Exhibit 99.2
KALEYRA S.p.A.
Condensed Consolidated Financial Statements
As of September 30, 2019 and December 31, 2018 and for the Three and the Nine Months Ended
September 30, 2019 and 2018
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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Condensed Consolidated Balance Sheet | 1 | |||
Condensed Consolidated Statements of Operations | 2 | |||
Condensed Consolidated Statements of Comprehensive Income/(Loss) | 3 | |||
Condensed Consolidated Statements of Shareholders’ Equity | 4 | |||
Condensed Consolidated Statements of Cash Flows | 6 | |||
Notes to the Condensed Consolidated Financial Statements | 7 |
KALEYRA S.p.A
Condensed Consolidated Balance Sheet
As of September 30, 2019 and December 31, 2018
(Amounts in thousands, except share and per share amounts)
(Unaudited)
As of September 30, 2019 | As of December 31, 2018 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 10,702 | $ | 8,207 | ||||
Short-term marketable securities | 4,971 | 3,151 | ||||||
Trade receivables | 41,054 | 30,222 | ||||||
Prepaid expenses and accrued income | 897 | 462 | ||||||
Other current assets | 2,931 | 2,544 | ||||||
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Total current assets | 60,555 | 44,586 | ||||||
Property and equipment, net | 2,926 | 2,341 | ||||||
Intangible assets, net | 9,847 | 11,276 | ||||||
Goodwill | 17,087 | 17,276 | ||||||
Deferred tax assets | 517 | 357 | ||||||
Other long-term assets | 1,259 | 1,297 | ||||||
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Total asset | $ | 92,191 | $ | 77,133 | ||||
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LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Account payables | $ | 52,013 | $ | 40,166 | ||||
Deferred consideration for the acquisitions | — | 3,005 | ||||||
Deferred consideration for the acquisitions due to related parties | — | 3,245 | ||||||
Current portion of bank and other borrowings | 10,638 | 4,686 | ||||||
Deferred revenue | 1,560 | 1,500 | ||||||
Preference shares | 658 | — | ||||||
Preference shares due to related parties | 1,780 | — | ||||||
Payable to employees | 859 | 1,020 | ||||||
Other current liabilities | 1,110 | 1,009 | ||||||
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Total current liabilities | 68,618 | 54,631 | ||||||
Bank and other borrowings | 16,135 | 9,125 | ||||||
Long-term payable to employees | 1,258 | 1,147 | ||||||
Preference shares | — | 495 | ||||||
Preference shares due to related parties | — | 1,339 | �� | |||||
Deferred consideration for the acquisitions | — | 1,553 | ||||||
Deferred consideration for the acquisitions due to related parties | — | 1,150 | ||||||
Deferred tax liabilities | 1,739 | 2,476 | ||||||
Other long-term liabilities | 397 | 291 | ||||||
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Total liabilities | 88,147 | 72,207 | ||||||
Commitments and contingencies | ||||||||
Shareholders’ equity: | ||||||||
Share capital—authorized shares 117,408 and 120,501 as of September 30, 2019 and December 31, 2018, respectively; issued and outstanding shares 110,593 as of September 30, 2019 and December 31, 2018 | 121 | 121 | ||||||
Additionalpaid-in capital | 10,066 | 10,066 | ||||||
Accumulated other comprehensive income | 1,018 | 31 | ||||||
Accumulated deficit | (7,161 | ) | (5,292 | ) | ||||
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Total shareholders’ equity | 4,044 | 4,926 | ||||||
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Total liabilities and shareholders’ equity | $ | 92,191 | $ | 77,133 | ||||
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The accompanying notes are an integral part of these condensed consolidated financial statements.
1
KALEYRA S.p.A.
Condensed Consolidated Statement of Operations
For the Three and the Nine Months ended September 30, 2019 and 2018
(Amounts in thousands, except share and per share amounts)
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Revenue | $ | 35,329 | $ | 23,624 | $ | 93,925 | $ | 50,030 | ||||||||
Cost of revenue | 28,321 | 18,667 | 75,645 | 40,663 | ||||||||||||
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Gross profit | 7,008 | 4,957 | 18,280 | 9,367 | ||||||||||||
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Operating expenses: | ||||||||||||||||
Research and development(1)(2) | 1,279 | 825 | 3,869 | 1,766 | ||||||||||||
Sales and marketing(3) | 1,432 | 1,305 | 4,392 | 2,873 | ||||||||||||
General and administrative(4)(5) | 2,927 | 2,777 | 10,667 | 5,432 | ||||||||||||
Loss of equity investments | — | — | — | (95 | ) | |||||||||||
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Total operating expenses | 5,638 | 4,907 | 18,928 | 9,976 | ||||||||||||
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Income/(Loss) from operations | 1,370 | 50 | (648 | ) | (609 | ) | ||||||||||
Other income, net | (11 | ) | (72 | ) | (106 | ) | (220 | ) | ||||||||
Financial expense, net | 141 | 238 | 206 | 513 | ||||||||||||
Foreign currency loss/(income) | 260 | (252 | ) | 402 | (329 | ) | ||||||||||
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Income/(Loss) before income taxes | 980 | 136 | (1,150 | ) | (573 | ) | ||||||||||
Income tax expense/(benefit) | 168 | 729 | 719 | 841 | ||||||||||||
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Net Income/(Loss) | $ | 812 | $ | (593 | ) | $ | (1,869 | ) | $ | (1,414 | ) | |||||
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Net loss attributable tonon-controlling interests | — | (1 | ) | — | (1 | ) | ||||||||||
Net (loss)/income attributable to the owners of the parent | 812 | (592 | ) | (1,869 | ) | (1,413 | ) | |||||||||
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Net Income/(Loss) attributable to common stockholders | $ | 812 | $ | (592 | ) | $ | (1,869 | ) | $ | (1,413 | ) | |||||
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Net Income/(loss) per share attributable to common stockholders, basic and diluted | 7.34 | (5.79 | ) | (16.90 | ) | (13.82 | ) | |||||||||
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Weighted-average shares used in computing net loss per share attributable to common stockholders basic and diluted | 110,593 | 102,234 | 110,593 | 102,234 | ||||||||||||
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(1) | Includes $50 thousand and $136 thousand of stock-based compensation expense in the three months and the nine months ended September 30, 2018, respectively. No stock-based compensation expense was recorded in 2019. |
(2) | Includes $19 thousand and $163 thousand of costs for related party transactions in the three months and in the nine months ended September 30, 2019, respectively and (ii) $100 thousand of costs for related party transactions both in the three months and in the nine months ended September 30, 2018. |
(3) | Includes $177 thousand and $448 thousand of stock-based compensation expense in the three months and the nine months ended September 30, 2018, respectively. No stock-based compensation expense was recorded in 2019. |
(4) | Includes $273 thousand and $755 thousand of stock-based compensation expense in the three months and the nine months ended September 30, 2018, respectively. No stock-based compensation expense was recorded in 2019. |
(5) | Includes (i) $19 thousand and $163 thousand of costs for related party transactions in the three months and in the nine months ended September 30, 2019, respectively; and (ii) $167 thousand and $292 thousand of costs for related party transactions in the three months and in the nine months ended September 30, 2018, respectively. |
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
KALEYRA S.p.A.
Condensed Consolidated Statement of Other Comprehensive Income /(Loss)
For the Three and the Nine Months ended September 30, 2019 and 2018
(Amounts in thousands)
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Net Income/(Loss) | $ | 812 | $ | (593 | ) | $ | (1,869 | ) | $ | (1,414 | ) | |||||
Other comprehensive income: | ||||||||||||||||
Foreign currency translation adjustments | 634 | (966 | ) | 952 | (1,263 | ) | ||||||||||
Net gain (loss) on marketable securities(1) | 9 | (2 | ) | 35 | (14 | ) | ||||||||||
Other comprehensive income related to joint venture | — | — | — | 156 | ||||||||||||
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Total other comprehensive Income/(Loss) | 643 | (968 | ) | 987 | (1,121 | ) | ||||||||||
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Total Comprehensive Income/(Loss) | $ | 1,455 | $ | (1,561 | ) | $ | (882 | ) | $ | (2,535 | ) | |||||
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(1) | The Company recorded $3 thousand and $11 thousand of tax expense on marketable securities in the three months and the nine months ended September 30, 2019, respectively and $1 thousand and $5 thousand of tax benefits on marketable securities in the three months and the nine months ended September 30, 2018. |
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
KALEYRA S.p.A.
Condensed Consolidated Statements of Shareholders Equity for the period ended September 30, 2019
(Amounts in thousands, except share amounts)
(Unaudited)
Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Income /(Loss) | Retained Earnings / (Accumulated Deficit) | Total Shareholders’ Equity | Non- controlling Interests | Total Equity | ||||||||||||||||||||||||||
Outstanding Shares | Amounts | |||||||||||||||||||||||||||||||
Balance at December 31, 2017 | n.a. | $ | 82 | $ | — | $ | 72 | $ | 1,833 | 1,987 | — | $ | 1,987 | |||||||||||||||||||
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Net loss | (864 | ) | (864 | ) | — | (864 | ) | |||||||||||||||||||||||||
Other comprehensive loss | (474 | ) | (474 | ) | — | (474 | ) | |||||||||||||||||||||||||
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Total comprehensive loss | (1,338 | ) | — | (1,338 | ) | |||||||||||||||||||||||||||
Change in the legal status of the Company and creation of 100,000 shares with no par value(1) | 100,000 | 27 | (27 | ) | — | — | ||||||||||||||||||||||||||
Stock option compensation expense | 342 | 342 | 342 | |||||||||||||||||||||||||||||
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Balance at March 31, 2018 | 100,000 | $ | 109 | $ | 342 | $ | (402 | ) | $ | 942 | 991 | — | $ | 991 | ||||||||||||||||||
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Net loss | 43 | 43 | 43 | |||||||||||||||||||||||||||||
Other comprehensive loss | 321 | 321 | 321 | |||||||||||||||||||||||||||||
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Total comprehensive loss | 364 | — | 364 | |||||||||||||||||||||||||||||
Stock option compensation expense | 497 | 497 | 497 | |||||||||||||||||||||||||||||
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Balance at June 30, 2018 | 100,000 | $ | 109 | $ | 839 | $ | (81 | ) | $ | 985 | 1,852 | — | $ | 1,852 | ||||||||||||||||||
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Consolidation of Solutions Infini | — | 2 | 2 | |||||||||||||||||||||||||||||
Net loss | (592 | ) | (592 | ) | (1 | ) | (593 | ) | ||||||||||||||||||||||||
Other comprehensive loss | (968 | ) | (968 | ) | (968 | ) | ||||||||||||||||||||||||||
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Total comprehensive loss | (1,560 | ) | (1 | ) | (1,561 | ) | ||||||||||||||||||||||||||
Issuance of additional shares-Buc Mobile acquisition | 3,543 | 4 | 2,707 | 2,711 | 2,711 | |||||||||||||||||||||||||||
Stock option compensation expense | 500 | 500 | 500 | |||||||||||||||||||||||||||||
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Balance at September 30, 2018 | 103,543 | $ | 113 | $ | 4,046 | $ | (1,049 | ) | $ | 393 | 3,503 | (1 | ) | $ | 3,504 | |||||||||||||||||
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(1) | Retained earnings adjusted for par value of shares. |
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
KALEYRA S.p.A.
Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Income /(Loss) | Retained Earnings / (Accumulated Deficit) | Total Equity | ||||||||||||||||||||
Outstanding Shares | Amounts | |||||||||||||||||||||||
Balance at December 31, 2018 | 110,593 | $ | 121 | $ | 10,066 | $ | 31 | $ | (5,292 | ) | 4,926 | |||||||||||||
Net loss | (1,379 | ) | (1,379 | ) | ||||||||||||||||||||
Other comprehensive income | 576 | 576 | ||||||||||||||||||||||
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Total comprehensive loss | (803 | ) | ||||||||||||||||||||||
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Balance at March 31, 2019 | 110,593 | $ | 121 | $ | 10,066 | $ | 607 | $ | (6,671 | ) | 4,123 | |||||||||||||
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Net loss | (1,302 | ) | (1,302 | ) | ||||||||||||||||||||
Other comprehensive income | (232 | ) | (232 | ) | ||||||||||||||||||||
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Total comprehensive loss | (1,534 | ) | ||||||||||||||||||||||
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Balance at June 30, 2019 | 110,593 | $ | 121 | $ | 10,066 | $ | 375 | $ | (7,973 | ) | 2,589 | |||||||||||||
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Net income | 812 | 812 | ||||||||||||||||||||||
Other comprehensive income | 643 | 643 | ||||||||||||||||||||||
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Total comprehensive income | 1,455 | |||||||||||||||||||||||
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Balance at September 30, 2019 | 110,593 | $ | 121 | $ | 10,066 | $ | 1,018 | $ | (7,161 | ) | 4,044 | |||||||||||||
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The accompanying notes are an integral part of these condensed consolidated financial statements.
5
KALEYRA S.p.A.
Condensed Consolidated Statements of Cash Flow
For the Nine months ended September 30, 2019 and 2018
(Amounts in thousands)
(Unaudited)
Nine Months Ended September 30, | ||||||||
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Cash Flows from Operating Activities | ||||||||
Net loss | $ | (1,869 | ) | $ | (1,414 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 1,980 | 834 | ||||||
Stock-based compensation and preference shares | 446 | 1,613 | ||||||
Loss of equity investments | — | (95 | ) | |||||
Net provision for doubtful accounts | 75 | 230 | ||||||
Post-employment benefit | 228 | 187 | ||||||
Non-cash interest expense | 437 | 541 | ||||||
Deferred taxes | (724 | ) | 196 | |||||
Changes in operating assets and liabilities: | ||||||||
Trade receivables | (12,224 | ) | (3,330 | ) | ||||
Other current assets | (896 | ) | 229 | |||||
Other long-term assets | (514 | ) | 16 | |||||
Accounts payables | 13,605 | (1,499 | ) | |||||
Other current liabilities | 2,520 | 3,292 | ||||||
Deferred revenue | 89 | (120 | ) | |||||
Long-term liabilities | (2,065 | ) | (3,290 | ) | ||||
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Net cash provided by/(used in) operating activities | 1,088 | (2,610 | ) | |||||
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Cash Flows from Investing Activities | ||||||||
Purchase of marketable securities | (4,328 | ) | (1,753 | ) | ||||
Sale of marketable securities | 2,493 | 304 | ||||||
Purchase of property and equipment | (1,307 | ) | (126 | ) | ||||
Sale of property and equipment | — | 7 | ||||||
Capitalized software development costs | — | (378 | ) | |||||
Purchase of intangible assets | (14 | ) | (39 | ) | ||||
Acquisition of Buc Mobile, net of cash acquired | — | (2,249 | ) | |||||
Acquisition of Solutions Infini, net of cash acquired | — | (5,481 | ) | |||||
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Net cash used in investing activities | (3,156 | ) | (9,715 | ) | ||||
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Cash Flows from Financing Activities | ||||||||
Payment of deferred consideration for the acquisition of Buc Mobile | (4,000 | ) | — | |||||
Payment of deferred consideration for the acquisition of Solutions Infini | (5,097 | ) | — | |||||
Change in line of credit | 20 | 1,298 | ||||||
Borrowings on term loan | 16,670 | 5,611 | ||||||
Repayments on term loan | (2,684 | ) | (329 | ) | ||||
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Net cash provided by financing activities | $ | 4,909 | $ | 6,580 | ||||
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Effect of exchange rate changes on cash and cash equivalents | (346 | ) | (280 | ) | ||||
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Net increase /(decrease) in cash and cash equivalents | 2,495 | (6,025 | ) | |||||
Cash and cash equivalents, beginning of period | $ | 8,207 | $ | 10,545 | ||||
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Cash and cash equivalents, end of period | $ | 10,702 | $ | 4,520 | ||||
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Supplemental disclosure of cash flow information | ||||||||
Cash paid for interest | $ | 296 | $ | 189 | ||||
Cash paid for income taxes | $ | 432 | $ | 149 |
6
KALEYRA S.p.A.
Notes to the Condensed Consolidated Financial Statements
As of September 30, 2019 and December 31, 2018 and for the Three and the Nine Months Ended September 30, 2019 and 2018 (Unaudited)
1. Organization and Description of Business
Kaleyra S.p.A., formerly Ubiquity S.p.A (the “Company”) is a joint-stock company incorporated in Italy in 1999. The Company is a cloud communications software provider delivering secure Application Protocol Interfaces (“APIs”) and connectivity solutions in the API/Communication Platform as a Service or CPaaS market. Kaleyra’s solutions include identity authentication, mobile and voice notifications on transactions and banking services notifications and authorizations, most notably via different integrated mobile channels through its platform.
The Company’s headquarters are located in Milan, Italy and its subsidiaries are located in the United States, India, Switzerland, United Arab Emirates and Singapore.
During fiscal years 2017 and 2018, the Company entered into two purchase agreements to acquire Solutions Infini Technologies Private Limited (“Solutions Infini”) and Buc Mobile Inc. (“Buc Mobile”). Solutions Infini is headquartered in Bangalore, India, develops technology, and provides platforms and ancillary services for bulk messaging services. Buc Mobile is headquartered in Vienna, Virginia in the United States and incorporated under the laws of the State of Delaware. Buc Mobile operates in the Application to Person (“A2P”) transactional and promotional messaging business.
On August 1, 2019, the Company, together with a third party (Supernovae S.r.l.), established a new company, Finnovaction S.r.l. (“Finnovaction”), with share capital of €100 thousand ($109 thousand, at the September 30, 2019 exchange rate), of which €17 thousand ($19 thousand, at the September 30, 2019 exchange rate) was contributed by the Company and €83 thousand ($91 thousand, at the September 30, 2019 exchange rate) was contributed by Supernovae S.r.l.. Kaleyra’s interest in Finnovaction is equal to 17%. Finnovaction’s headquarters are located in Milan, Italy. Finnovaction was created by its founders with the aim to develop, product and market innovative high-tech products and services.
The consolidated balance sheet as of September 30, 2019 includes total current assets of $60,555 thousand and total current liabilities of $68,618 thousand, resulting in net liabilities due within the next 12 months of $8,063 thousand.
Considering the typical financial cycle of Kaleyra and taking into account the business performance of Kaleyra during the period after the reporting date, Kaleyra’s management believes that the Company’s cash, cash flows from operations and availability of borrowings will be sufficient to support its planned operations for at least the next 12 months from the date of these financial statements.
2. Summary of Significant Accounting Policies
(a) Basis of Presentation
These condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (‘‘US GAAP’’) and rules and regulations of the Securities and Exchange Commission (SEC) regarding interim financial reporting, as applicable for an “emerging growth company” as defined in the Jumpstart Our Business Startups Act (“JOBS Act”). The JOBS Act provides that an 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.
7
KALEYRA S.p.A.
Notes to the Condensed Consolidated Financial Statements
As of September 30, 2019 and December 31, 2018 and for the Three and the Nine Months Ended September 30, 2019 and 2018 (Unaudited)
The accompanying condensed consolidated financial statements do not include all information and notes required by US GAAP for complete annual financial statements and should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Consolidated Financial Statements as of December 31, 2018 and 2017 and for the years then ended (the “Annual Report”). However, there has been no material change in the information disclosed in the Notes to Consolidated Financial Statement included in the Annual Report.
Operating results for the three and the nine months ended September 30, 2019 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2019.
(b) Principles of Consolidation
The condensed consolidated financial statements include the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
During fiscal years 2017, the Company acquired anon-controlling interest in Solutions Infini and accounted for it in accordance with the equity method. In June 2018, following a change in the governance, the Company achieved control over Solutions Infini and accounted for its acquisition of a controlling interest in Solutions Infini as a business combination.
Buc Mobile became a wholly-owned subsidiary of the Company on July 31, 2018, and its results have been fully consolidated by the Company starting from that date.
The statement of operations for the three and the nine months ended September 30, 2019 includes fully consolidated results of both Solutions Infini and Buc Mobile. The statement of operations for the three and the nine months ended September 30, 2018 includes the results of Buc Mobile for the portion of the period starting July 31, 2018, while it includes the equity method valuation related to thenon-controlling interest in Solutions Infini from January 1, 2018 to June 30, 2018 and the contribution to the consolidation results of Solutions Infini for the period starting July 1, 2018 to September 30, 2018. Operating results for the three and the nine months ended September 30, 2019 and 2018 are not necessarily indicative of the results of the entire fiscal year.
Full disclosure on both business combinations is included in the Annual Report to which reference is made.
(c) 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 award; recoverability of long-lived and intangible assets; capitalization and useful life of the Company’s capitalizedinternal-use software development costs; fair value of acquired intangible assets and goodwill; accruals and contingencies, included tax related provision and valuation allowance on tax losses carryforward. 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.
8
KALEYRA S.p.A.
Notes to the Condensed Consolidated Financial Statements
As of September 30, 2019 and December 31, 2018 and for the Three and the Nine Months Ended September 30, 2019 and 2018 (Unaudited)
(d) Concentration of Credit Risk
Financial instruments that potentially expose the Company to a concentration of credit risk consist primarily of cash and cash equivalents, marketable securities and accounts receivable. The Company maintains cash and cash equivalents and marketable securities 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 and nine months ended September 30, 2019, there was one customers that individually accounted for more than 10% of the Company’s consolidated total revenue, while in the three and nine month ended September 30, 2018, there was respectively one and four customers that individually accounted for more than 10% of the Company’s consolidated total revenue. In particular, in the three months ended September 30, 2019 revenue generated by the first major customer of the Company accounted for $3,484 thousand. In the nine months ended September 30, 2019 revenue generated by the first major customer of the Company accounted for $9,699 thousand. In the three months ended September 30, 2018 revenue generated by the first major customer accounted for $3,566 thousand. In the nine months ended September 30, 2018, revenue generated by the first, second, third and fourth major customers of the Company accounted for $9,805 thousand, $5,944 thousand, $5,768 thousand and $5,041 thousand, respectively.
(e) Segment Information
The Company’s Chief Executive Officer is the chief operating decision maker, who reviews the Company’s financial information presented on a consolidated basis for purposes of allocating resources and evaluating the Company’s financial performance. Accordingly, the Company has determined that it operates in a single reporting segment.
(f) Recent Accounting Pronouncements Not Yet Adopted
In November 2018, the FASB issued ASU2018-18,” Collaborative Arrangements (Topic 808)”, clarifying the interaction between Topic 808 and Topic 606. A collaborative arrangement is a contractual arrangement under which two or more parties actively participate in a joint operating activity and are exposed to significant risks and rewards that depend on the activity’s commercial success. Topic 808 does not provide comprehensive recognition or measurement guidance for collaborative arrangements, and the accounting for those arrangements is often based on an analogy to other accounting literature or an accounting policy election. Some entities apply revenue guidance directly or by analogy to all or part of their arrangements, and others apply a different accounting method as an accounting policy. Those accounting differences result in diversity in practice on how entities account for transactions on the basis of their view of the economics of the collaborative arrangement. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021.
In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU2018-15, “Intangibles—Goodwill andOther—Internal-Use Software (Subtopic350-40): 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
9
KALEYRA S.p.A.
Notes to the Condensed Consolidated Financial Statements
As of September 30, 2019 and December 31, 2018 and for the Three and the Nine Months Ended September 30, 2019 and 2018 (Unaudited)
incurred to develop or obtaininternal-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 Update are effective for annual reporting periods beginning after December 15, 2020, and interim periods within annual periods beginning after December 15, 2021. Early adoption of the amendments in this Update is permitted, including adoption in any interim period, for all entities. The amendments in this Update should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.
In August 2018, the FASB issued ASU2018-13, “Fair Value Measurement (Topic 820) Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement”. The amendments under ASU2018-13 remove add and modify certain disclosure requirements on fair value measurements in ASC 820. The amendments are effective for all entities for fiscal years, and interim periods within those years, beginning after December 15, 2019. An entity shall apply the pending content retrospectively to all periods presented.
In July 2018, the FASB issued ASU2018-09, “Codification Improvements”, which does not prescribe any new accounting guidance, but instead makes minor improvements and clarifications of several different FASB ASC areas based on comments and suggestions made by various stakeholders. The transition and effective date guidance is based on the facts and circumstances of each amendment. Some of the amendments in this Update do not require transition guidance and will be effective upon issuance of this Update. However, there are some conforming amendments in this Update that have been made to recently issued guidance that is not yet effective that may require application of the transition and effective date guidance in the original Accounting Standards Update. The Company is evaluating the impact on the consolidated financial statements. In December 2017, the FASB issued ASU2017-15, “Codification Improvements—Elimination of Topic 995”, which supersede obsolete guidance in Topic 995 on unrecognized deferred taxes related to certain statutory reserve deposits. If an entity has unrecognized deferred income taxes related to statutory deposits made 2 on or before December 15, 1992, the entity would be required to recognize the unrecognized income taxes in accordance with Topic 740. The amendments are effective for fiscal years and first interim periods beginning after December 15, 2018. Early adoption is permitted for all entities, including adoption in an interim period. In April 2019, the FASB issued ASU2019-04, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments”, which affect a variety of Topics in the Codification. For entities that have not yet adopted the amendments in Update2016-13, the effective dates and transition requirements for the amendments are the same as the effective dates and transition requirements in Update2016-13. For entities that have adopted the amendments in Update2016-13, the amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted in any interim period as long as the entity has adopted the amendments in Update2016-13.
In March 2017, the FASB issued ASU2017-07, “Compensation—Retirement Benefits (Topic 715)”, which requires that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. The new standards are effective for public business entities for annual periods beginning after December 15, 2017, including interim periods within those 3 annual periods. For other entities, the amendments are effective for annual periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. Early adoption is permitted. In August 2018, the FASB issued ASU2018-14, which modify 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.
10
KALEYRA S.p.A.
Notes to the Condensed Consolidated Financial Statements
As of September 30, 2019 and December 31, 2018 and for the Three and the Nine Months Ended September 30, 2019 and 2018 (Unaudited)
In January 2017, the FASB issued ASU2017-04, “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 fornon-public entities for annual or interim goodwill impairment test in fiscal years beginning after December 15, 2021. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.
In January 2017, the FASB issued ASU2017-01, “Business Combinations (Topic 805) Clarifying the Definition of a Business”, which amends the guidance of FASB Accounting Standards Codification Topic 805, “Business Combinations”, adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. This guidance is effective for public entities to annual periods beginning after December 15, 2017, including interim periods within those periods; for all other entities for annual periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019 and early adoption is permitted under certain circumstances.
In October 2016, the FASB issued ASU2016-16, “Intra-Entity Transfers Other Than Inventory”, which requires entities to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. This guidance is effective for public entities for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reporting periods; for all other entities for annual reporting periods beginning after December 15, 2018 and interim reporting periods within annual periods beginning after December 15, 2019. Early adoption is permitted. The Company plans to adopt the standards for annual reporting periods beginning after December 15, 2018.
In August 2016, the FASB issued ASU2016-15, “Statement of Cash Flows (Topic 230)”, which addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. This guidance is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. In November 2016, the FASB issued ASU2016-18, which require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. The amendments in this Update apply to all entities that have restricted cash or restricted cash equivalents and are required to present a statement of cash flows under Topic 230. The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period.
In June 2016, the FASB issued ASU2016-13, “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 ASU2018-19, “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 fornon-public entities for fiscal years
11
KALEYRA S.p.A.
Notes to the Condensed Consolidated Financial Statements
As of September 30, 2019 and December 31, 2018 and for the Three and the Nine Months Ended September 30, 2019 and 2018 (Unaudited)
beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. The Company is evaluating the impact of this guidance on its consolidated financial statements. In May 2019, the FASB issued ASU2019-05, which provides a targeted transition relief. And provides entities that have certain instruments, with an option to irrevocably elect the fair value option, applied on aninstrument-by-instrument basis for eligible instruments, upon adoption of Topic 326. The fair value option election does not apply toheld-to-maturity debt securities. For entities that have not yet adopted the amendments in Update2016-13, the effective date and transition methodology for the amendments in this Update are the same as in Update2016-13.
In February 2016, the FASB issued ASU2016-02, “Leases”, which was further clarified by ASU2018-10, “Codification Improvements to Topic 842, Leases”, and ASU2018-11, “Leases—Targeted Improvements” , both issued in July 2018. ASU2016-02 affects all entities that lease assets and will require lessees to recognize a lease liability and aright-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. ASU2018-10 clarifies or corrects unintended application of guidance related to ASU2016-02. The amendment affects narrow aspects of ASU2016-02 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. ASU2018-11 adds a transition option for all entities and a practical expedient only for lessors. The transition option allows entities to not apply the new leases 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 periods presented in the year they adopt the new leases 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 practical expedient provides lessors with an option to not separate thenon-lease components from the associated lease components when certain criteria are met and requires them to account for the combined component in accordance with the revenue recognition standard in ASC 606 if the associatednon-lease components are the predominant components. The new standards are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, for any of the following: (i) a public business entity (ii) anot-for-profit entity that has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or anover-the-counter market and (iii) an employee benefit plan that files financial statements with the U.S. Securities and Exchange Commission (SEC). For all other entities, the amendments in this Update 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. 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 consolidated financial statements. In December 2018, the FASB issued ASU2018-20 “Leases—Narrow-Scope Improvements for Lessors”, which provides lessors certain rules. The effective date and transition requirements for the amendments for entities that have not adopted Topic 842 before the issuance of this Update are the same as the effective date and transition requirements in Update2016-02 In March 2019 the FASB issued ASU2019-01 “Leases—Codification Improvements”, which provides lessors addition rules. The amendments amend Topic 842 and is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years for public business entity,not-for-profit entity that has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or anover-the-counter market and employee benefit plan that files financial statements with the U.S. Securities and Exchange Commission (SEC). For all other entities, the effective date is for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. ASU2018-20 and ASU2019-01 are not applicable.
12
KALEYRA S.p.A.
Notes to the Condensed Consolidated Financial Statements
As of September 30, 2019 and December 31, 2018 and for the Three and the Nine Months Ended September 30, 2019 and 2018 (Unaudited)
In January 2016, the FASB issued ASU2016-01, “Financial Instruments—Overall (Subtopic825-10)—Recognition and Measurement of Financial Assets and Financial Liabilities” which addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments and the measurement of credit losses on financial assets in a separate project. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. All entities that are not public business entities may adopt the amendments earlier as of the fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.
In May 2014, the FASB issued ASU2014-09, “Revenue from Contracts with Customers”. This new guidance will replace most existing US GAAP guidance on this topic. The new revenue recognition standard provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. The ASU2014-09 is effective for annual reporting periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. In August 2015, the FASB issued ASU2015-14 which deferred, by one year, the effective date for the new revenue reporting standard for entities reporting under US GAAP. All entities (not public) should apply the guidance in ASU2014-09 to annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. Earlier application is permitted only as of an annual reporting period beginning after December 15, 2016, including interim reporting periods. In March 2016, the FASB issued ASU2016-08, “Revenue from Contracts with Customers, Principal versus Agent Considerations (Reporting Revenue Gross versus Net)” clarifying the implementation guidance on principal versus agent considerations. Specifically, an entity is required to determine whether the nature of a promise is to provide the specified good or service itself (that is, the entity is a principal) or to arrange for the good or service to be provided to the customer by the other party (that is, the entity is an agent). The determination influences the timing and amount of revenue recognition. In April 2016, the FASB issued ASU2016-10, “Revenue from Contracts with Customers, Identifying Performance Obligations and Licensing”, clarifying the implementation guidance on identifying performance obligations and licensing. Specifically, the amendments reduce the cost and complexity of identifying promised goods or services and improve the guidance for determining whether promises are separately identifiable. The amendments also provide implementation guidance on determining whether an entity’s promise to grant a license provides a customer with either a right to use the entity’s intellectual property (which is satisfied at a point in time) or a right to access the entity’s intellectual property (which is satisfied over time). In May 2016, the FASB issued ASU2016-12 “Revenue from Contracts with Customers (Topic 606), Narrow-Scope Improvements and Practical Expedients”, which amends the guidance on transition, collectability, noncash consideration and the presentation of sales and other similar taxes. ASU2016-12 clarifies that, for a contract to be considered completed at transition, all (or substantially all) of the revenue must have been recognized under legacy GAAP. In addition, ASU2016-12 clarifies how an entity should evaluate the collectability threshold and when an entity can recognize nonrefundable consideration received as revenue if an arrangement does not meet the standard’s contract criteria. In September 2017, the FASB issued ASU2017-13, “Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842)”. These amendments provide additional clarification and implementation guidance on the previously issued ASUs. These amendments do not change the core principles of the guidance stated in ASU2014-09, instead they are intended to clarify and improve operability of certain topics included within the revenue standard. In November 2017, the FASB issued ASU2017-14, which includes amendments to certain SEC paragraphs within the FASB Accounting Standards Codification (Codification). ASU 2017-
13
KALEYRA S.p.A.
Notes to the Condensed Consolidated Financial Statements
As of September 30, 2019 and December 31, 2018 and for the Three and the Nine Months Ended September 30, 2019 and 2018 (Unaudited)
14 amends the Codification to incorporate SEC Staff Accounting Bulletin (SAB) No. 116 and SEC Interpretive Release on Vaccines for Federal Government Stockpiles (SEC ReleaseNo. 33-10403) that bring existing SEC staff guidance into conformity with the FASB’s adoption of and amendments to ASC Topic 606, Revenue from Contracts with Customers. The effective date and transition requirements for ASU2016-08, ASU2016-10, ASU2016-12, ASU2017-13 and ASU2017-14 are the same as the effective date and transition requirements for ASU2015-14. The Company is currently evaluating the impact the new standard will have on its consolidated financial statements.
3. Fair Value Measurements
The following tables provide the assets measured at fair value on a recurring basis as of September 30, 2019 and December 31, 2018 ($ in thousands):
Fair Value Hierarchy as of September 30, 2019 | Aggregate Fair Value | |||||||||||||||
Level 1 | Level 2 | Level 3 | ||||||||||||||
Derivatives: | ||||||||||||||||
Interest Rate Swap | — | $ | (111 | ) | — | $ | (111 | ) | ||||||||
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|
|
|
|
|
|
| |||||||||
Total Derivatives | — | $ | (111 | ) | — | $ | (111 | ) | ||||||||
Marketable securities: | ||||||||||||||||
Mutual funds | $ | 4,971 | — | — | $ | 4,971 | ||||||||||
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|
|
|
|
|
|
| |||||||||
Total Marketable securities | $ | 4,971 | — | — | $ | 4,971 | ||||||||||
Liabilities: | ||||||||||||||||
Preference shares (1) | — | — | $ | 2,438 | $ | 2,438 | ||||||||||
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|
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| |||||||||
Total Liabilities | — | — | $ | 2,438 | $ | 2,438 |
14
KALEYRA S.p.A.
Notes to the Condensed Consolidated Financial Statements
As of September 30, 2019 and December 31, 2018 and for the Three and the Nine Months Ended September 30, 2019 and 2018 (Unaudited)
Fair Value Hierarchy as of December 31, 2018 | Aggregate Fair Value | |||||||||||||||
Level 1 | Level 2 | Level 3 | ||||||||||||||
Derivatives: | ||||||||||||||||
Interest Rate Swap | $ | — | $ | (97 | ) | $ | — | $ | (97 | ) | ||||||
Foreign Exchange Forward | — | 56 | — | 56 | ||||||||||||
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|
|
|
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| |||||||||
Total Derivatives | $ | — | $ | (41 | ) | $ | — | $ | (41 | ) | ||||||
Marketable securities: | ||||||||||||||||
Mutual funds | $ | 3,151 | $ | — | $ | — | $ | 3,151 | ||||||||
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|
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| |||||||||
Total Marketable securities | $ | 3,151 | $ | — | $ | — | $ | 3,151 | ||||||||
Liabilities: | ||||||||||||||||
Preference shares(1) | $ | — | $ | — | $ | (1,834 | ) | $ | (1,834 | ) | ||||||
Contingent consideration for Solutions Infini acquisition(2) | — | — | (482 | ) | (482 | ) | ||||||||||
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| |||||||||
Total Liabilities | $ | — | $ | — | $ | (2,316 | ) | $ | (2,316 | ) |
(1) | Based on the information available at the reporting date, the preference shares liability was estimated as the basis of present value of the expected future cash flows contractually due in connection with the achievement of specified levels of EBITDA of Solutions Infini for the year ending March 31, 2020. Such cash flows are already predetermined and the maximumpay-out was assumed in determining the estimate which is primarily based on the expected EBITDA sourced from the most updated business plan, which represents management best estimates and is significantly above the targeted EBITDA. Changes in the liability during the period are due to (i) accrued interest expense due to the fact that the obligation will be settled in 2020; (ii) exchange rate differences; and (iii) net compensation expense for the period. Such net compensation expense includes the effect of the modification to the Solutions Infini Purchase Agreement, signed on May 6, 2019, that reduced the price of the preference shares to be purchased in 2020 by INR70,000 thousand (see Note 11 for further details) resulting in a prospective reduction compared to the preference shares compensation expense determined in accordance with the original agreement. |
(2) | Based on the information available at the reporting date, the contingent consideration for the Solutions Infini acquisition was estimated as the basis of present value of the expected future cash flows contractually due in connection with the achievement of specified levels of EBITDA of Solutions Infini for the year ending March 31, 2019. Such cash flows are already predetermined and the maximumpay-out was assumed in determining the estimate which is primarily based on the expected EBITDA sourced from the most updated business plan, which represents management best estimates and is significantly above the targeted EBITDA. The amount presented in the table above represents the estimated portion of the total deferred consideration. The change with respect to the balance as of December 31, 2018, relates to the accrued interest and exchange rate differences. No changes in fair value were recognized as initially estimated during the period. |
The actual EBITDA of Solutions Infini for the year ended March 31, 2019, which became available in July 2019, confirmed the estimated amount considered by management to determine the contingent consideration for the Solutions Infini acquisition at the reporting date.
15
KALEYRA S.p.A.
Notes to the Condensed Consolidated Financial Statements
As of September 30, 2019 and December 31, 2018 and for the Three and the Nine Months Ended September 30, 2019 and 2018 (Unaudited)
4. Derivative Financial Instruments
The gross notional amount of derivative contracts not designated as hedging instruments, outstanding at September 30, 2019, was €6,871 thousand ($7,403 thousand) for Interest Rate Swap, while the gross notional amount of our derivative contracts not designated as hedging instruments, outstanding at December 31, 2018 was €7,906 thousand ($9,049 thousand) and $7,107 thousand for Interest Rate Swap and Foreign Exchange Forward, respectively.
The amount and location of the gains (losses) in the consolidated statements of income related to derivative contracts ($ in thousands):
Derivatives Not Designed As Hedging Instruments | Line item | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||||
Interest Rate Swap | Interest expense, net | $ | 4 | $ | 26 | $ | (19 | ) | $ | (22 | ) | |||||||
Foreign Exchange Forward | Foreign currency loss/(income) | 113 | (103 | ) | 362 | (120 | ) | |||||||||||
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Total | $ | 117 | $ | (77 | ) | $ | 343 | $ | (141 | ) | ||||||||
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The following tables present the fair value and the location of, derivative contracts reported in the consolidated balance sheets ($ in thousands):
As of September 30, 2019 | ||||||
Derivatives Not Designed | Line item | Fair Value (1) | ||||
Interest Rate Swap | Other long-term liabilities | $ | (111 | ) | ||
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| |||||
Total | $ | (111 | ) | |||
|
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(1) | For the classification of input used to evaluate the fair value of our derivatives, refer to “Note 3”. |
As of December 31, 2018 | ||||||
Derivatives Not Designed | Line item | Fair Value (1) | ||||
Interest Rate Swap | Other long-term liabilities | $ | (97 | ) | ||
Foreign Exchange Forward | Other current liabilities | (18 | ) | |||
Foreign Exchange Forward | Other long-term liabilities | (9 | ) | |||
Foreign Exchange Forward | Other long-term assets | 42 | ||||
Foreign Exchange Forward | Other current assets | 41 | ||||
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| |||||
Total | $ | (41 | ) | |||
|
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(1) | For the classification of input used to evaluate the fair value of our derivatives, refer to “Note 3”. |
16
KALEYRA S.p.A.
Notes to the Condensed Consolidated Financial Statements
As of September 30, 2019 and December 31, 2018 and for the Three and the Nine Months Ended September 30, 2019 and 2018 (Unaudited)
5. Business Seasonality
The Company’s business is characterized by seasonal phenomena, which concentrate the largest volumes in the third and fourth quarters of the year. This distribution of volumes is reflected in our gross margins, which are consequently higher in those quarters.
6. Goodwill and Intangible Assets
Goodwill
Goodwill as of September 30, 2019 and December 31, 2018 was as follows ($ in thousand):
Balance as of December 31, 2018 | $ | 17,276 | ||
Effect of exchange rate | (189 | ) | ||
|
| |||
Balance as of September 30, 2019 | $ | 17,087 | ||
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|
Intangible assets
Intangible assets consisted of the following ($ in thousands):
As of September 30, 2019 | ||||||||||||
Gross | Accumulated amortization | Net | ||||||||||
Amortizable Intangible Assets: | ||||||||||||
Developed technology | $ | 2,790 | $ | 796 | $ | 1,994 | ||||||
Customer relationships | 9,146 | 1,377 | 7,769 | |||||||||
Patent | 108 | 24 | 84 | |||||||||
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| |||||||
Total amortizable intangible assets | $ | 12,044 | $ | 2,197 | $ | 9,847 | ||||||
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| |||||||
As of December 31, 2018 | ||||||||||||
Gross | Accumulated amortization | Net | ||||||||||
Amortizable Intangible Assets: | ||||||||||||
Developed technology | $ | 2,810 | $ | 310 | $ | 2,500 | ||||||
Customer relationships | 9,243 | 555 | 8,688 | |||||||||
Patent | 99 | 11 | 88 | |||||||||
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| |||||||
Total amortizable intangible assets | $ | 12,152 | $ | 876 | $ | 11,276 | ||||||
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Amortization expense was $440 thousand and $403 thousand for the three months ended September 30, 2019 and 2018, respectively and $1,337 thousand and $406 thousand for the nine months ended September 30, 2019 and 2018, respectively.
17
KALEYRA S.p.A.
Notes to the Condensed Consolidated Financial Statements
As of September 30, 2019 and December 31, 2018 and for the Three and the Nine Months Ended September 30, 2019 and 2018 (Unaudited)
Total estimated future amortization expense as of September 30, 2019 is as follows ($ in thousands):
As of September 30, 2019 | ||||
2019 (remaining three months) | $ | 433 | ||
2020 | 1,700 | |||
2021 | 1,460 | |||
2022 | 1,176 | |||
2023 | 1,068 | |||
Thereafter | 4,010 | |||
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| |||
Total | $ | 9,847 | ||
|
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7. Property and Equipment
Property and equipment consisted of the following ($ in thousands):
As of September 30, 2019 | As of December 31, 2018 | |||||||
Internal-use software development costs | $ | 1,374 | $ | 1,440 | ||||
Servers(1) | 1,575 | 1,170 | ||||||
Office equipment | 1,102 | 965 | ||||||
Leasehold improvements | 622 | 222 | ||||||
Furniture and fixtures | 441 | 189 | ||||||
Tangible assets in progress | 109 | 108 | ||||||
Vehicles | 49 | 49 | ||||||
Software | 4 | 4 | ||||||
Other assets | 101 | 103 | ||||||
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| |||||
Total property and equipment | $ | 5,377 | $ | 4,250 | ||||
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| |||||
Less: accumulated depreciation and amortization | 2,451 | 1,909 | ||||||
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|
| |||||
Total property and equipment, net | $ | 2,926 | $ | 2,341 | ||||
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|
|
|
(1) | Including equipment under capital leases with gross amount of $281 thousand net of accumulated depreciation of $62 thousand at September 30, 2019 (gross amount of $63 thousand net of accumulated depreciation of $31 thousand at December 31, 2018). |
Depreciation and amortization expense was $233 thousand and $198 thousand for the three months ended September 30, 2019 and 2018, respectively and $643 thousand and $428 thousand for the nine months ended September 30, 2019 and 2018, respectively.
18
KALEYRA S.p.A.
Notes to the Condensed Consolidated Financial Statements
As of September 30, 2019 and December 31, 2018 and for the Three and the Nine Months Ended September 30, 2019 and 2018 (Unaudited)
The Company capitalized $199 thousand, ininternal-use software development costs in the three months ended September 30, 2018 (zero in the three months ended September 30, 2019) and $378 thousand in the nine months ended September 30, 2018 (zero in the nine months ended September 30, 2019). No stock-based compensation expense was capitalized. Amortization of capitalized software development costs was $87 thousand and $101 thousand, in the three months ended September 30, 2019 and 2018, respectively and $264 thousand and $241 thousand in the nine months ended September 30, 2019 and 2018, respectively. The amortization expense was allocated as follows ($ in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Cost of revenue | $ | 74 | $ | 86 | $ | 225 | $ | 205 | ||||||||
Research and development | 13 | 15 | 39 | 36 | ||||||||||||
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|
|
|
|
|
|
| |||||||||
Total | $ | 87 | $ | 101 | $ | 264 | $ | 241 | ||||||||
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|
|
|
|
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8. Other Assets
Other current assets consisted of the following ($ in thousands):
As of September 30, 2019 | As of December 31, 2018 | |||||||
VAT receivables | $ | 2,196 | $ | 1,852 | ||||
Credit for tax other than income tax | 209 | 273 | ||||||
Income tax assets | 132 | 65 | ||||||
Other receivables | 394 | 354 | ||||||
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| |||||
Total other current assets | $ | 2,931 | $ | 2,544 | ||||
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|
|
19
KALEYRA S.p.A.
Notes to the Condensed Consolidated Financial Statements
As of September 30, 2019 and December 31, 2018 and for the Three and the Nine Months Ended September 30, 2019 and 2018 (Unaudited)
Other long-term assets consisted of the following ($ in thousands):
As of September 30, 2019 | As of December 31, 2018 | |||||||
Non-current income tax credit (advances and tax reduced at sources) | $ | 1,075 | $ | 1,092 | ||||
Miscellaneous | 184 | 163 | ||||||
Derivative financial assets | — | 42 | ||||||
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|
| |||||
Total other long-term assets | $ | 1,259 | $ | 1,297 | ||||
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9. Bank and other borrowings
As of September 30, 2019 and December 31, 2018, the current portion of bank and other borrowings amounts to $10,638 thousand and $4,686 thousand, respectively. As of September 30, 2019, this item is comprised for $9,004 thousand of the current portion of long-term bank and other borrowing and for $1,634 thousand of bank overdraft. As of December 31, 2018, this item is comprised for $3,038 thousand of the current portion of long-term bank and other borrowings and for $ 1,648 thousand of bank overdraft.
As of September 30, 2019 and December 31, 2018, the weighted average interest rate on the bank overdraft outstanding was 0.60% and 0.69%, respectively.
Long-term financial obligations consist of the following ($ in thousands):
As of September 30, 2019 | As of December 31, 2018 | Maturity | Interest Contractual Rate | Interest Nominal Rate | ||||||||||||||||
As of September 30, 2019 | As of December 31, 2018 | |||||||||||||||||||
Unicredit S.p.A (Line A Tranche 1) | 3,831 | 5,038 | July 2022 | Euribor 3 months + 3,10% | 2.80 | % | 2.80 | % | ||||||||||||
Unicredit S.p.A (Line A Tranche 2) | 176 | 228 | November 2022 | Euribor 3 months + 3,10% | 2.80 | % | 2.80 | % | ||||||||||||
Unicredit S.p.A (Line B) | 3,367 | 3,770 | May 2023 | Euribor 3 months + 2,90% | 2.60 | % | 2.60 | % | ||||||||||||
Unicredit S.p.A (Line C) | 2,709 | — | August 2022 | Euribor 3 months + 3,90% | 3.53 | % | 1.51 | % | ||||||||||||
Intesa San Paolo S.p.A (Line 1) | 1,096 | 1,572 | July 2021 | Euribor 3 months + 2,30% | 1.78 | % | ||||||||||||||
Intesa San Paolo S.p.A (Line 2) | 4,328 | — | July 2023 | Euribor 3 months + 2,60% | 2.60 | % | ||||||||||||||
Ubi Banca S.p.A (Line 1) | 392 | 625 | February 2021 | 1,25% | 1.25 | % | 1.25 | % | ||||||||||||
Ubi Banca S.p.A (Line 2) | 1,728 | — | April 2021 | 1,64% | 1.64 | % | ||||||||||||||
Monte dei Paschi di Siena S.p.A | 561 | — | April 2022 | 0,95% | 0.95 | % |
20
KALEYRA S.p.A.
Notes to the Condensed Consolidated Financial Statements
As of September 30, 2019 and December 31, 2018 and for the Three and the Nine Months Ended September 30, 2019 and 2018 (Unaudited)
Banco Popolare di Milano S.p.A (Line 1) | 1,299 | — | June 2023 | | Euribor 3 months + 2,00% | | 2.00 | % | ||||||||||||||||
Banco Popolare di Milano S.p.A (Line 2) | 4,314 | — | | September 2021 | | | Euribor 3 months + 2,00% | | 2.00 | % | ||||||||||||||
Simest 1 | 319 | 382 | June 2022 | 0,50% | 0.50 | % | 0.50 | % | ||||||||||||||||
Simest 2 | 317 | 379 | | September 2022 | | 0,50% | 0.50 | % | 0.50 | % | ||||||||||||||
Simest 3 | 581 | 169 | | December 2022 | | 0,50% | 0.50 | % | 0.50 | % | ||||||||||||||
Finlombarda S.p.A | 121 | — | | December 2020 | | 0,50% | 0.50 | % | ||||||||||||||||
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| |||||||||||||||||||||
Total Financial Liabilities | 25,139 | 12,163 | ||||||||||||||||||||||
Less: current portion of long-term liabilities | 9,004 | 3,038 | ||||||||||||||||||||||
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| |||||||||||||||||||||
Total long-term liabilities | 16,135 | 9,125 | ||||||||||||||||||||||
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|
|
On January 30, 2019, the Company entered into a new long-term financing with Simest denominated in Euro for a total of €608 thousand ($691 thousand at June 30, 2019 exchange rate) to be repaid in 8 quarterly installments and with maturity in December 2022.
On April 10, 2019, the Company entered into a new long-term financing with Ubi Banca S.p.A. denominated in Euro for a total amount of €2,000 thousand ($2,274 thousand at June 30, 2019 exchange rate), to be repaid in 24 monthly installments and with maturity in April 2021.
On April 10, 2019, the Company entered into a new long-term financing with Monte dei Paschi di Siena S.p.A., denominated in Euro for a total amount of €600 thousand ($682 thousand at June 30, 2019 exchange rate), to be repaid in 36 monthly installments and with maturity in April 2022.
On April 30, 2019, the Company entered into a new long-term financing with Banco Popolare di Milano S.p.A., denominated in Euro for a total amount of €1,200 thousand ($1,365 thousand at June 30, 2019 exchange rate), to be repaid in 17 quarterly installments and with maturity in June 2023.
On July 25, 2019, the Company entered into a medium-term financing agreement with Intesa SanPaolo S.p.A. denominated in Euro, for a total notional amount of €4,000 thousand ($4,367 thousand at the September 30, 2019 exchange rate) to be repaid in 16 quarterly installments. The financing has a maturity of 48 months from the date of disbursement and bears interest at a variable rate (Euribor 3 months plus 2.6% spread). The total amount was drawn in full on the same date. Proceeds were used to settle the remaining deferred consideration due for the acquisition of Buc Mobile.
On July 23, 2019, the Company entered into a medium-term financing agreement with Banco Popolare di Milano S.p.A. denominated in Euro for a total of €4,000 thousand ($4,367 thousand at the September 30, 2019 exchange rate) to be repaid in 8 quarterly installments. The financing has a maturity of 24 months from the date of disbursement and bears interest at a variable rate (Euribor 3 months plus 2.0% spread). The total amount was drawn in full on the same date and proceeds were used to settle the total deferred consideration for the acquisition of Solutions Infini.
21
KALEYRA S.p.A.
Notes to the Condensed Consolidated Financial Statements
As of September 30, 2019 and December 31, 2018 and for the Three and the Nine Months Ended September 30, 2019 and 2018 (Unaudited)
On August 2, 2019, the Company entered into a medium-term financing agreement with Unicredit S.p.A. denominated in Euro for a total of €2.500 thousand ($2,729 thousand at the September 30, 2019 exchange rate) to be repaid in quarterly installments starting from February, 2020. The financing will bear interest at a variable rate (Euribor 3 months plus 3.9% spread). The notional amount was fully drawn on the same date.
In connection with the above-mentioned financing agreements entered into in the three months ended September 30, 2019, the Company incurred $138 thousand of debt issuance costs that will be amortized over the maturity of the respective financing agreements.
Interest expense on bank and other borrowings was of $173 thousand and $97 thousand for the three months ended September 30, 2019 and 2018, respectively and $366 thousand and $228 thousand for the nine months ended September 30, 2019 and 2018, respectively.
As of September 30, 2019, the Company had credit line facilities granted of $5,459 thousand, of which $1,605 thousand had been used. Costs incurred in the nine months ended September 30, 2019 and 2018 were $8 thousand and $3 thousand, respectively, and were expensed as incurred. As of December 31, 2018, the Company had credit line facilities granted of $4,624 thousand, of which $1,648 thousand had been used.
As of September 30, 2019, the Company is contractually obliged to make payments as follows (in $ thousand):
As of September 30, 2019 | ||||
2019 (remaining three months) | $ | 2,253 | ||
2020 | 9,817 | |||
2021 | 8,002 | |||
2022 | 4,698 | |||
2023 | 1,508 | |||
Thereafter | — | |||
|
| |||
Total | $ | 26,278 | ||
|
|
10. Other Current and Long-term Liabilities
Accrued expenses and other current liabilities consisted of the following ($ in thousands):
As of September 30, 2019 | As of December 31, 2018 | |||||||
Current tax liabilities | $ | 1 | $ | 43 | ||||
Social securities | 154 | 180 | ||||||
Liabilities for tax other than income tax | 520 | 589 | ||||||
Derivative contract liabilities | — | 19 | ||||||
Other liabilities | 435 | 178 | ||||||
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|
|
| |||||
Total other current liabilities | $ | 1,110 | $ | 1,009 | ||||
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|
|
|
22
KALEYRA S.p.A.
Notes to the Condensed Consolidated Financial Statements
As of September 30, 2019 and December 31, 2018 and for the Three and the Nine Months Ended September 30, 2019 and 2018 (Unaudited)
Long-term liabilities consisted of the following ($ in thousands):
As of September 30, 2019 | As of December 31, 2018 | |||||||
Derivative contract liabilities | $ | 111 | $ | 106 | ||||
Other long-term liabilities | 286 | 185 | ||||||
|
|
|
| |||||
Total other long-term liabilities | $ | 397 | $ | 291 | ||||
|
|
|
|
11. Preference Shares liabilities
Preference share liabilities, amounting to $2,438 thousand and $1,834 thousand as of September 30, 2019 and December 31, 2018, represent the Company’s obligation to purchase in 2020 the preference shares from certain employees of Solutions Infini as a part the Solutions Infini Purchase Agreement. The purchase will be made at a predetermined price based on the EBITDA of Solutions Infini for the fiscal year ending March 31, 2020 as stated in the purchase agreement and any amendments thereto.
On May 6, 2019, the Company signed a modification of the Solutions Infini Purchase Agreement to reduce the price of the preference shares to be purchased from the eligible employees of Solutions Infini in 2020 by INR70,000 thousand ($993 thousand at the September 30, 2019 exchange rate).
12. Supplemental Balance Sheet Information
Allowance for doubtful accounts:
A roll-forward of the Company’s allowance for doubtful accounts for the three and the nine months ended September 30, 2019 and 2018 is as follows ($ in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Balance, beginning of the period | $ | 166 | $ | 116 | $ | 157 | $ | 60 | ||||||||
Accruals | 74 | 169 | 127 | 256 | ||||||||||||
Releases of provision | (1 | ) | — | (52 | ) | (25 | ) | |||||||||
Foreign exchange translation reserve | (8 | ) | 6 | (1 | ) | — | ||||||||||
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| |||||||||
Balance, end of the period | $ | 231 | $ | 291 | $ | 231 | $ | 291 | ||||||||
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23
KALEYRA S.p.A.
Notes to the Condensed Consolidated Financial Statements
As of September 30, 2019 and December 31, 2018 and for the Three and the Nine Months Ended September 30, 2019 and 2018 (Unaudited)
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 and the nine months ended September 30, 2019 and 2018 ($ in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Italy | $ | 15,587 | $ | 13,451 | $ | 43,458 | $ | 39,851 | ||||||||
India | 9,146 | 7,003 | 26,439 | 7,003 | ||||||||||||
All other parts of the world | 10,596 | 3,170 | 24,028 | 3,176 | ||||||||||||
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|
|
|
|
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| |||||||||
Total | $ | 35,329 | $ | 23,624 | $ | 93,925 | $ | 50,030 | ||||||||
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| |||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Italy | 44.1 | % | 57 | % | 46.3 | % | 80 | % | ||||||||
India | 25.9 | % | 30 | % | 28.1 | % | 14 | % | ||||||||
All other parts of the world | 30.0 | % | 13 | % | 25.6 | % | 6 | % | ||||||||
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| �� |
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|
As of September 30, 2019 and December 31, 2018, long-live assets are mainly held in Italy, India and United States. The following table sets long-live assets by geographic area as of September 30, 2019 and December 31, 2018 ($ in thousands):
As of September 30, 2019 | As of December 31, 2018 | |||||||
Italy | $ | 1,749 | $ | 1,263 | ||||
India | 20,975 | 22,120 | ||||||
United States | 8,360 | 8,769 | ||||||
All other parts of the world | 35 | 38 | ||||||
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|
|
| |||||
Total | $ | 31,119 | $ | 32,190 | ||||
|
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|
| |||||
As of September 30, 2019 | As of December 31, 2018 | |||||||
Italy | 5.6 | % | 3.9 | % | ||||
India | 67.4 | % | 68.7 | % | ||||
United States | 26.9 | % | 27.2 | % | ||||
All other parts of the world | 0.1 | % | 0.1 | % |
24
KALEYRA S.p.A.
Notes to the Condensed Consolidated Financial Statements
As of September 30, 2019 and December 31, 2018 and for the Three and the Nine Months Ended September 30, 2019 and 2018 (Unaudited)
14. Cost of revenue
Cost of revenue mainly relate to cost of communication services.
15. Personnel costs
Personnel cost amounts to $2,462 thousand for the three months ended September 30, 2019 (no stock-based compensation expense was incurred) and $2,496 thousand for the three months ended September 30, 2018 (of which $500 thousand relating to stock-based compensation expense), $8,718 thousand for the nine months ended September 30, 2019 (no stock-based compensation expenses was incurred) and $6,116 thousand for the nine months ended September 30, 2018 (of which $1,338 thousand relating to stock-based compensation expenses). Personnel cost was allocated as follows ($ in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Research and development | $ | 945 | $ | 610 | $ | 3,021 | $ | 1,402 | ||||||||
Sales and marketing | 605 | 792 | 2,078 | 1,904 | ||||||||||||
General and administrative | 912 | 1,094 | 3,619 | 2,810 | ||||||||||||
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|
|
|
|
|
|
| |||||||||
Total Personnel costs | $ | 2,462 | $ | 2,496 | $ | 8,718 | $ | 6,116 | ||||||||
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|
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16. General and administrative
General and administrative expense, amounting to $2,927 thousand and $2,777 thousand for the three months ended September 30, 2019 and 2018, respectively, and $10,667 thousand and $5,432 thousand for the nine months ended September 30, 2019 and 2018, respectively, mainly relate to personnel costs (including stock-based compensation expense), integration costs, transaction costs relating to the business combination and legal and professional charges.
17. Financial expense, net
Financial expense, net for the three months and the nine ended September 30, 2019 and 2018, consisted of the following ($ in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Financial Income | ||||||||||||||||
Interest income | $ | 13 | $ | 11 | $ | 95 | $ | 25 | ||||||||
Gain on derivatives | 117 | — | 382 | 205 | ||||||||||||
Dividend on marketable securities | 25 | — | 63 | — | ||||||||||||
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| |||||||||
Total Financial income | 155 | 11 | 540 | 230 | ||||||||||||
Financial Expense | ||||||||||||||||
Interest expense | 296 | 172 | 707 | 397 | ||||||||||||
Loss on derivatives | — | 77 | 39 | 346 | ||||||||||||
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|
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|
|
| |||||||||
Total Financial Expense | 296 | 249 | 746 | 743 | ||||||||||||
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| |||||||||
Financial expense, net | $ | 141 | $ | 238 | $ | 206 | $ | 513 | ||||||||
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25
KALEYRA S.p.A.
Notes to the Condensed Consolidated Financial Statements
As of September 30, 2019 and December 31, 2018 and for the Three and the Nine Months Ended September 30, 2019 and 2018 (Unaudited)
Commitments and Contingencies
Lease Commitments
The Company entered into variousnon-cancelable operating lease agreements that expire over the next 5 years. Rent expense was $259 thousand and $143 thousand for three months ended September 30, 2019 and 2018, respectively and $679 thousand and $271 thousand for the nine months ended September 30, 2019 and 2018.
Future minimum lease payments undernon-cancellable operating leases as of September 30, 2019 are as follows ($ in thousands):
As of September 30, 2019 | ||||
2019 (remaining three months) | $ | 238 | ||
2020 | 594 | |||
2021 | 501 | |||
2022 | 489 | |||
2023 | 367 | |||
Thereafter | 704 | |||
|
| |||
Total Minimum Lease Payments | $ | 2,893 | ||
|
|
Other Commitments
During the three and the nine months ended September 30, 2019, the Company entered into certain service agreements with financial advisors in connection with the business combination with GigCapital, Inc.. In accordance with such agreements, the Company may be obligated to pay certain fees upon the successful completion of the prospective business combination with GigCapital, Inc. In particular, if the business combination with GigCapital, Inc. is successfully completed, the Company will owe $2.2 million in advisory fees to be settled partially in cash at the closing of the business combination and partially in an equivalent value of a predetermined number of shares of the GigCapital, Inc.’s common stock; which may vary based on certain circumstances provided by the agreements, to be verified at closing.
Contingencies
As of September 30, 2019, the Company had contingent liabilities of $134 thousand, relating to a tax appeal of Solutions Infini for which no provision was recognized as its occurrence was deemed remote.
26
KALEYRA S.p.A.
Notes to the Condensed Consolidated Financial Statements
As of September 30, 2019 and December 31, 2018 and for the Three and the Nine Months Ended September 30, 2019 and 2018 (Unaudited)
18. Shareholders’ Equity
Common stock
As of September 30, 2019 and December 31, 2018, the Company had authorized 117,408 and 120,501 shares, respectively and issued and outstanding 110,593 shares of common stock with no par value.
Effective on January 18, 2018, the Company changed its legal status from S.r.l. to S.p.A. and contextually, the share capital of the company was divided into 100,000 shares of common stock with no par value.
19. Income Taxes
The Company recorded an income tax expense of $168 thousand and $729 thousand for the three months ended September 30, 2019 and 2018, respectively and an income tax expense of $719 thousand and $841 thousand for the nine months ended September 30, 2019 and 2018, respectively.
The following table presents a reconciliation of the statutory (IRES, Italian Corporate Income Tax) tax rate and the Company’s effective tax rate for the three and the nine months ended September 30, 2019 and 2018 ($ in thousand):
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Loss before income taxes | $ | 980 | $ | 136 | $ | (1,150 | ) | $ | (573 | ) | ||||||
Primary tax rate of the Company (IRES) | 24.00 | % | 24.00 | % | 24.00 | % | 24.00 | % | ||||||||
Tax benefit/(expense) calculated according to the Company’s primary tax rate | (237 | ) | (33 | ) | 274 | 137 | ||||||||||
Foreign tax rates differences | (13 | ) | (32 | ) | (141 | ) | (47 | ) | ||||||||
Change in applicable tax rate (1) | 513 | 513 | — | |||||||||||||
Change in valuation allowance | (136 | ) | (72 | ) | (443 | ) | (112 | ) | ||||||||
Non-taxable income | 73 | (240 | ) | 195 | (226 | ) | ||||||||||
Costs not deductible for tax purposes | — | — | (92 | ) | (212 | ) | ||||||||||
Costs not deductible associated with investments | — | (215 | ) | — | (238 | ) | ||||||||||
CFC (Controlled Foreign Corporation rules) (2) | (58 | ) | (43 | ) | (203 | ) | (43 | ) | ||||||||
IRAP (Italian Regional Tax on Productive Activities) | (3 | ) | (11 | ) | (10 | ) | (17 | ) | ||||||||
Taxes on undistributed profits of Solutions Infini | (304 | ) | (83 | ) | (808 | ) | (83 | ) | ||||||||
Other taxes | (3 | ) | — | (4 | ) | — | ||||||||||
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Reported income tax | $ | (168 | ) | $ | (729 | ) | $ | (719 | ) | $ | (841 | ) | ||||
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(1) | During 2019, applicable tax rate for Solutions Infini was reduced from 29.12% to 25.17%, resulting in a tax benefit for the period. |
(2) | Recorded by the Company in relation with the Dubai subsidiary (FZE). |
27
KALEYRA S.p.A.
Notes to the Condensed Consolidated Financial Statements
As of September 30, 2019 and December 31, 2018 and for the Three and the Nine Months Ended September 30, 2019 and 2018 (Unaudited)
As of September 30, 2019 the Company had $5,103 thousand 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. In addition, the Company expects future cash generated from its operations in Europe and the U.S. to be sufficient to meet the Company’s future cash needs. Should the above undistributed earnings be distributed in the form of dividends or otherwise, the distributions would result in $765 thousand amount of tax.
20. Net earnings/(loss) per share attributable to common shareholders
The following table set forth the calculation of basic and diluted earnings (loss) per share attributable to common shareholders during the period presented (in $, except per share data):
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Net Income/(Loss) attributable to common shareholders | $ | 812,212 | $ | (591,519 | ) | $ | (1,869,251 | ) | $ | (1,412,501 | ) | |||||
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Weighted-Average shares used to compute net income/(loss) per share attributable to common shareholders basic | 110,593 | 102,234 | 110,593 | 102,234 | ||||||||||||
Weighted-Average shares used to compute net income/(loss) per share attributable to common shareholders diluted | 110,593 | 102,234 | 110,593 | 102,234 | ||||||||||||
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Net Income/(Loss) per share attributable to common shareholders, basic | 7.34 | (5.79 | ) | (16.90 | ) | (13.82 | ) | |||||||||
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Net Income/(Loss) per share attributable to common shareholders, diluted | $ | 7.34 | $ | (5.79 | ) | $ | (16.90 | ) | $ | (13.82 | ) | |||||
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For the nine months ended September 30, 2018, 6,161 outstanding shares of common stock equivalent, were excluded from the calculation of the diluted net loss per share attributable to common shareholders because their effect would be anti-dilutive.
For the three and the nine months ended September 30, 2019 there were no outstanding shares of common stock equivalent.
21. Transactions with Related Parties
During the three months ended September 30, 2019 and 2018 and the nine months ended September 30, 2019 and 2018, the material related parties’ transactions, other than compensation and similar arrangements in the ordinary course of business, were as follows:
(i) | certain consulting services on business strategy, rendered by ESSE EFFE S.p.A., a company incorporated in Italy in which the Company holds interests through a director. Costs incurred by the Company for the above consulting services were of $29 thousand and $90 thousand in the three months ended September 30, 2018 and in the nine months ended September 30, 2018, respectively (zero in the three and the nine months ended September 30, 2019). The outstanding amount due by the Company to ESSE EFFE S.p.A. was zero as of September 30, 2019 and December 31, 2018; |
28
KALEYRA S.p.A.
Notes to the Condensed Consolidated Financial Statements
As of September 30, 2019 and December 31, 2018 and for the Three and the Nine Months Ended September 30, 2019 and 2018 (Unaudited)
(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 of $38 thousand and $102 thousand in the three and nine months ended September 30, 2018, respectively (zero in the three and nine months ended September 30, 2019); and |
(iii) | loans granted to Company’s directors and executive managers (at the reporting date, also Company’s shareholders) whose outstanding amount was $59 thousand and $67 thousand as of September 30, 2019 and December 31, 2018, respectively. In November 2019, one of the two existing loans granted to Company’s directors and executive managers was reimbursed in full for a total amount of $36 thousand. |
As of September 30, 2019 and December 31, 2018, the outstanding obligation for preference shares due to executive managers was $1,780 thousand and $1,339 thousand, respectively. In addition, during the three months ended September 30, 2019 and the nine months ended September 30, 2019, the Company incurred $38 thousand and $326 thousand, respectively, of compensation expense for executive managers, relating to preference shares, $100 thousand for the three and nine months ended September 30, 2018.
The following table presents (income) expenses for related parties reported in the consolidated statement of operations ($ in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Research and development | $ | 19 | $ | 100 | $ | 163 | $ | 100 | ||||||||
General and administrative | 19 | 167 | 163 | 292 |
22. Subsequent event
On November 22, 2019, after receiving the approval of the United States Securities and Exchange Commission, the GigCapital Shareholders voted to approve the business combination with Kaleyra SpA. The transaction closed on November 25th. The following day, November 26th, shares of Kaleyra, Inc (the new legal entity) were listed and began trading on the NYSE American stock exchange. As detailed in Note 17, at the completion of the business combination certain contingent obligations are now liabilities of Kaleyra.
On October 29, 2019, the shareholders’ meeting of the Company approved the closure of Kaleyra IP Srl. The subsidiary is expected to be wound up by December 31, 2019.
In October 2019, $1.1 million of the marketable securities included in the statement of financial position as of September 30, 2019 were sold. Such sale resulted in a gain of $25 thousand, net of tax.
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