KALEYRA, INC. Shareholders should read the following management's discussion and analysis in conjunction with the audited consolidated financial statements ofKaleyra as ofDecember 31, 2022 and 2021 and for the years there ended and the related notes. The discussion below includes forward-looking statements aboutKaleyra's business, operations and industry that are based on current expectations that are subject to uncertainties and unknown or changed circumstances.Kaleyra's actual results may differ materially from these expectations as a result of many factors, including those risks and uncertainties described in the sections entitled "Risk Factors" and "Special Note Regarding Forward Looking Statements."
OVERVIEW
Kaleyra is a result of the expansion of the former Ubiquity, which was founded inMilan, Italy in 1999. Ubiquity secured a leading market position in mobile messaging on behalf of the Italian financial services industry and then expanded its products and geographic offerings. Ubiquity acquired Solutions Infini ofBangalore, India in 2017 and Buc Mobile ofVienna, Virginia in 2018.Kaleyra was rebranded asKaleyra S.p.A . inFebruary 2018 . Following the integration of the acquired entities, the combined company became collectively engaged in the operation of the Platforms on behalf ofKaleyra's customers. OnFebruary 22, 2019 , the Company (f/k/aGigCapital, Inc. ) 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 ofKaleyra S.p.A . immediately prior to the closing of the Business Combination, and all of the stockholders of all of theKaleyra S.p.A . stock (collectively, suchKaleyra S.p.A . stockholders, the "Sellers"), for the purpose of the Company acquiring all of the shares ofKaleyra S.p.A ..GigCapital Inc. was incorporated inDelaware onOctober 9, 2017 for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. As a result of the Business Combination, which closed onNovember 25, 2019 , the Company (headquartered inMilan, Italy ) became a multi-channel integrated communications services provider on a global scale. At the time of the closing of the Business Combination,Kaleyra operated in the CPaaS market with operations primarily inItaly ,India ,Dubai andthe United States . In connection with the closing, the Company changed its name fromGigCapital, Inc. toKaleyra, Inc. .Kaleyra provides mobile communications services to financial institutions, e-commerce players, OTTs, software companies, logistic enablers, healthcare providers, retailers, and other large organizations worldwide. Through its proprietary cloud communications platforms (collectively, the "Platforms"),Kaleyra manages multi-channel integrated communications services on a global scale, consisting of inbound/outbound messaging solutions, programmable voice and Interactive Voice Response (IVR) configurations, hosted telephone numbers, conversational marketing solutions, RCS, and other types of IP communications services such as e-mail, push notifications, video/audio/chat, and WhatsApp®. OnOctober 22, 2019 ,Kaleyra's U.S. subsidiary, TCR, was incorporated under the laws ofDelaware to promote a systems initiative to reduce spam by collecting robotically driven campaign information and processing and sharing that information with mobile operators and the messaging ecosystem. TCR started to account for its first revenue in the second half of fiscal year 2020 and revenue has constantly increased since then. OnMarch 26, 2021 , a wholly owned subsidiary of TCR was incorporated under the laws ofCanada , with the registered office inVancouver, British Columbia . This new subsidiary was established with the goal to further expand the registry legacy business inNorth America . OnJuly 29, 2020 ,Kaleyra registered a German branch ofKaleyra S.p.A . with theGerman Chamber Tax Authority of Commerce .Kaleyra established its branch inGermany to expandKaleyra's footprint inCentral Europe and the Nordic countries and allow it to leverageKaleyra's trusted business solutions for customers in additional jurisdictions. OnFebruary 18, 2021 ,Kaleyra entered into an agreement and plan of merger (the "Merger Agreement") withVivial, Inc. ("Vivial") for the acquisition of the business known as mGage ("mGage"), a leading global mobile messaging provider (the transaction contemplated by the Merger Agreement, the "Merger"). 59 -------------------------------------------------------------------------------- OnJune 1, 2021 ,Kaleyra completed its acquisition of mGage for a total purchase price of$218.0 million . The Merger consideration consisted of both cash consideration and common stock consideration. OnAugust 30, 2021 , the Company prepared and delivered to the Stockholder Representative a written statement (the "Post-Closing Statement") setting forth the calculation of closing cash and closing net working capital which ultimately resulted in the final Merger consideration to be equal to$217.0 million pursuant to the terms of the Merger Agreement. The cash consideration amounted to$199.2 million of which$198.6 million was paid onJune 1, 2021 and the remaining amount was settled during the period endedSeptember 30, 2021 , including a working capital adjustment of$997,000 . The common stock consideration was paid with the issuance to Vivial's former equity holders of a total of 457,143 shares ofKaleyra common stock at the$41.20 per share closing price (on a post-reverse split basis) ofKaleyra common stock on the date of issuance, equal to$18.8 million . In support of the consummation of the Merger, onFebruary 18, 2021 ,Kaleyra entered into subscription agreements (the "PIPE Subscription Agreements"), 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 Merger, an aggregate of 2,400,000 shares ofKaleyra common stock to thePIPE Investors at$43.75 per share (on a post-reverse split basis).Kaleyra also entered into convertible note subscription agreements (the "Convertible Note Subscription Agreements") with certain institutional investors (the "Convertible Note Investors "), pursuant to whichKaleyra agreed to issue and sell, in private placements to close immediately prior to the closing of the Merger,$200 million aggregate principal amount of unsecured convertible notes (the "Merger Convertible Notes"). OnJuly 1, 2021 ,Kaleyra completed a company reorganization of the acquired business of mGage through the initial dissolution of theDelaware single member LLCs ofVivial Holdings, LLC ,Vivial Networks, LLC , and the following merger of mGage, LLC into the surviving holding company,Vivial Inc. , which subsequently changed its name intoKaleyra US Inc. , as a result of the reorganization. As a result of the merger,Kaleyra US Inc. became the holding company and one hundred percent (100%) owner ofKaleyra UK Limited - previously known as mGageEurope Ltd. (UK ) and mGageSA de SV (Mexico ). OnJuly 8, 2021 ,Kaleyra completed the acquisition of Bandyer S.r.l. ("Bandyer") for cash consideration of$15.4 million . Bandyer offers cloud-based audio/video communications services via Web Real Time Communication ("WebRTC") technology to financial institutions, retail companies, utilities, industries, insurance companies, human resources, and digital healthcare organizations. Bandyer provides customers with programmable audio/video APIs and Software Development Kits ("SDKs") based on WebRTC technology for a variety of use cases, including Augmented Reality ("AR") applications for smart glasses. EffectiveAugust 31, 2021 , the common stock of the Company ceased trading on the NYSE American and commenced trading on the NYSE under the ticker symbol "KLR."Kaleyra's warrants continue to trade on the NYSE American under the symbol "KLR WS". OnOctober 11, 2021 ,Kaleyra Africa Ltd , a wholly owned subsidiary ofKaleyra Inc. , was incorporated under the law ofSouth Africa with the registered office in Waterfall City, Gauteng. This newly established subsidiary is part ofKaleyra's broader strategic plan of expanding into emerging markets wherebySouth Africa will serve asKaleyra's hub to enter the entire African market.
On
OnJanuary 13, 2022 ,Kaleyra completed a company reorganization of the acquired business of Bandyer by means of the merger of the Italian legal entity of Bandyer into the holding company,Kaleyra S.p.A .. As a result of the merger, Bandyer ceased to exist as a separate legal entity and all its assets and liabilities have been incorporated underKaleyra S.p.A . effectiveJanuary 13, 2022 . OnNovember 7, 2022 ,Kaleyra received a written notice (the "Notice") from the NYSE that it was not in compliance with the continued listing criteria set forth in Section 802.01C of the NYSE's Listed Company Manual, as the average closing share price of the Company's common stock was less than$1.00 per share over a consecutive 30 trading-day period. Within ten business days of receipt of the Notice, the Company responded to the NYSE with respect to its intent to cure the deficiency and provided available alternatives, including, but not limited to, a reverse stock split, subject to shareholder approval, to regain compliance. Pursuant to Section 802.01C, the Company has a 60 -------------------------------------------------------------------------------- period of six months following the receipt of the Notice to regain compliance with the minimum share price requirement. The Company may regain compliance at any time during the six-month cure period if on the last trading day of any calendar month during the six-month cure period the Company's common stock has a closing share price of at least$1.00 and an average closing share price of at least$1.00 over the consecutive 30 trading-day period ending on the last trading day of that month. OnFebruary 14, 2023 ,Kaleyra held a special meeting of stockholders (the "Special Meeting") to approve the reverse stock split (the "Reverse Stock Split"). The Board of Directors had the sole discretion as to whether effect the Reverse Stock Split, if at all, within one year of the Special Meeting and to fix the specific ratio for the combination, in the range of 1-for-2 to 1-for-5, to be determined at the discretion of the Board of Directors and publicly disclosed prior to the effectiveness of such Reverse Stock Split, whereby each outstanding 2 to 5 shares would be reclassified and combined into 1 share of the Company's common stock, to enable the Company to comply with the NYSE continued listing criteria, as set forth in Section 802.01C of the NYSE'sListed Company Manual. OnMarch 6, 2023 , the Company announced that, following shareholder approval at the Special Meeting of the stockholders held onFebruary 14, 2023 , the Company's Board of Directors approved a 1-for-3.5 Reverse Stock Split of the Company's issued and outstanding shares of common stock, par value$0.0001 per share, effective as of12:01 a.m. Eastern Time onMarch 9, 2023 . Beginning with the opening of trading onMarch 9, 2023 ,Kaleyra's common stock began trading on theNew York Stock Exchange on a split-adjusted basis under new CUSIP number 483379202 and will continue to trade under the symbol "KLR". The Company believes the Reverse Stock Split will help it regain compliance with the NYSE continued listing criteria. Refer to Note 27 - Subsequent events in the Company's consolidated financial statements for more information. In addition, at the date of issuance of its consolidated financial statements, the Company has measured its compliance with the continued listing criteria set forth in Section 802.01B of the NYSE's Listed Company Manual with respect to the minimum market capitalization and shareholders' equity requirement, and concluded that it was not in compliance with the aforementioned listing standard. The Company has not yet received a non-compliance notice from NYSE.Kaleyra is committed to regaining compliance with the market capitalization and shareholders' equity rule within the eighteen-month cure period, as provided by the NYSE's Listed Company Manual. Upon receipt of a non-compliance notice from NYSE, the Company plans to respond with respect to its intent to cure the deficiency by providing available alternatives, including, but not limited to, executing a private or public offering or applying to be listed on another market, provided that we meet the continued listing requirements of that market. In addition, the Company is focusing on improving operations to help cure this deficiency. The Company continues to pursue avenues to expand its customer base as well as increase revenue from existing customers.Kaleyra's revenue growth is fueled by the Company's ability to maintain its customers, drive new services into existing customers, and monetize its pipeline to expand its enterprise customer base. Combined with deep integrations with customer software, and the ability to deliver messages across the world on its trusted network, the Company's product offering remains compelling. Brands are always going to seek to connect with their customers, especially on mobile devices, andKaleyra is ready to be their partner regardless of channel. While challenges in the global economy may impact near-term growth rates, the industry remains vital and healthy.Kaleyra's ability to further penetrate its customer base, expand margins and grow geographically is dependent on the Company's success in attracting new customers, selling additional products into our existing customer base, and adding higher gross margin products in our product portfolio. The Company also plans to expand its reach geographically. The ability to expand into new geographies is supported by an already sizeable global footprint, both in terms of carrier direct connections and physical offices.Kaleyra has always invested heavily in research and development, as the market is fast moving, and new channels are always developing. There are opportunities to layer in intelligence into the CPaaS market and the Company is actively pursuing these areas.Kaleyra has already achieved early success with chatbots and SMS-over-IP which cuts out termination costs yielding higher gross margins.Kaleyra's competitive positioning in the market is due in part to its unique infrastructure and continued enhancements and investments in research and development. This infrastructure entails a combination of security, compliance and integration capabilities that protect the integrity and privacy of our customers' transactions. The Company believes this foundation leads to continued customer satisfaction and enablesKaleyra to maintain a leadership position in the fast-evolving industry in which it operates. Evidence of our success in maintaining best in 61 -------------------------------------------------------------------------------- class customer satisfaction can be seen by the top ten customers contributing 43.3% of revenue in the quarter endedDecember 31, 2022 , and zero customer churn over the past year. OnFebruary 15, 2023 , in conjunction with the Company's fourth quarter and full year earnings release, to drive improved financial and operating performance, and ensure continued sustainable and scalable growth, the Company announced an initial restructuring and cost reduction program for 2023: the Value Creation Program (the "Program"). The Program is designed to positionKaleyra to serve the demand from global businesses using existing and emerging communication channels, while driving labor and cost efficiencies. The Program is anticipated to deliver results beginning as early as the first quarter of 2023 and will run through the remainder of 2023. As of the date of the announcement, significant cost savings and cash flow improvements have successfully been launched. This includes fixed costs being heavily scrutinized. As a result of the Company's recently launched initiatives, significant improvement in Adjusted EBITDA is expected in 2023 compared to 2022, with additional growth anticipated in 2024 when compared to 2023. This is further supported by the organizational streamlining aimed at reducing monthly cash payroll costs by more than 15%. Further savings are able to be achieved by leveraging the Company's global footprint to relocate costs from high-cost geographies to low-cost geographies. Ultimately, the result of the Company's Adjusted EBITDA improvement will convert to cash. The expected increase in cash flow is important and will significantly aidKaleyra's servicing its outstanding debt requirements. The improvement in the Company's ability to service debt requirements is a direct result of the initiatives to support the Company long-term. The demand for cloud communications is increasingly driven by the growing, and often mandated, need for enterprises to undertake a digital transformation that includes omnichannel, mobile-first and interactive customer communications. Mobile network operators and OTTs typically are the gateway to reach end-users' mobile devices.Kaleyra enables its customers and business partners to connect enterprise software and applications to mobile network operators by providing carefully documented Application Programming Interfaces ("APIs"). APIs allow building omnichannel journeys in a seamless way, with failover capabilities from one channel to another. In addition,Kaleyra also offers an extensive set of no-coding cloud-based visual interfaces to program communications to the customers across multiple channels.Kaleyra's Platforms couple the possibility of sending communications to end-users to a "Software as a Service" or SaaS business model, creating what is generally referred to as a "Communications Platform as a Service", or simply CPaaS.Kaleyra's vision is to be the CPaaS provider that best aligns with its customers' and business partners' communication requirements and outcomes, and the most trusted provider in the world. This requires a combination of security, compliance and integration capabilities that protects the integrity and privacy ofKaleyra's customers' transactions and includes other key features such as ease of provisioning, reliable network connectivity, high availability for scaling, redundancy, embedded regulatory compliance, configurable monitoring, analytics, and reporting.Kaleyra believes the percentage of CPaaS customers that will require security, compliance and integrations will represent an increasingly larger portion of the market, particularly with the expected exponential growth of transactional-by-nature cloud communications applications, better enablingKaleyra to set itself apart from its competition. During the year endedDecember 31, 2022 ,Kaleyra processed nearly 52 billion billable messages and 8 billion voice calls.Kaleyra organizes its efforts in four regions,Americas ,Europe , APAC and MEA. Its workforce is spread across the globe either in full-remote or office-based mode, in one of its principal offices based inNew York, New York ,Vienna, Virginia ,Los Angeles, California ,Atlanta, Georgia ,Milan, Italy ,Munich, Germany ,London, United Kingdom , andBangalore, India .Kaleyra has over 670 employees across the four regions.Kaleyra has customers and business partners worldwide across industry verticals such as financial services, e-commerce and transportation. In 2022 and 2021, there was no customer which individually accounted for more than 10% ofKaleyra's consolidated total revenues. For the fiscal year endedDecember 31, 2022 , 97% of revenues came from customers which have been on the Platforms for at least one year. AlthoughKaleyra continues to expand by introducing new customers to the Platforms, the breadth and stability of its existing customers provide it with a solid base of revenue upon which it can continue to innovate and make investments. In continuity with the past,Kaleyra is committed to strengthen its product portfolio, expand its global presence, recruit world-class talent and develop synergies with external players to capitalize on its growing market penetration opportunities and value creation. 62 --------------------------------------------------------------------------------Kaleyra's customers are primarily enterprises that use digital mobile communications in the conduct of their business.Kaleyra provides multiple levels of global customer support 24x7, SLAs and network reliability to meet the expectations and requirements of its customers. Customers and business partners that use the Platforms value the Platforms' network reliability, andKaleyra's responsive customer support and competitive pricing. In particular,Kaleyra was listed by Gartner (Gartner, Market Guide for Communications Platform as a Service, Worldwide,Daniel O'Connell , Lisa Under-Farboud,October 2022 ) as a co-creator, in other words, a CPaaS focused on a consultative business model that emphasizes consulting services, solves business problems and often pursues specific verticals.Kaleyra also partners with consulting companies and digital transformation players worldwide.Kaleyra was awarded the Gold award for "CPaaS Provider of the Year" byJuniper Research inFebruary 2022 , and was ranked as an Established Leader at the forefront of the global CPaaS market byJuniper Research , a leading independent market research, forecasting and consulting services firm, in its latest Competitor Leaderboard (2022).Kaleyra services a broad base of customers and business partners throughout the world operating in diverse sectors and regions.Kaleyra's key customers are large Business to Consumer ("B2C") and Business to Business to Consumer ("B2B2C") enterprises that use digital and mobile communications in the conduct of their business.Kaleyra has a concentration of business within the financial services industry that serves its major European banking end-users. With each relationship,Kaleyra is the link between the financial institutions and their end-users. In linking these two parties,Kaleyra's Platforms leverage the telecommunications provider to transmit message data to these end-users. For the years 2022 and 2021, the majority ofKaleyra's revenue was derived from its multi-channel CPaaS product offering market. Please see the section below titled "Factors Affecting Comparability of Results" for further information regarding the effects of acquisitions.Kaleyra's revenue is primarily driven by the number of messages delivered and voice calls connected to its customers and business partners.Kaleyra's fees vary depending on the contract. In 2022, the number of messages delivered to customers increased by 17%, while the number of voice calls connected to customers increased by 39%, compared to the prior year. The increase in the number of messages delivered to customers is mainly driven by the volume additions following the business combination with mGage. The increase in voice calls connected to its customers was mainly the result of higher voice activities inIndia , as compared to prior year. The number of messages delivered and voice calls connected to customers is still affected by the spread of the COVID-19 pandemic, including the series of variant strains, and the deriving fluctuations in revenue generating traffic andKaleyra's services resulting therein. Volume increase has been driven by the increased number of digital payments transactions made by the end-users (such as credit card transactions and other digital payments), by the increasing usage of mobile banking features and by the increasing penetration rate of digital payments in the underlying payments markets.Kaleyra is exposed to fluctuations of the currencies in which its transactions are denominated. Specifically, a material portion ofKaleyra's revenues and purchases are denominated in Euro, Indian Rupees and United Arab Emirates Dirham.
FACTORS AFFECTING COMPARABILITY OF RESULTS
The business combination with mGage
OnJune 1, 2021 ,Kaleyra completed its Merger with Vivial, and the resulting acquisition of the business owned by Vivial known as mGage, a leading global mobile messaging provider. The acquisition of mGage, subsequently renamedKaleyra US Inc. following its reorganization, provided an opportunity forKaleyra to expand its network operator connections and become one of only four companies providing direct connectivity to all tier-1 US carriers. The purchase consideration amounting to$217.0 million consisted of cash consideration and common stock consideration. Cash consideration amounted to$199.2 million of which$198.6 million was paid onJune 1, 2021 and the remaining amount was settled during the period endedSeptember 30, 2021 , including a working capital adjustment of$997,000 , pursuant to the terms of the Merger Agreement. The common stock consideration was paid with the issuance to Vivial's former equity holders of a total of 457,143 shares ofKaleyra common stock. The resulting value of the common stock consideration, which was based upon the$41.20 per share closing price (on a post-reverse split basis) ofKaleyra common stock as ofJune 1, 2021 , was equal to$18.8 million and has been recognized as part of the consideration transferred. 63 --------------------------------------------------------------------------------
In 2021, the Company incurred costs related to the acquisition of mGage of
Kaleyra US Inc. contributed$55.8 million to the consolidated net loss in the year endedDecember 31, 2022 and represented 56.6% of the consolidated net loss for the year endedDecember 31, 2022 .
The business combination with Bandyer
OnJuly 8, 2021 , the Company announced the acquisition of Bandyer for cash consideration of$15.4 million . Bandyer offers cloud-based audio/video communications services via WebRTC technology to financial institutions, retail companies, utilities, industries, insurance, human resources and digital healthcare organizations. Bandyer provides customers with programmable audio/video APIs and SDKs based on WebRTC technology for a variety of use cases, including Augmented Reality ("AR") applications for smart glasses. The acquisition of Bandyer adds video capabilities toKaleyra's already wide offering of communication channels. With the addition of Bandyer's video offering,Kaleyra's offerings become a complete suite of tools for omnichannel customer engagement designed for cross-channel customer experiences. OnJanuary 13, 2022 ,Kaleyra completed a company reorganization of the acquired business of Bandyer by means of the merger of the Italian legal entity of Bandyer into the holding company,Kaleyra S.p.A .. As a result of the merger, Bandyer ceased to exist as a separate legal entity and all its assets and liabilities have been incorporated underKaleyra S.p.A . effectiveJanuary 13, 2022 . COVID-19 The current COVID-19 pandemic has affected and will continue to affect economies and businesses around the world. Notwithstanding the recent improvements in the spread of the pandemic, mostly as a result of the worldwide vaccine campaigns and the numerous measures implemented by various governmental authorities and private enterprises to contain the pandemic, disruptions to the global economies caused by COVID-19 may continue to trigger an extended period of economic uncertainties. The magnitude and duration of the disruptive effects of the pandemic on business activity and operations cannot be measured with any degree of certainty.Kaleyra is actively monitoring and managing its response and assessing actual and potential impacts to its operating results, financial condition, liquidity and operations, which could also impact trends and expectations. Key Business Metrics RevenueKaleyra's revenue is generated primarily from usage-based fees earned from the sale of communications services offered through access to the Company's Platforms to customers and business partners across enterprises. Revenue can be billed in advance or in arrears depending on the terms of the agreement; for the majority of customers, revenue is invoiced on a monthly basis in arrears.
Cost of Revenue and Gross Profit
Cost of revenue consists primarily of costs of communications services purchased from network service providers. Cost of revenue also includes the cost ofKaleyra's cloud infrastructure and technology platform, amortization of capitalized internal-use software development costs related to the platform applications and amortization of developed technology acquired in past business combinations.
Gross profit is equal to the revenue less cost of revenue associated with
delivering the communications services to
64
--------------------------------------------------------------------------------Operating Expenses
Kaleyra's operating expenses include research and development expense, sales and marketing expense, general and administrative expense, transactions costs and depreciation and amortization, excluding the depreciation and amortization expense related to the technology platform, which is included in cost of revenues as per above.
Research and Development Expense
Research and development expense consists primarily of personnel costs, including stock-based compensation, the costs of the technology platform used for staging and development, outsourced engineering services, amortization of capitalized internal-use software development costs (other than those related to the technology platform) and an allocation of general overhead expenses.Kaleyra capitalizes the portion of its software development costs that meet the criteria for capitalization. Sales and Marketing Expense Sales and marketing expense is comprised of compensation, variable incentive compensation, benefits related toKaleyra's sales personnel, along with travel expenses, other employee related costs including stock-based compensation, and expenses related to advertising, marketing campaigns and events.
General and Administrative Expense
General and administrative expense is comprised of compensation and benefits of administrative personnel, including variable incentive pay and stock-based compensation, and other administrative costs such as facilities expenses, professional fees, and travel expenses.
RESULTS OF OPERATIONS
Comparison of the years endedDecember 31, 2022 and 2021 is as follows ($ in thousands): Year Ended December 31, 2022 2021 $ Change % Change Revenue$ 339,168 $ 267,739 $ 71,429 27 % Cost of revenue (1) 269,063 210,228 58,835 28 % Gross profit 70,105 57,511 12,594 22 % Operating expenses: Research and development (2) 19,235 18,456 779 4 % Sales and marketing (1)(2) 29,270 21,077 8,193 39 %
General and administrative (2) 59,651 50,957 8,694
17 %
Intangible asset impairment 49,446 - 49,446 NM
Total operating expenses 157,602 90,490 67,112 74 %
Loss from operations (87,497 ) (32,979 ) 54,518 NM
Other income, net 185 185 - 0 %
Financial expense, net (13,971 ) (8,795 ) 5,176 59 %
Foreign currency loss (1,400 ) (97 ) 1,303 NMLoss before income tax benefit (102,683 ) (41,686 ) 60,997
NM
Income tax benefit (4,155 ) (7,689 ) (3,534 ) (46 %)
Net loss $ (98,528 ) $ (33,997 ) $ 64,531 NM
65--------------------------------------------------------------------------------
NM = Not meaningful
(1)
For the year ended
Year Ended December 31,
2022 2021
Cost of revenue $ 5,925 $ 3,845
Sales and marketing 11,180 6,992
Total $ 17,105 $ 10,837
(2)
Operating expenses include stock-based payments. The expense for 2022 and 2021
related to RSUs are as follows (in thousands), net of capitalized stock-based
compensation expenses.
Year Ended December 31,
2022 2021
Research and development $ 2,131 $ 3,707
Sales and marketing 2,890 2,075
General and administrative 16,149 14,209
Total $ 21,170 $ 19,991
Revenue
In 2022, revenue increased by
Cost of Revenue and Gross Profit
In 2022, cost of revenue increased by$58.8 million , or 28%, compared to 2021. The increase in cost of revenue was primarily attributable to the impact of the full twelve months of consolidation of mGage and the amortization of acquired intangible assets. In 2022, gross profit increased by 21.9% compared to 2021, mainly driven by the effects of the business combination with mGage.
Operating Expenses
In 2022, research and development expenses increased by$779,000 , compared to 2021. Research and development expenses included$2.1 million of stock-based compensation in 2022, compared to$3.7 million of stock-based compensation in 2021. Excluding such costs and$8.1 million capitalized software development costs, compared to$5.2 million capitalized costs in 2021, research and development expenses would have increased by$5.3 million . This increase was primarily due toKaleyra US Inc. research and development expenses for 2022 equal to$12.1 million , compared to$7.7 million , for the period starting from the business combination throughDecember 31, 2021 . In 2022, sales and marketing expenses increased by$8.2 million , compared to 2021. Sales and marketing expenses included$2.9 million of stock-based compensation in 2022, compared to$2.1 million of stock-based compensation in 2021. Excluding such costs, sales and marketing expense would have increased by$7.4 million . Such increase was primarily driven byKaleyra US Inc. sales and marketing expenses for 2022 equal to$18.5 million , compared to$9.6 million , for the period starting from the business combination throughDecember 31, 2021 . In 2022, general and administrative expenses increased by$8.7 million compared to 2021. General and administrative expenses included (i)$16.1 million of stock-based compensation in 2022, compared to$14.2 million in 2021; and (ii)$310,000 of mGage and Bandyer acquisition transaction costs and$5.7 million of transaction costs in 2022 and 2021, respectively. Excluding such costs, general and administrative expenses would have increased by$12.2 million , mainly due toKaleyra US Inc. general and administrative expenses in 2022 equal to$13.8 million , compared to$6.3 million , for the period starting from the business combination throughSeptember 30, 2021 . 66 -------------------------------------------------------------------------------- In 2022, impairment charges of$29.4 million ,$15.8 million and$4.3 million were recorded in relation to customer relationships, developed technology and trade names, respectively. Impairment losses were determined as the difference between the carrying amount and the estimated fair values of intangible assets arising from the business combinations with mGage and Bandyer. Impairment loss is included in "Intangible asset impairment" on the consolidated statements of operations. Financial Expense, Net In 2022, financial expense, net increased by$5.2 million , compared to 2021. Such increase in financial expense is mainly attributable to the accrued contractual interest expense and amortization of issuance costs amounting to$12.2 million and$2.0 million , respectively, partially offset by the decrease in the fair value of the private warrant liability of$863,000 . The same period last year accounted for the accrued contractual interest expense and amortization of issuance costs amounting to$7.1 million and$1.1 million , respectively, and to the change in fair value of the private warrant liability of$546,000 , partially offset by the non-recurring reversal of interest expense on a forward share purchase agreement of$659,000 . Excluding such costs, financial expense, net would have decreased by$104,000 .
Foreign Currency Loss
In 2022, foreign currency loss increased by$1.3 million , compared to 2021. Such change was mainly attributable to the effects of the fluctuation of the Euro and Indian Rupee against theU.S. dollar.
Income Tax Benefit
In 2022 and in 2021, income tax benefit amounted to$4.2 million and$7.7 million , respectively. As a percentage of loss before income taxes in 2022 and 2021, income tax benefit accounted for 4% and 18%, respectively. The income tax benefit in 2022 is principally due to reductions in recorded deferred tax liabilities as a result of the recording of the impairment charge on intangibles in 2022. The income tax benefit in 2021 is principally due to acquirer valuation allowance reductions as result of ASC 805 purchase accounting adjustments.
LIQUIDITY AND CAPITAL RESOURCES
As ofDecember 31, 2022 , the Company had$77.5 million of cash and cash equivalents,$480,000 of restricted cash and$587,000 of short-term investments with maturity terms between 4 and 12 months held inIndia . Of the$78.6 million in cash, restricted cash and short-term investments,$26.6 million was held inU.S. banks,$36.1 million was held inItaly ,$13.0 million was held inIndia with the remainder held in other banks. As ofDecember 31, 2021 , the Company had$90.0 million of cash and cash equivalents,$1.7 million of restricted cash and$6.2 million of short-term investments. Management currently plans to retain the cash in the jurisdictions where these funds are currently held. The consolidated balance sheet as ofDecember 31, 2022 included total current assets of$173.0 million and total current liabilities of$117.0 million , resulting in net current assets of$56.1 million and a short-term net financial position of$62.8 million .Kaleyra finances its operations through a combination of cash generated from operations and from borrowings underKaleyra bank facilities primarily with banks located inItaly , as well as proceeds from equity offerings and convertible note arrangements.Kaleyra's long-term cash needs primarily include meeting debt service requirements, working capital requirements and capital expenditures.Kaleyra may also pursue strategic acquisition opportunities that may impact its future cash requirements. There are a number of factors that may negatively impact its available sources of funds in the future including the ability to generate cash from operations, obtain additional financing or refinance existing short-term debt obligations, including those related to acquisitions completed in prior periods. The amount of cash generated from operations is dependent upon factors such as the successful execution ofKaleyra's business strategies and worldwide economic conditions. The amount of debt available under future financings is dependent onKaleyra's ability to maintain adequate cash flow for debt service and sufficient collateral, and general financial conditions inKaleyra's market. 67 -------------------------------------------------------------------------------- OnFebruary 18, 2021 , and for the purposes of raising the cash portion of the consideration for the Merger,Kaleyra entered into the PIPE Subscription Agreements with thePIPE Investors and the Convertible Note Subscription Agreements with theConvertible Note Investors , pursuant to whichKaleyra agreed to issue$200 million in aggregate principal of Merger Convertible Notes. Subject to the terms of the Merger Convertible Notes,Kaleyra may opportunistically raise debt capital, subject to market and other conditions, to refinance its existing capital structure at a lower cost of capital and extend the maturity period of certain debt. Additionally,Kaleyra may also raise debt capital for strategic opportunities which may include acquisitions of additional companies, and general corporate purposes. If additional financing is required from outside sources,Kaleyra may not be able to raise it on terms acceptable to it or at all. IfKaleyra is unable to raise additional capital when desired,Kaleyra's business, operating results and financial condition may be adversely affected.Kaleyra has a number of long-standing business and banking relationships with major Italian commercial banks where it maintains both cash accounts and a credit relationship. Historically,Kaleyra has used cash generated from operations and other sources to fund its growth and investment opportunities. AsKaleyra's management made the decision to expand its operations outside ofItaly and acquire additional companies, it took on certain additional financing in order to fund cash payments due on the acquisitions. As ofDecember 31, 2022 ,Kaleyra's total bank and other borrowings, including amounts drawn under the revolving credit line facilities was$28.8 million ($38.7 million as ofDecember 31, 2021 ).Kaleyra has credit line facilities of$5.4 million as ofDecember 31, 2022 , of which$4.0 million has been used. As ofDecember 31, 2021 ,Kaleyra had credit line facilities of$6.7 million , of which$5.3 million had been used. Amounts drawn under the credit line facilities are collateralized by specific customer trade receivables and funds available under the line are limited based on eligible receivables.
The Company's outstanding Merger Convertible Notes in the amount of
OnNovember 7, 2022 ,Kaleyra received a written notice (the "Notice") from the NYSE that it was not in compliance with the continued listing criteria set forth in Section 802.01C of the NYSE's Listed Company Manual, as the average closing share price of the Company's common stock was less than$1.00 per share over a consecutive 30 trading-day period. Within ten business days of receipt of the Notice, the Company responded to the NYSE with respect to its intent to cure the deficiency and provided available alternatives, including, but not limited to, a reverse stock split, subject to shareholder approval, to regain compliance. Pursuant to Section 802.01C, the Company has a period of six months following the receipt of the Notice to regain compliance with the minimum share price requirement. The Company may regain compliance at any time during the six-month cure period if on the last trading day of any calendar month during the six-month cure period the Company's common stock has a closing share price of at least$1.00 and an average closing share price of at least$1.00 over the consecutive 30 trading-day period ending on the last trading day of that month. OnFebruary 14, 2023 ,Kaleyra held a special meeting of stockholders (the "Special Meeting") to approve the reverse stock split (the "Reverse Stock Split"). The Board of Directors had the sole discretion as to whether effect the Reverse Stock Split, if at all, within one year of the Special Meeting and to fix the specific ratio for the combination, in the range of 1-for-2 to 1-for-5, to be determined at the discretion of the Board of Directors and publicly disclosed prior to the effectiveness of such Reverse Stock Split, whereby each outstanding 2 to 5 shares would be reclassified and combined into 1 share of the Company's common stock, to enable the Company to comply with the NYSE continued listing criteria, as set forth in Section 802.01C of the NYSE'sListed Company Manual. OnMarch 6, 2023 , the Company announced that, following shareholder approval at the Special Meeting of the stockholders held onFebruary 14, 2023 , the Company's Board of Directors approved a 1-for-3.5 Reverse Stock Split of the Company's issued and outstanding shares of common stock, par value$0.0001 per share, effective as of12:01 a.m. Eastern Time onMarch 9, 2023 . Beginning with the opening of trading onMarch 9, 2023 ,Kaleyra's common stock began trading on theNew York Stock Exchange on a split-adjusted basis under new CUSIP number 483379202 and will continue to trade under the symbol "KLR". Refer to Note 27 - Subsequent events in the Company's consolidated financial statements for more information. In addition, at the date of issuance of its consolidated financial statements, the Company has measured its compliance with the continued listing criteria set forth in Section 802.01B of the NYSE's Listed Company Manual with respect to the minimum market capitalization and shareholders' equity requirement, and concluded that it was 68 -------------------------------------------------------------------------------- not in compliance with the aforementioned listing standard. The Company has not yet received a non-compliance notice from NYSE.Kaleyra is committed to regaining compliance with the market capitalization and shareholders' equity rule within the eighteen-month cure period, as provided by the NYSE's Listed Company Manual. Upon receipt of a non-compliance notice from NYSE, the Company plans to respond with respect to its intent to cure the deficiency by providing available alternatives, including, but not limited to, executing a private or public offering or applying to be listed on another market, provided thatKaleyra meets the continued listing requirements of that market. As ofDecember 31, 2022 , and through the date the financial statements are issued, the Company believes it has sufficient liquidity to be able to operate its business for at least 12 months following the date that the financial statements are issued. However, the Company was not in compliance with NYSE continued listing criteria, as described above. IfKaleyra fails to regain compliance with the NYSE continued listing requirements, the NYSE may take steps to delist the Company's securities. Delisting from the NYSE (and the inability ofKaleyra to list its common stock on the Nasdaq Global Select Market or the Nasdaq Global Market, or any other eligible market) would trigger a fundamental change under the terms of the Indenture, which would entitle each holder of the Merger Convertible Notes, at such holder's option, to requireKaleyra to repurchase for cash all or any portion of such holder's notes at a repurchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest thereon - refer to Note 11 - Notes Payable in the Company's consolidated financial statements for additional information relating the Merger Convertible Notes. In such event,Kaleyra may not have enough available cash or be able to obtain financing to meet the repurchase obligations that may arise if the Company is not able to regain compliance with the NYSE continued listing criteria for at least the 12 months following the date that the financial statements are issued, andKaleyra's failure to repurchase such notes would constitute a default under the Indenture. The Company continues to seek other sources of capital and other alternatives to maintain its listing on the NYSE. In addition, the Company is focusing on improving operations with actions aimed at expanding its customer base, increase revenue and margins from existing customers, reduce costs, as well as expand into geographics whereKaleyra currently has low concentration. OnFebruary 15, 2023 , to drive improved financial and operating performance, and ensure continued sustainable and scalable growth, the Company announced an initial restructuring and cost reduction program for 2023 (the "Program"). The Program is designed to positionKaleyra to serve the demand from global businesses using existing and emerging communication channels, while driving labor and cost efficiencies. The Program is anticipated to deliver results beginning as early as the first quarter of 2023 and will run through the remainder of 2023. This includes fixed costs being heavily scrutinized. As a result of the Company's recently launched initiatives, significant improvements in the Company's results are expected in 2023 compared to 2022, with additional growth anticipated in 2024 when compared to 2023. This is further supported by the organizational streamlining aimed at reducing monthly cash payroll costs by more than 15%. Further savings are able to be achieved by leveraging the Company's global footprint to relocate costs from high-cost geographies to low-cost geographies. Despite the measures the Company is undertaking and plans to undertake, the factors outlined above raise substantial doubt about the ability of the Company to continue as a going concern within one year after the date that these financial statements are issued. Refer to Report of Independent Registered Public Accounting Firm and Note 2 - Summary of Significant Accounting Policies in the Company's consolidated financial statements for more information relating going concern. Notes Payable - Other OnApril 16, 2020 , in connection with the Business Combination,Kaleyra entered into a Settlement Agreement and Release (the "Settlement Agreement") with its financial advisory service firms,Cowen and Company, LLC ("Cowen") andChardan 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 ofDecember 31, 2019 ,$5.4 million in the aggregate, as follows: (i)$2.7 million in the aggregate in common stock ofKaleyra (the "Settlement Shares") to be issued the business day prior to the filing of a resale registration statement for such Settlement Shares (the "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 onMarch 15 ,June 15 ,September 15 andDecember 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 69 -------------------------------------------------------------------------------- (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 ofKaleyra 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 ofKaleyra 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 ofKaleyra on theNYSE American LLC stock exchange (the "VWAP") on the business day immediately prior to the date on whichKaleyra files the Resale Registration Statement. In addition, the price per share for determining the number of shares of common stock ofKaleyra to be issued upon the conversion of the convertible notes shall be a five percent (5%) premium to the ten-day (10-day) trailing VWAP as of the date immediately prior to the issuance date of the convertible notes, rounded down to the nearest whole number. OnMay 1, 2020 , in connection with the Settlement Agreement,Kaleyra issued: (i) an aggregate of 125,885 Settlement Shares to Cowen Investments and Chardan, consisting of 107,002 Settlement Shares issued to Cowen Investments, and 18,883 Settlement Shares issued to Chardan (on a post-reverse split basis, for each share amount); 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 86,620 shares of common stock ofKaleyra , if there has been no principal reduction, and the unpaid principal of the Chardan Note is convertible at the option of Chardan into 15,286 shares of common stock ofKaleyra , if there has been no principal reduction (on a post-reverse split basis, for each share amount). 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. OnFebruary 4, 2021 , Cowen Investments elected to convert the outstanding amount of the Cowen Note into 86,620 shares of common stock (on a post-reverse split basis) 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
Merger Convertible Notes
OnFebruary 18, 2021 , in support of the consummation of the Merger,Kaleyra entered into Convertible Note Subscription Agreements, each datedFebruary 18, 2021 , with theConvertible Note Investors . InJune 2021 , the Company issued the Merger Convertible Notes with an aggregate principal amount of$200 million . The Company incurred$11.4 million of issuance costs as a result of the issuance of the Merger Convertible Notes. In connection with the issuance of the Merger Convertible Notes pursuant to the terms of the Convertible Note Subscription Agreements, the Company entered into an indenture (the "Indenture") withWilmington Trust, National Association , a national banking association, in its capacity as trustee thereunder, in respect of the$200 million of Merger Convertible Notes that were issued to theConvertible Note Investors . The Merger Convertible Notes bear interest at a rate of 6.125% per annum, payable semi-annually, in arrears on eachJune 1 andDecember 1 of each year, commencing onDecember 1, 2021 , to holders of record at the close of business on the precedingMay 15 andNovember 15 , respectively. After giving effect to the Reverse Stock Split as ofMarch 9, 2023 , as described in Note 1 - Description of Organization and Business Operations, the Merger Convertible Notes are convertible into 3,386,243 shares ofKaleyra common stock at a conversion price of$59.063 per share ofKaleyra common stock in accordance with the terms of the Indenture, and mature five years after their issuance. The Company may, at its election, force conversion of the Merger Convertible Notes after (i) the first anniversary of the issuance of the Merger Convertible Notes, subject to a holder's prior right to convert, if the last reported sale price of theKaleyra common stock exceeds 150% of the conversion price for at least 20 trading days during the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter and (ii) the second anniversary of the issuance of the Merger Convertible Notes, subject 70 -------------------------------------------------------------------------------- to a holder's prior right to convert, if the last reported sale price of theKaleyra common stock exceeds 130% of the conversion price for at least 20 trading days during the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter. Following certain corporate events that occur prior to the maturity date or if the Company forces a mandatory conversion, the Company will, in certain circumstances, increase the conversion rate for a holder who elects to convert its Merger Convertible Notes in connection with such a corporate event or has its Merger Convertible Notes mandatorily converted, as the case may be. In addition, in the event that a holder of the Merger Convertible Notes elects to convert its Merger Convertible Notes prior to the third anniversary of the issuance of the Merger Convertible Notes, the Company will be obligated to pay an amount equal to twelve months of interest, or if on or after such third anniversary of the issuance of the Merger Convertible Notes, any remaining amounts that would be owed to, but excluding, the fourth anniversary of the issuance of the Merger Convertible Notes (the "Interest Make-Whole Payment"). The Interest Make-Whole Payment will be payable in cash or shares ofKaleyra common stock as set forth in the Indenture. The terms of the Merger Convertible Notes requireKaleyra to repurchase the Merger Convertible Notes for cash at the option of the holder in the event of a fundamental change. The Merger Convertible Notes provide that the delisting of our common stock from the NYSE would constitute a "fundamental change" under Section 15.02 of the Indenture, which would entitle each holder, at such holder's option, to require the Company to repurchase for cash all or any portion of such holder's notes at a repurchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest thereon. OnNovember 7, 2022 ,Kaleyra received a written notice from the NYSE that it was not in compliance with the continued listing criteria set forth in Section 802.01C of the NYSE's Listed Company Manual with respect to the minimum share price requirement.Kaleyra is committed to regaining compliance with the share price rule within the six-month cure period following the receipt of the notice. In addition, at the date of issuance of its consolidated financial statements, the Company has measured its compliance with the continued listing criteria set forth in Section 802.01B of the NYSE's Listed Company Manual with respect to the minimum market capitalization and shareholders' equity requirement, and concluded that it was not in compliance with the aforementioned listing standard.Kaleyra is committed to regaining compliance with the market capitalization and shareholders' equity rule within the eighteen-month cure period, as provided by the NYSE's Listed Company Manual. Refer to Note 2 - Summary of Significant Accounting Policies in the Company's consolidated financial statements for more information relatingKaleyra's considerations on going concern basis of accounting. Upon the issuance of the Merger Convertible Notes management made the assessment whether the convertible instrument contained embedded conversion features for bifurcation and concluded that such embedded conversion features met the definition of a derivative but qualified for the scope exception under ASC 815-10-15-74(a) as they are indexed to the Company's stock and qualify for classification within stockholders' equity. Management determined that the Interest Make-Whole Payment feature met the definition of a derivative but did not fall within the above scope exception, nonetheless its value was de minimis and as such no amount was recorded at the time of the issuance of the Merger Convertible Notes nor at any subsequent reporting date. Management will continue to monitor the valuation of the Interest Make-Whole Payment provision and assess the need to record a liability in future periods. As ofDecember 31, 2022 , the outstanding amount of the Merger Convertible Notes was$191.8 million , net of issuance costs. During the year endedDecember 31, 2022 , contractual interest expense on the Merger Convertible Notes amounted to$12.2 million and amortization of the debt issuance costs amounted to$2.0 million . The liability is included in the consolidated balance sheet line item "Long-term portion of notes payable" and the interest expense is included in "Financial expense, net" on the consolidated statements of operations. 71 --------------------------------------------------------------------------------
Long-term financial obligations
Long-term financial obligations, excluding credit line facilities, consisted of the following ($ in thousands):
Interest Nominal Rate
As of December 31, As of December 31,
Interest Contractual
2022 2021 Maturity Rate 2022 2021UniCredit S.p.A. (Line A Tranche Euribor 3 months + (1)$ 943 $ 2,330 July 2023 3.10% (1) 2.80 % 2.80 % UniCredit S.p.A. (Line A Tranche Euribor 3 months + (2) 53 113 November 2023 3.10% (1) 2.80 % 2.80 % UniCredit S.p.A. Euribor 3 months + (Line B) 1,324 2,337 May 2024 2.90% (1) 2.60 % 2.60 % UniCredit S.p.A. Euribor 3 months + (Line C) 755 1,833 August 2023 3.90% 6.03 % 3.33 % Intesa Sanpaolo Euribor 3 months + S.p.A. (Line 1) - 290 April 2022 2.30% - 1.73 % Intesa Sanpaolo Euribor 3 months + S.p.A. (Line 2) 1,654 2,872 April 2024 3.10% 5.23 % 2.53 % Intesa Sanpaolo Euribor 3 months + S.p.A. (Line 3) 7,927 8,961 June 2026 2.15% 4.28 % 1.58 % Intesa Sanpaolo Euribor 3 months + S.p.A. (Line 4) 4,466 5,927 July 2026 2.20% 4.33 % 1.63 % Monte dei Paschi di Siena S.p.A. (Line 1) - 76 April 2022 0.95 % - 0.95 % Monte dei Paschi di Siena S.p.A. (Line 2) 356 1,132 June 2023 1.50 % 1.50 % 1.50 % Banco BPM S.p.A. Euribor 3 months + (Line 1) 189 593 June 2023 2.00% 4.13 % 2.00 % Banco BPM S.p.A. Euribor 3 months + (Line 3) 3,059 5,014 September 2024 3.00% 5.13 % 2.43 % Banco BPM S.p.A. Euribor 3 months + (Line 4) 2,491 - July 2025 1.95% 4.08 % - Simest 1 134 189 December 2023 0.50 % 0.50 % 0.50 % Simest 2 133 188 December 2023 0.50 % 0.50 % 0.50 % Simest 3 244 345 December 2023 0.50 % 0.50 % 0.50 % Simest 4 1,150 1,218 April 2027 0.50 % 0.50 % 0.50 % Total bank and other borrowings 24,878 33,418 Less: current portion 11,419 10,508 Total long-term portion$ 13,459 $ 22,910
(1) Interest contractual rate is hedged through interest rate swap financial instruments. Refer to Note 4 - Derivative Financial Instruments for further details.
All bank and other borrowings are unsecured borrowings of
Liquidity
As ofDecember 31, 2022 , the Company had$77.5 million of cash and cash equivalents,$480,000 of restricted cash and$587,000 of short-term investments with maturity terms between 4 and 12 months held inIndia . Of the$78.6 million in cash, restricted cash and short-term investments,$26.6 million was held inU.S. banks,$36.1 million was held inItaly ,$13.0 million was held inIndia with the remainder held in other banks. As ofDecember 31, 2021 , the Company had$90.0 million of cash and cash equivalents,$1.7 million of restricted cash and$6.2 million of short-term investments. Management currently plans to retain the cash in the jurisdictions where these funds are currently held. The consolidated balance sheets as ofDecember 31, 2022 includes total current assets of$173.0 million and total current liabilities of$117.0 million , resulting in net current assets of$56.1 million and a short-term net financial position of$62.8 million .Kaleyra finances its operations through a combination of cash generated from operations and from borrowings underKaleyra bank facilities primarily with banks located inItaly , as well as proceeds from equity offerings and convertible note arrangements.Kaleyra's long-term cash needs primarily include meeting debt service requirements, working capital requirements and capital expenditures.
72
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ability to generate cash from operations, obtain additional financing or
refinance existing short-term debt obligations, including those related to
acquisitions completed in prior periods. The amount of cash generated from
operations is dependent upon factors such as the successful execution of
OnFebruary 18, 2021 , and for the purposes of raising the cash portion of the consideration for the Merger,Kaleyra entered into the PIPE Subscription Agreements with thePIPE Investors and the Convertible Note Subscription Agreements with theConvertible Note Investors , pursuant to whichKaleyra agreed to issue$200 million in aggregate principal of Merger Convertible Notes. Subject to the terms of the Merger Convertible Notes,Kaleyra may opportunistically raise debt capital, subject to market and other conditions, to refinance its existing capital structure at a lower cost of capital and extend the maturity period of certain debt. Additionally,Kaleyra may also raise debt capital for strategic opportunities which may include acquisitions of additional companies, and general corporate purposes. If additional financing is required from outside sources,Kaleyra may not be able to raise it on terms acceptable to it or at all. IfKaleyra is unable to raise additional capital when desired,Kaleyra's business, operating results and financial condition may be adversely affected.Kaleyra has a number of long-standing business and banking relationships with major Italian commercial banks where it maintains both cash accounts and a credit relationship. Historically,Kaleyra has used cash generated from operations and other sources to fund its growth and investment opportunities. AsKaleyra's management made the decision to expand its operations outside ofItaly and acquire additional companies, it took on certain additional financing in order to fund cash payments due on the acquisitions. As ofDecember 31, 2022 ,Kaleyra's total bank and other borrowings, including amounts drawn under the revolving credit line facilities was$28.8 million ($38.7 million as ofDecember 31, 2021 ).Kaleyra has credit line facilities of$5.4 million as ofDecember 31, 2022 , of which$4.0 million has been used. As ofDecember 31, 2021 ,Kaleyra had credit line facilities of$6.7 million , of which$5.3 million had been used. Amounts drawn under the credit line facilities are collateralized by specific customer trade receivables and funds available under the line are limited based on eligible receivables.
Cash Flows
The following table summarizes cash flows for the periods indicated (in
thousands):
Year Ended December 31,
2022 2021Net cash provided by (used in) operating activities $ 690 $
(11,932 )
Net cash used in investing activities (5,911 ) (217,247 )
Net cash provided by (used in) financing activities (8,010 ) 289,605
Effect of exchange rate changes on cash, cash equivalents and restricted cash (491 ) (1,694 ) Net increase (decrease) in cash, cash equivalents and restricted cash$ (13,722 ) $
58,732
In the year endedDecember 31, 2022 , cash provided by operating activities was$690,000 , primarily consisting of a net loss of$98.5 million reduced by non-cash charges including$49.4 million of impairment on intangible assets,$23.5 million of depreciation and amortization expense and$21.2 million of non-cash compensation expense for stock-based compensation, partially offset by changes in operating assets and liabilities of$6.3 million . In the year endedDecember 31, 2021 , cash used in operating activities was$11.9 million , primarily consisting of net loss of$34.0 million and$7.5 million of net cumulative changes in operating assets and liabilities, adjusted for non-cash items, mainly including$15.0 million of depreciation and amortization expense,$20.0 million of non-cash compensation expense for stock-based compensation,$1.2 million of allowance for doubtful accounts,$1.3 million of non-cash interest expense, partially offset by$8.3 million of deferred tax benefit. In the year endedDecember 31, 2022 , cash used in investing activities was$5.9 million , primarily consisting of$8.1 million to fund the cost of internally developed software,$2.1 million of purchases of property and 73 -------------------------------------------------------------------------------- equipment,$1.2 million of purchases of short-term investments,$1.0 million of consideration paid for the Bandyer Acquisition, partially offset by$6.5 million of proceeds from sale of short-term investments. In the year endedDecember 31, 2021 , cash used in investing activities was$217.2 million , primarily consisting of$195.3 million of cash consideration paid for the acquisition of mGage,$13.3 million of cash consideration paid for the acquisition of Bandyer,$52.2 million of purchases of short-term investments,$5.2 million to fund cost of internally developed software and$1.9 million of purchases of property and equipment, partially offset by$50.7 million of proceeds from sale of short-term investments. In the year endedDecember 31, 2022 , cash used in financing activities was$8.0 million , primarily consisting of$9.2 million of repayments on term loans and$1.1 million of repayments on lines of credit, partially offset by$2.5 million on borrowings on term loans. In the year endedDecember 31, 2021 , cash provided by financing activities was$289.6 million , primarily consisting of$188.6 million of proceeds from issuance of convertible notes, net of issuance costs,$99.1 million of proceeds from issuance of common stock inPrivate Investment in Public Equity offering, net of issuance costs,$17.0 million of receipts related to forward share purchase agreements,$2.9 million in proceeds received from the exercise of common stock warrants,$1.2 million in proceeds related to the settlement of non-forfeited 2020 Sponsor Earnout Shares,$1.3 million of proceeds from borrowings on term loans and net drawings of$327,000 on the available lines of credit, partially offset by$7.7 million of repayments on term loans,$7.5 million of repayments on notes and$5.5 million in cash paid to repurchase warrants.
Off-Balance Sheet Arrangements
During the years endedDecember 31, 2022 and 2021,Kaleyra did not have any relationships with any entities or financial partnerships, such as structured finance or special purposes entities established for the purpose of facilitating off-balance sheet arrangements or for other purposes.
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.Kaleyra typically experiences higher revenues in messaging and notification services during the fourth calendar quarter. This patterned revenue generation behavior occurs due toKaleyra's customers sending more messages to their end-users 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.
Taxes
For the years endedDecember 31, 2022 and 2021,Kaleyra's consolidated effective tax rate was 4% and 18%, respectively. The change in the effective tax rate is primarily due to reductions in recorded deferred tax liabilities as a result of book impairments of intangible assets and changes in recorded valuation allowances. With the exception of post-acquisition losses occurring afterMay 31, 2021 , domestic net operating loss carryforwards and Internal Revenue Code ("IRC") Section 163(j) deferred interest deductions are subject to change in ownership limitations under IRC Section 382. As ofDecember 31, 2022 ,Kaleyra did not record taxes on undistributed earnings and profits generated by foreign subsidiaries as the Company has asserted permanent reinvestment of its offshore earnings. The Company has long-term plans to expand its overseas business and will continue to invest additional capital to meet those growth goals as needed. In doing so, all cash and unremitted earnings will be reinvested in foreign businesses. As ofDecember 31, 2022 , the Company has federal, state and foreign net operating loss carryforwards totaling$174.7 million ,$203.6 million and$33.6 million , respectively. If not utilized, federal net operating losses of$90.4 million will expire at various dates from 2032 through 2037, and$84.3 million federal net operating losses have indefinite lives. State net operating losses of$176.0 million will expire at various dates from 2023 through 2041, and$27.5 million state net operating losses have indefinite lives. Foreign net operating losses will expire at various dates from 2023 through 2027. 74 --------------------------------------------------------------------------------
Critical Accounting Policies and Estimates
The consolidated financial statements are prepared in accordance with US GAAP applicable for an "emerging growth company" as defined in the JOBS Act. The JOBS Act provides, among others, 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 consolidated financial statements,Kaleyra 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 except for ASU2020-06 and ASU 2017-04. InJanuary 2023 ,Kaleyra ceased to be an emerging growth company upon the end of fiscal year 2022, following the fifth anniversary of the IPO. Preparation of these financial statements requiresKaleyra to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures.Kaleyra bases the estimates on historical experience and on various other assumptions that it believes to be reasonable. In many instances,Kaleyra could have reasonably used different accounting estimates and in other instances changes in the accounting estimates are reasonably likely to occur from period to period. 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 disruptive effects of global inflation, the continuing impact of the novel strain of the coronavirus ("COVID-19") and the armed conflict betweenRussia andUkraine . To the extent that there are material differences between these estimates and actual results, the future financial statement presentation, financial condition, results of operations and cash flows will be affected.Kaleyra believes that the accounting policies discussed below are critical to understanding the historical and future performance, as these policies relate to the more significant areas involving judgments and estimates.
Refer to Note 2 - Summary of Significant Accounting Policies in the Company's
consolidated financial statements for more information relating
Business Combinations
Accounting for business combinations requires us to make significant estimates and assumptions, especially at the acquisition date with respect to tangible and intangible assets acquired and liabilities assumed. The Company uses its best estimates and assumptions to accurately assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date as well as the useful lives of those acquired intangible assets. Examples of critical estimates in valuing certain of the intangible assets and goodwill the Company has acquired include but are not limited to future expected cash flows from acquired developed technologies, existing customer relationships, uncertain tax positions and tax related provisions and valuation allowances and discount rates. Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results. The authoritative guidance allows a measurement period of the purchase price allocation that ends when the entity has obtained all relevant information about facts that existed at the acquisition date, and that cannot exceed one year from the date of acquisition. As a result, during the measurement period the Company may record adjustments to the fair values of assets acquired and liabilities assumed, with the corresponding offset to goodwill to the extent that it identifies adjustments to the preliminary purchase price allocation. Upon conclusion of the measurement period or final determination of the values of the assets acquired and liabilities assumed, whichever comes first, any subsequent adjustments will be recorded to the consolidated statements of operations.
Revenue Recognition
Kaleyra derives the revenue primarily from usage-based fees earned from the sale of communications services offered through Platforms access to customers and business partners across enterprises. Revenue can be billed in advance or in arrears depending on the term of the agreement; for the majority of customers revenue is invoiced on a monthly basis in arrears. The Company follows the provisions of Accounting Standards Codification 606, "Revenue from Contracts with Customers" ("ASC 606"). Among other things, ASC 606 requires entities to assess the products or services promised in contracts with customers at contract inception to determine the appropriate unit at which to record 75 -------------------------------------------------------------------------------- revenue, which is referred to as a performance obligation. Revenue is recognized when control of the promised products or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those products or services.
Revenue Recognition Policy
Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the considerationKaleyra expects to receive in exchange for those products or services.Kaleyra enters into contracts that can include various combinations of products and services, which are generally not capable of being distinct and are therefore accounted for as a series of distinct services under a single performance obligation in accordance with ASC 606-10-25-14 and ASC 606-10-25-15. Revenue is recognized net of allowances for any credits and any taxes collected from customers, which are subsequently remitted to governmental authorities.
•
Identification of the contract, or contracts, with a customer;
•
Identification of the performance obligations in the contract;
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Determination of the transaction price;
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Allocation of the transaction price to the performance obligations in the contract; and
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Recognition of revenue when, or as, the Company satisfies a performance obligation.
No significant judgments are required in determining whether products and services are considered distinct performance obligations and should be accounted for separately versus together, or to determine the stand-alone selling price.
Kaleyra'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.
Nature of Products and Services
Revenue is recognized upon the sending of a SMS or the connection of a voice call to the end-user of the Company's customer using the Company's Platforms in an amount that reflects the consideration the Company expects to receive from the Company's customers in exchange for those rendered services, which is generally based upon agreed fixed prices per unit. Platforms access services are 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. Subscription-based fees are derived from certain term-based contracts, such as with the sales of short code subscriptions 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.
Stock-Based Compensation
Kaleyra accounts for stock-based compensation in accordance with the authoritative guidance on stock compensation. Under the fair value recognition provisions of this guidance, stock-based compensation is measured at the grant date based on the fair value of the award and is recognized as expense, over the requisite service period, which is generally the vesting period of the respective award. As mentioned above, inNovember 2019 ,Kaleyra adopted its 2019 EIP. The EIP provides for the award of stock-based compensation. In 2022,Kaleyra granted RSUs to employees and directors of the Company for a total of 858,182 RSUs shares with an aggregate grant date fair value of$16.7 million , based on a per share weighted-average grant date fair value of$19.49 (on a post-reverse split basis). 76 --------------------------------------------------------------------------------
Restricted Stock Units
Kaleyra measures and recognizes the compensation expense for RSUs granted to employees and directors of the Company, based on the fair value of the award on the grant date. RSUs give an employee an interest in company stock but they have no tangible value until vesting is complete. RSUs are equity classified and measured at the fair market value of the underlying stock at the grant date and recognized as expense over the related service or performance period.Kaleyra elected to account for forfeitures as they occur. The fair value of stock awards is based on the quoted price ofKaleyra's common stock on the grant date. Compensation cost for RSUs is recognized using the straight-line method over the requisite service period.
Internal-Use Software Development Costs
Certain costs of the technology platform and other software applications developed for internal use are capitalized.Kaleyra capitalizes qualifying internal-use software development costs that are incurred during the application development stage of projects with a useful life greater than one year. Capitalization of costs begins when two criteria are met: (i) the preliminary project stage is completed, and (ii) it is probable that the software will be completed and used for its intended purpose. Capitalization ceases when the software is substantially complete and ready for its intended use, including the completion of all-significant testing. Costs related to specific upgrades and enhancements are also capitalized when it is probable the expenditures will result in additional functionality. Any costs incurred for maintenance and minor upgrades and enhancements are expensed. Costs related to preliminary project activities and post-implementation operating activities are expensed as incurred. Capitalized costs of the platform and other software applications are included in property and equipment. These costs are amortized over the estimated useful life of the software of three to five years on a straight-line basis. Management evaluates the useful life of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that could affect the recoverability of these assets. The amortization of costs related to the platform applications is included in cost of revenue, while the amortization of costs related to other software applications developed for internal use is included in research and development expenses.Kaleyra exercises judgment in determining the point at which various projects may be capitalized, in assessing the ongoing value of the capitalized costs and in determining the estimated useful lives over which the costs are amortized. To the extent that there is a change in the manner in whichKaleyra develops and tests new features and functionalities related to the platform, assesses the ongoing value of capitalized assets or determines the estimated useful lives over which the costs are amortized, the amount of internal-use software development costs capitalized and amortized could change in future periods.
Goodwill represents the excess of the aggregate purchase price over the fair value of net identifiable assets acquired in a business combination.Goodwill is not amortized and is tested for impairment on an annual basis or whenever events or changes in circumstances indicate that the carrying value may not be recoverable.Kaleyra has determined that it operates as three reporting units and has selectedDecember 31 as the date to perform its annual impairment test. In the valuation of goodwill, management must make assumptions regarding estimated future cash flows to be derived fromKaleyra's business. If these estimates or their related assumptions change in the future,Kaleyra may be required to record an impairment for these assets. Management may first evaluate qualitative factors to assess if it is more likely than not that the fair value of a reporting unit is less than its carrying amount and to determine if an impairment test is necessary. Management may choose to proceed directly to the evaluation, bypassing the initial qualitative assessment. The impairment test involves comparing the fair value of the reporting unit to which goodwill is allocated to its net book value, including goodwill. A goodwill impairment loss would be the amount by which a reporting unit's carrying value exceeds its fair value, however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. No goodwill impairment charges have been recorded for any period presented.
Recoverability of Long-Lived and Intangible Assets
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Recoverability of assets held and used is measured by a comparison of the
carrying amount of an asset or an asset group to estimated undiscounted future
net cash flows expected to be generated by the asset or asset group. If such
evaluation indicates that the carrying amount of the asset or the asset group is
not recoverable, any impairment loss would be equal to the amount the carrying
value exceeds the fair value. During the year ended December 31, 2022 ,
impairment charges of $29.3 million , $15.8 million and $4.3 million were
recorded in relation to customer relationships, developed technology and trade
name intangible assets, respectively. No impairment loss was recorded during the
year ended December 31, 2021 .
Recoverability of Deferred Tax Assets
The Company accounts for income taxes in accordance with the asset and liability approach method. Deferred tax assets and liabilities are recognized for future tax consequences attributable to temporary differences between the consolidated financial statements carrying amounts of existing assets and liabilities and their respective tax bases, as well as for operating loss and tax credit carryforwards. The Company's accounting for deferred taxes involves the evaluation of a number of factors concerning the realizability of its net deferred tax assets. The Company primarily considered such factors as its history of operating losses, the nature of the Company's deferred tax assets, and the timing, likelihood and amount, if any, of future taxable income during the periods in which those temporary differences and carryforwards become deductible. A valuation allowance reduces the deferred tax assets to the amount that is more likely than not to be realized.
Recent Accounting Pronouncements
Refer to Note 2 to the annual consolidated financial statements included elsewhere in this document for a discussion of recent accounting pronouncements not yet adopted.
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