
|
1,025
|
|
Total other current liabilities
|
|
$
|
2,786
|
|
|
$
|
5,988
|
|
Other long-term liabilities consisted of the following (in thousands):
|
|
As of
March 31,
|
|
|
As of
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
Interest rate swaps
|
|
$
|
92
|
|
|
$
|
109
|
|
Warrant liability
|
|
|
1,589
|
|
|
|
—
|
|
Capital leases
|
|
|
175
|
|
|
|
208
|
|
Other miscellaneous
|
|
|
302
|
|
|
|
286
|
|
Total other long-term liabilities
|
|
$
|
2,158
|
|
|
$
|
603
|
|
13. GEOGRAPHIC INFORMATION
Revenue by geographic area is determined on the basis of the location of the customer. The Company generates its revenue primarily in Italy and India. The following table sets forth revenue by geographic area for the three months ended March 31, 2021 and 2020 (in thousands):
|
|
Three Months Ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Italy
|
|
$
|
16,087
|
|
|
$
|
14,608
|
|
India
|
|
|
11,718
|
|
|
|
8,893
|
|
United States
|
|
|
5,121
|
|
|
|
4,289
|
|
Europe (excluding Italy)
|
|
|
1,418
|
|
|
|
2,573
|
|
Rest of the world
|
|
|
5,370
|
|
|
|
3,270
|
|
Total
|
|
$
|
39,714
|
|
|
$
|
33,633
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Italy
|
|
|
40.5
|
%
|
|
|
43.4
|
%
|
India
|
|
|
29.5
|
%
|
|
|
26.4
|
%
|
United States
|
|
|
12.9
|
%
|
|
|
12.8
|
%
|
Europe (excluding Italy)
|
|
|
3.6
|
%
|
|
|
7.7
|
%
|
Rest of the world
|
|
|
13.5
|
%
|
|
|
9.7
|
%
|
19
As of March 31, 2021, the majority of the Company’s long-lived assets are located in Italy and India. The following table sets forth long-lived assets by geographic area as of March 31, 2021 and December 31, 2020 (in thousands):
|
|
As of
March 31,
|
|
|
As of
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
Italy
|
|
$
|
3,288
|
|
|
$
|
2,827
|
|
India
|
|
|
2,098
|
|
|
|
1,667
|
|
United States
|
|
|
1,719
|
|
|
|
2,225
|
|
Rest of the world
|
|
|
8
|
|
|
|
7
|
|
Total
|
|
$
|
7,113
|
|
|
$
|
6,726
|
|
|
|
As of
March 31,
|
|
|
As of
December 31,
|
|
|
|
2021
|
|
|
2020
|
|
Italy
|
|
|
46.2
|
%
|
|
|
42.0
|
%
|
India
|
|
|
29.5
|
%
|
|
|
24.8
|
%
|
United States
|
|
|
24.2
|
%
|
|
|
33.1
|
%
|
Rest of the world
|
|
|
0.1
|
%
|
|
|
0.1
|
%
|
14. COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company entered into various operating lease agreements that expire over various years in the next 7 years. The Company’s Milan office lease contains an option to renew the lease for 6 years under terms and conditions set forth in the lease agreement. Certain of the Company’s leases contain provisions for rental adjustments. Operating lease rentals are expensed on a straight-line basis over the life of the lease beginning on the date the Company takes possession of the property. Rent expense was $192,000 and $235,000 for the three months ended March 31, 2021 and 2020, respectively.
Future minimum lease payments under leasing obligations as of March 31, 2021 are as follows (in thousands):
|
|
As of March 31, 2021
|
|
|
|
Operating leases
|
|
|
Capital leases
|
|
|
Total
|
|
2021 (remaining nine months)
|
|
$
|
491
|
|
|
$
|
109
|
|
|
$
|
600
|
|
2022
|
|
|
528
|
|
|
|
75
|
|
|
|
603
|
|
2023
|
|
|
434
|
|
|
|
62
|
|
|
|
496
|
|
2024
|
|
|
335
|
|
|
|
62
|
|
|
|
397
|
|
2025
|
|
|
308
|
|
|
|
18
|
|
|
|
326
|
|
2026 and thereafter
|
|
|
130
|
|
|
|
—
|
|
|
|
130
|
|
Total minimum lease payments
|
|
$
|
2,226
|
|
|
$
|
326
|
|
|
$
|
2,552
|
|
Future minimum lease payment under capital leases as of March 31, 2021, consisted of the following (in thousands):
|
|
As of March 31, 2021
|
|
|
|
Capital leases
|
|
Total payments
|
|
$
|
326
|
|
Less: interest portion
|
|
|
26
|
|
Net capital lease obligation
|
|
|
300
|
|
Less: current portion
|
|
|
125
|
|
Long term portion
|
|
$
|
175
|
|
20
Contingencies
As of March 31, 2021, the Company had contingent liabilities of $128,000, relating to a tax appeal of Solutions Infini for which no provision was recognized as its occurrence was deemed remote.
15. RESTRICTED STOCK UNITS (RSUs)
The following table sets forth the activity related to the number of outstanding RSUs for the three months ended March 31, 2021:
|
|
Number of
shares
|
|
|
Weighted-
average
grant date
fair value
(per share)
|
|
Non-vested as of December 31, 2020
|
|
|
3,331,037
|
|
|
$
|
7.48
|
|
Vested
|
|
|
(558,396
|
)
|
|
|
8.08
|
|
Granted
|
|
|
939,450
|
|
|
|
16.23
|
|
Cancelled
|
|
|
(8,150
|
)
|
|
|
7.01
|
|
Non-vested as of March 31, 2021
|
|
|
3,703,941
|
|
|
$
|
9.61
|
|
RSUs compensation expense for the three months ended March 31, 2021 was $4.6 million, which was recorded as follows (in thousands):
|
|
Three Months Ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Research and development
|
|
$
|
971
|
|
|
$
|
1,312
|
|
Sales and marketing
|
|
|
522
|
|
|
|
1,053
|
|
General and administrative
|
|
|
3,067
|
|
|
|
3,839
|
|
Total
|
|
$
|
4,560
|
|
|
$
|
6,204
|
|
As of March 31, 2021, there was $23.4 million of unrecognized compensation cost related to non-vested RSUs to be recognized over a weighted-average remaining period of 1.56 years.
16. INCOME TAXES
The Company provides for income taxes using an asset and liability approach under which deferred income taxes are provided for based upon enacted tax laws and rates applicable to periods in which the taxes become payable.
The Company recorded an income tax expense of $34,000 and an income tax benefit of $589,000 for the three months ended March 31, 2021 and 2020, respectively.
The Company continues to maintain a full valuation allowance against its domestic deferred tax assets and most foreign jurisdictions other than India also maintain a full valuation against its deferred tax assets.
As of March 31, 2021, the Company maintained $4.9 million of undistributed earnings and profits generated by a foreign subsidiary (Solutions Infini) for which no deferred tax liabilities have been recorded, since the Company intends to indefinitely reinvest such earnings in the subsidiary to fund the international operations and certain obligations of the subsidiary. Should the above undistributed earnings be distributed in the form of dividends or otherwise, the distributions would result in $737,000 of tax expense.
21
The Company files income tax returns in the United States and in foreign jurisdictions including Italy, India, and Switzerland. As of March 31, 2021, the tax years 2008 through the current period remain open to examination in each of the major jurisdictions in which the Company is subject to tax.
17. WARRANTS
Warrants will only be exercisable for whole shares at $11.50 per share. Under the terms of the warrant agreement dated December 12, 2017 (the “Warrant Agreement”), the Company has agreed to use its best efforts to file a new registration statement following the completion of the Business Combination, for the registration of the shares of common stock issuable upon exercise of the warrants. That registration statement was filed by the Company on May 4, 2020 and declared effective by the SEC on May 8, 2020. 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, the Company will, upon exercise, round down to the nearest whole number for the number of shares of common stock to be issued to the warrant holder. Each warrant became exercisable 30 days after the completion of the Business Combination and will expire five years after the completion of the Business Combination or earlier upon redemption or liquidation. Once the warrants became exercisable, the Company may redeem the outstanding warrants in whole and not in part at a price of $0.01 per warrant upon a minimum of 30 days’ prior written notice of redemption, only in the event that the last sale price of the Company’s shares of common stock equals or exceeds $18.00 per share for any 20 trading days within the 30-trading day period ending on the third trading day before the Company sends the notice of redemption to the warrant holders.
On April 12, 2021, the SEC issued a SEC Staff Statement on “Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (“SPACs”) (the “SEC Staff Statement”). The SEC Staff Statement addresses certain accounting and reporting considerations related to warrants of a kind similar to those issued by the Company at the time of its initial public offering in December 2019. Based on ASC 815-40, “Contracts in Entity’s Own Equity”, warrant instruments that do not meet the criteria to be considered indexed to an entity’s own stock shall be initially classified as liabilities at their estimated fair values. In periods subsequent to issuance, changes in the estimated fair value of the derivative instruments should be reported in the consolidated statements of operations. Following the SEC Staff Statement, management evaluated the fact pattern set forth within Kaleyra’s Warrant Agreement and concluded that the warrants issued in connection with private placements that occurred in December 2017 and January 2018 concurrently with its initial public offering (the “Private Placement Warrants”) should have been recorded as a liability at fair value as the Private Placement Warrants were not considered to be indexed to the entity’s own stock. Because the transfer of Private Placement Warrants to anyone other than the initial purchasers or their permitted transferees would result in the Private Placement Warrants having substantially the same terms as warrants issued in the Company’s initial public offering, management determined that the fair value of each Private Placement Warrant approximates the fair value of its publicly traded warrants.
Management analyzed the impact of this error on the Company’s prior consolidated financial statements beginning from the date when the Private Placement Warrants were issued and concluded that the adjustments were immaterial to any period presented in previously issued consolidated financial statements. The out-of-period adjustment related to the prior periods was also immaterial to the three months ended March 31, 2021. As a result of this analysis, the Company corrected this error in the three months ended March 31, 2021.
The correction resulted in an increase of $534,000 in other long-term liabilities, a decrease of $344,000 in additional paid-in capital and an increase of $190,000 in financial expense, net. During the three months ended March 31, 2021, the Company recorded $1.3 million, including the $190,000 attributable to prior periods, in financial expense, net on the condensed consolidated statements of operations for the change in fair value of the Private Placement Warrants.
As of March 31, 2021, there were 7,125,232 warrants outstanding, following the exercise of 249,706 warrants during the three-month period ended thereof.
18. NET LOSS PER SHARE
The following table sets forth the calculation of basic and diluted net loss per share during the period presented (in thousands, except share and per share data):
|
|
Three Months Ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Net loss
|
|
$
|
(10,358
|
)
|
|
$
|
(8,823
|
)
|
Weighted average shares used to compute net loss per common share, basic and diluted
|
|
|
30,364,943
|
|
|
|
19,979,589
|
|
Net loss per common share, basic and diluted
|
|
$
|
(0.34
|
)
|
|
$
|
(0.44
|
)
|
The Company generated a net loss for each of the three months ended March 31, 2021 and 2020. Accordingly, the effect of dilutive securities is not considered in the loss per share for such periods because their effect would be anti-dilutive on the net loss per share.
22
For the three months ended March 31, 2021, the weighted average number of outstanding shares of common stock equivalents, which were excluded from the calculation of the diluted net loss per share as their effect would be anti-dilutive, was 12,704,582 (14,346,056 for the three months ended March 31, 2020).
19. TRANSACTIONS WITH RELATED PARTIES
During the three months ended March 31, 2021 and 2020, related party transactions, other than compensation and similar arrangements in the ordinary course of business, were as follows:
|
i.
|
Unsecured convertible promissory notes, received by Esse Effe and Maya at the closing of the Business Combination, pursuant to the terms of the Stock Purchase Agreement. Maya is affiliated with Dario Calogero and the shares are beneficially owned by a shareholder, Mr. Calogero who is the Chief Executive Officer and a director of Kaleyra. Esse Effe is affiliated with Dr. Emilio Hirsch, and its shares are beneficially owned by Dr. Hirsch, a shareholder and a director of the Company. The outstanding amount due by the Company was $3.75 million plus $65,000 of accrued interest as of March 31, 2021 ($7.5 million plus $241,000 of accrued interest as of December 31, 2020). See Note 9 – Notes Payable – for additional information;
|
|
ii.
|
Legal services rendered by a partner of Studio Legale Chiomenti, that is a family member of a key manager of the Company. Costs incurred by the Company for the above services were $80,000 and $56,000 in the three months ended March 31, 2021 and 2020;
|
|
iii.
|
Alessandra Levy, the spouse of Kaleyra’s Chief Executive Officer, Dario Calogero, is an employee within the marketing team of Kaleyra S.p.A.. Ms. Levy received salary and benefits in the amount of $60,000 and $57,000 for the three months ended March 31, 2021, and 2020, respectively;
|
|
iv.
|
Pietro Calogero, the son of Kaleyra’s Chief Executive Officer, Dario Calogero, is an employee within the research and development team of Kaleyra S.p.A.. Mr. Pietro Calogero received salary and benefits in the amount of $12,000 and $5,000 for the three months ended March 31, 2021, and 2020, respectively; and
|
|
v.
|
As mentioned in Note 11, in the three months ended March 31, 2020, as a result of a modification of the Solutions Infini 2018 Purchase Agreement, a significant portion of the liability for preference shares was replaced with bonus compensation of $3.5 million. During fiscal year 2020, the previously outstanding bonus compensation payable to executive managers was paid in two different installments of $1.4 million on August 31, 2020, and of $883,000 on November 30, 2020. During the three months ended March 31, 2021 the outstanding bonus compensation of $826,000 was paid on February 15, 2021. As of March 31, 2021, the outstanding performance bonus obligation payable to the executive managers amounted to $340,000. See Note 11 – Preference Shares Liabilities and Note 21 Subsequent Events – for further details.
|
The following table presents the expenses for transactions with related parties reported in the condensed consolidated statements of operations (in thousands):
|
|
Three Months Ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Research and development
|
|
$
|
12
|
|
|
$
|
5
|
|
Sales and marketing
|
|
|
60
|
|
|
|
57
|
|
General and administrative
|
|
|
80
|
|
|
|
56
|
|
Financial expense, net
|
|
|
44
|
|
|
|
122
|
|
20. REVENUE
Revenue Recognition
The Company enters into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. Revenue is recognized net of allowances for credits and any taxes collected from customers. Taxes collected are subsequently remitted to governmental authorities.
The Company determines revenue recognition through the following steps:
• Identification of the contract, or contracts, with a customer;
• Identification of the performance obligations in the contract;
• Determination of the transaction price;
23
• Allocation of the transaction price to the performance obligations in the contract; and
• Recognition of revenue when, or as, the Company satisfies a performance obligation.
Nature of Products and Services
The Company's revenue is primarily derived from usage-based fees earned from the sale of communications services offered through software solutions to large enterprises, as well as small and medium-sized customers.
The Company’s revenue is recognized upon the sending of a SMS message or by the authentication of a financial transaction of an end user of the Company’s customer using the Company’s platform in an amount that reflects the consideration the Company expects to receive in exchange for those services which is generally based upon agreed fixed prices per unit.
Platform access is considered a monthly series comprised of one performance obligation and usage-based fees are recognized as revenue in the period in which the usage occurs. After usage occurs, there are no remaining obligations that would preclude revenue recognition. Revenue from usage-based fees represented 98% of total revenue in both the three-month period ended March 31, 2021 and 2020.
Subscription-based fees are derived from certain term-based contracts, such as with the sales of short codes and customer support, which is generally one year. Term-based contract revenue is recognized on a ratable basis over the contractual term of the arrangement beginning on the date that the service is made available to the customer. Revenue from term-based fees represented 2% of total revenue in both the three-month period ended March 31, 2021 and 2020.
The Company's arrangements do not contain general rights of return. The contracts do not provide customers with the right to take possession of the software supporting the applications. Amounts that have been invoiced are recorded in trade receivables and in revenue or deferred revenue depending on whether the revenue recognition criteria have been met.
Contract Balances
The Company receives payments from customers based on a billing schedule as established in its contracts. Contract assets are recorded when the Company has a conditional right to consideration for its completed performance under the contracts. Trade receivables are recorded when the right to this consideration becomes unconditional, which is as usage occurs. The Company did not have any contract assets as of March 31, 2021 and December 31, 2020.
Deferred revenue is recorded when cash payments are received in advance of future usage on non-cancellable contracts. As of March 31, 2021 and December 31, 2020, the Company recorded $3.1 million and $3.7 million, respectively, as deferred revenue in its condensed consolidated balance sheets. In the three months ended March 31, 2021, the Company recognized $1.6 million of revenue that was included in deferred revenue as of December 31, 2020.
Disaggregated Revenue
In general, revenue disaggregated by geography is aligned according to the nature and economic characteristics of the Company’s business and provides meaningful disaggregation of the Company’s results of operations. Refer to Note 13 – Geographic Information for details of revenue by geographic area.
21. SUBSEQUENT EVENTS
On April 15, 2021, the previously outstanding performance bonus obligation of $340,000 (at March 31, 2021 exchange rate) payable to the eligible employees under the Solutions Infini 2018 Purchase Agreement was paid in full, as such the obligation terminated pursuant to its terms and no more obligation remains outstanding.
On April 15, 2021, Kaleyra S.p.A. and Banco Popolare di Milano S.p.A. entered into an agreement to postpone repayment of the principal amounts due under the existing Line 3 of the long-term unsecured financing agreement for a period of six (6) months starting from March 31, 2021 until September 30, 2021, without prejudice to Kaleyra S.p.A.’s obligations to continue to pay interest in relation to the principal amount at the original due dates.
On April 15, 2021, Kaleyra entered into a general unsecured loan agreement with Simest S.p.A for a total of $3.6 million (€3.0 million at the April 15, 2021 exchange rate) relating to the Fund 394/81 (the “Simest Financing”) and Fund for Integrated Promotion (the “Co-financing”) for implementation of a program to break into foreign markets. The principal amount of $505,000 (€422,000 at the April 15, 2021 exchange rate) of the financing applies to the Co-financing and has been granted in accordance with Section 3.1 of the Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak of the European Commission, and as such does not require repayment if used for the purposes stated within Fund 394/81.
The principal amount of $3.1 million (€2.6 million at the April 15, 2021 exchange rate) applies to the Simest Financing. The Simest Financing bears a subsidized interest rate of 0.055% and a reference interest rate of 0.55%. The loan will have a duration of six (6) years starting from the date of disbursement and will have to be repaid in half-yearly installments starting after a two-year pre-amortization period.
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