KALTURA, INC. You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q, as well as our audited consolidated financial statements and related notes as disclosed in our prospectus, datedJuly 20, 2021 , filed with theSecurities and Exchange Commission ("SEC") in accordance with Rule 424(b) of the Securities Act onJuly 22, 2021 (the "Prospectus") in connection with our initial public offering ("IPO"). This discussion contains forward-looking statements based upon current plans, expectations and beliefs involving risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in Item II, Part 1A, "Risk Factors" and other factors set forth in other parts of this Quarterly Report on Form 10-Q.
Overview
Our mission is to power any video experience, for any organization. Our Video
Experience Cloud offers live, real-time, and on-demand video products, including
Video Portal, Town Halls, Video Messaging, Webinars, Virtual Events and
Meetings. We also offer specialized industry solutions, including LMS Video
(Learning Management System), Lecture Capture and Virtual Classroom for
educational institutions, as well as a TV Solution for media and telecom
companies. Underlying our products and solutions is a broad set of live,
real-time, and on-demand Media Services consisting of Application Programming
Interfaces ("APIs"), Software Development Kits ("SDKs"), and Experience
Components, as well as our Video and TV Content Management Systems. Our Media
Services are also used by other cloud platforms and companies to power video
experiences and workflows for their own products. Our Video Experience Cloud is
used by leading brands across all industries, reaching millions of users, at
home, at school and at work, for communication, collaboration, training,
marketing, sales, customer care, teaching, learning, and entertainment
experiences. With our flexible offerings, customers can experience the benefits
of video across a wide range of use cases, while customizing their deployments
to meet their individual, dynamic needs.
Our business was founded in 2006. We launched our Media Services and Video
Content Management System in 2008 and initially offered it as an Online Video
Platform for online publishers and media companies. Since then, we have
capitalized on our flexible and extendable platform architecture to expand into
new products, industry solutions, and use cases:
• 2009: Brought to market our LMS Video solution and began selling to
educational institutions
• 2011: Released our Video Portal product and started selling to enterprises
• 2013: Expanded into live video with the launch of our Town Halls product
• 2014: Launched our TV Content Management System for media and telecom
companies, following the acquisition of
OTT TV platform
• 2017: Launched our Lecture Capture solution
• 2018: Launched our Video Messaging product
• 2018: Acquired certain of the assets of
personalized video startup
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• 2020: Added real time conferencing capabilities to our Media Services
following the acquisition of Newrow, Inc. , a video conferencing and
collaboration platform
• 2020: Released our Webinars, Virtual Events and Meetings products, as well as
our Virtual Classroom and TV Solutions
We generate revenue primarily through the sale of SaaS and PaaS subscriptions,
and additional revenue from term license subscriptions. We also generate revenue
through the sale of professional services associated with the implementation of
deployments for new and existing customers.
We organize our business into two reporting segments: (i) Enterprise, Education,
and Technology ("EE&T"); and (ii) Media and Telecom ("M&T"). These segments
share a common underlying platform consisting of our API-based architecture, as
well as unified product development, operations, and administrative resources.
• Enterprise, Education & Technology: Includes revenues from all of our
products, industry solutions for education customers, and Media Services
(except for media and telecom customers), as well as associated professional
services for those offerings. These solutions are generally sold through our
EE&T sales teams. Subscription revenues are primarily generated on a per
full-time equivalent basis for on-demand and live products and solutions, per
host basis for real-time-conferencing products and solutions, and per
participant basis for the Virtual Events product (which intersects on-demand,
live, and real-time-conferencing video). Contracts are generally 12 to 24
months in length. Billing is primarily done on an annual basis. The average
time it takes to implement EE&T offerings ranges from three to six months.
• Media & Telecom: Includes revenues from our TV Solution and Media Services for
media and telecom customers, as well as associated professional services for
those offerings. These offerings are generally sold through our media and
telecom sales team. Revenues are generated on a per end-subscriber basis for
telecom customers, and on a per video play basis for media customers.
Contracts are generally two to five years in length. Billing is generally done
on a quarterly or annual basis. It generally takes from nine to 12 months to
implement M&T offerings. The upfront resources required for implementation of
our Media & Telecom solutions generally exceed those of our other offerings,
resulting in a longer period from initial booking to go-live and a higher
proportion of professional services revenue as a percentage of overall
revenue. Additionally, a higher proportion of revenue comes from customers
choose to license our offerings through private cloud and on-premise
deployments, which also impacts our gross margin. In the long-term, we expect
the margins for this segment to improve due to the following: increasing the
ratio of subscription revenue to professional services with scale, improved
efficiencies of both production and professional services costs, and an
increase in the proportion of revenues from media customers, which generally
entail simpler deployments compared to telecom customers.
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Reflected below is a summary of reportable segment revenue and reportable segment gross profit for the three and six months endedJune 30, 2021 and 2020. Three Months Ended Six Months Ended June 30, June 30, 2021 2020 2021 2020 (unaudited) (in thousands) Revenue Enterprise, Education & Technology$ 30,237 $ 18,781 $ 57,555 $ 35,168 Media & Telecom$ 11,366 $ 9,968 $ 21,761 $ 19,487 Total Revenue$ 41,603 $ 28,749 $ 79,316 $ 54,655 Gross Profit Enterprise, Education & Technology$ 21,151 $ 13,976 $ 39,900 $ 26,180 Media & Telecom$ 4,830 $ 3,985 $ 8,213 $ 7,271 Total Gross Profit$ 25,981 $ 17,961 $ 48,113 $ 33,451 We benefit from a land and expand strategy in which our customers increase their usage of our offerings and/or purchase additional offerings over time. Our ability to expand within our existing customer base is demonstrated by our Net Dollar Retention Rate. For the three months endedJune 30, 2021 , ourNet Dollar Retention Rate was 121%. We also grew our average annualized recurring revenue, or ARR, per customer by 27% fromJune 2020 toJune 2021 , demonstrating our ability to land new customers with higher spending levels and increase revenue from our existing customers.
For any given year, a large majority of our revenue comes from existing customers, with whom we are in active dialogue and tend to have visibility into their expected usage of our offerings.
We focus our selling efforts on large organizations and sell our solutions primarily through direct sales teams and account teams. We currently have four direct sales teams, grouped by offering type and target customers, and we leverage reseller relationships globally to help market and sell our products to customers worldwide, especially in areas in which we have a limited presence. We are investing in initiatives to more efficiently reach new customers and expand our partnerships with existing ones. For example, we recently launched the option to purchase our Webinars, Meetings and Virtual Classroom offerings directly from our website, allowing us to reduce our cost of customer acquisition, drive additional opportunities to our direct sales team, reach smaller customers, and broaden our target market.
Restatement of Consolidated Financial Statements
We have restated our previously issued consolidated financial statements as of and for the year endedDecember 31, 2020 . The determination to restate these financial statements was made by our management after its re-evaluation of theDecember 2020 estimate of the fair value of our common stock. See Note 20 to our consolidated financial statements included in the Prospectus. 3 --------------------------------------------------------------------------------
Impact of COVID-19
InDecember 2019 , an outbreak of the COVID-19 disease was first identified and began to spread across the globe. InMarch 2020 , theWorld Health Organization declared COVID-19 a pandemic, impacting many countries around the world, including where our end users and customers are located andthe United States ,Israel ,United Kingdom , andSingapore where we have larger business operations. As a result of the COVID-19 pandemic, government authorities around the world have ordered schools and businesses to close, imposed restrictions on non-essential activities and required people to remain at home while instilling significant limitations on traveling and social gatherings. In response to the pandemic, in the first quarter of 2020, we temporarily closed all of our offices, enabled our entire work force to work remotely and implemented travel restrictions for non-essential business. In the second quarter of 2020 we reopened select offices, however most of our employees continued to work remotely, a majority of whom continue to do so as of the date of this Quarterly Report on Form 10-Q. The changes we have implemented to date have not materially affected and are not expected to materially affect our ability to operate our business, including our financial reporting systems. In the second quarter of 2020, we experienced an increase in usage as people spent more time working and learning remotely due to the COVID-19 pandemic, thereby increasing demand from new and existing customers for our offerings and contributing to an acceleration in our revenue growth when compared to prior periods. However, in some cases because the agreements for certain of our solutions, primarily in education, do not limit usage or increase pricing for usage in excess of a specified amount, the additional usage that we experienced in 2020 did not result in a corresponding increase in revenue. Additionally, in order to meet the needs of our customers in 2020, we accelerated our existing plans to move from our own data centers to a public cloud infrastructure in order to provide required stability, reliability, scalability, and elasticity. The combination of the increase in usage for certain of our solutions as described above, along with the migration from our own data centers to a public cloud infrastructure, contributed to a decrease in gross margins in 2020 to 60% from 63% in 2019. We are still in the process of scaling our network infrastructure and anticipate incurring additional costs in 2021 related thereto, which will negatively impact our gross margins. Prior to the pandemic, the market demand for our solutions was growing at a robust rate, with numerous tailwinds for long-term growth, and that demand accelerated as a result of the pandemic. We believe that new and potential customers will continue to increase their use of video solutions across existing use cases such as remote working, teaching, marketing, and customer care, as well as nascent but growing use cases such as tele-services. While the potential economic impact brought by, and the duration of, any pandemic, epidemic, or outbreak of an infectious disease, including COVID-19 and its variants, is difficult to assess or predict, the widespread pandemic related to COVID-19 and its variants has resulted in, and may continue to result in, significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity.
For additional information, see "Risk Factors-Risks Related to Our Business and Industry-The ongoing COVID-19 pandemic could adversely affect our business, financial condition and results of operations."
Key Factors Affecting Our Performance
Expansion of our Platform
We believe our platform is ideally suited for expansion across solutions,
industries, and use cases. We have demonstrated this over time with the
expansion of our platform across products, industry solutions, and use cases.
For example, in 2020, we entered the real-time conferencing market with the
introduction of our Webinars and Meetings products, as well as our Virtual
Classroom industry solution, focused on learning, training, and marketing. We
believe these products present a significant long-term opportunity, and we
intend to harness our growing presence with them, among other recently
introduced offerings such as our Virtual Events product and our TV Solution.
Additionally, we will continue to invest in new video products for training,
communication and collaboration, sales, marketing, and customer care, as we
extend our platform into more industries. Following the success of our media &
telecom and education solutions, we intend to launch solutions for industries
such as telehealth, retail, government, and smart cities, among others. We also
intend to enhance our Media Services offerings with additional core capabilities
and invest in areas such as content creation, personalization and interactivity,
content aggregation and syndication, AI, and smart monetization. We also intend
to add these capabilities into our existing and new products and industry
solutions. Our results of operations may reflect sustained high levels of
investments to drive increased customer adoption and usage.
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--------------------------------------------------------------------------------Acquiring New Customers
We are focused on continuing to grow the number of customers that use our solutions. While over the last several years we have not materially increased our sales and marketing spend or number of direct sales representatives, we plan to increase our investment in sales and marketing in order to grow our customer base going forward. We intend to grow our base of field sales representatives and customer success managers, which we believe will drive both geographic and vertical expansion. Additionally, we are investing for the first time in inside sales and self-serve offerings and distribution channels. We believe this will enable us to efficiently acquire smaller customers across all industries - beyond enterprises into SMBs, beyond universities into K-12 schools, beyond tier 1 media and telecom companies to tier 2 and 3 media and telecom companies, and beyond providing Media Services to large technology companies to also addressing smaller technology firms and startups.
Increasing Revenue from Existing Customers
We believe we have the opportunity to increase sales within our existing customer base through increased usage of our platform and the cross-selling of additional products and solutions. For the three months endedJune 30, 2021 , our Net Dollar Retention Rate was 121%, demonstrating our ability to expand within our existing customer base. In order for us to continue to increase revenue within our customer base, we will need to maintain engineering-level customer support and continue to introduce new products and features as well as innovative new use cases that are tailored to our customers' needs.
Although we have invested significantly in our business to date, we believe that
we still have a significant market opportunity ahead of us. We intend to
continue to make investments to support the growth and expansion of our
business, to increase revenue, and to further scale our operations. We believe
there is a significant opportunity to continue our growth. We plan to open
offices internationally, hire sales and marketing employees in additional
countries, and expand our presence in countries where we already operate. We
expect to incur additional expenses as we expand to support this growth.
Further, we expect to incur additional general and administrative expenses in
connection with our transition to being a public company. We expect that our
cost of revenue and operating expenses will fluctuate over time.
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--------------------------------------------------------------------------------Key Financial and Operating Metrics
We measure our business using both financial and operating metrics. We use these
metrics to assess the progress of our business, make decisions on where to
allocate capital, time, and technology investments, and assess the near-term and
long-term performance of our business. The key financial and operating metrics
we use are:
For the Three Months Ended
June 30,
2021 2020
(dollar amounts in thousands)
Annualized Recurring Revenue $ 145,431 $ 99,642
Net Dollar Retention Rate 121 % 105 %
Remaining Performance Obligations $ 156,323
Annualized Recurring Revenue
We use Annualized Recurring Revenue as a measure of our revenue trend and an
indicator of our future revenue opportunity from existing recurring customer
contracts. We calculate ARR by annualizing our recurring revenue for the most
recently completed fiscal quarter. Recurring revenues are generated from SaaS
and PaaS subscriptions, as well as term licenses for software installed on the
customer's premises ("On-Prem"). For the SaaS and PaaS components, we calculate
ARR by annualizing the actual recurring revenue recognized for the latest fiscal
quarter. For the On-Prem components for which revenue recognition is not ratable
across the license term, we calculate ARR for each contract by dividing the
total contract value (excluding professional services) as of the last day of the
specified period by the number of days in the contract term and then multiplying
by 365. Recurring revenue excludes revenue from one-time professional services
and setup fees. ARR is not adjusted for the impact of any known or projected
future customer cancellations, upgrades or downgrades, or price increases or
decreases.
The amount of actual revenue that we recognize over any 12-month period is
likely to differ from ARR at the beginning of that period, sometimes
significantly. This may occur due to new bookings, cancellations, upgrades or
downgrades, pending renewals, professional services revenue, and acquisitions or
divestitures. ARR should be viewed independently of revenue as it is an
operating metric and is not intended to be a replacement or forecast of revenue.
Our calculation of ARR may differ from similarly titled metrics presented by
other companies.
Net Dollar Retention Rate
Our Net Dollar Retention Rate, which we use to measure our success in retaining
and growing recurring revenue from our existing customers, compares our
recognized recurring revenue from a set of customers across comparable periods.
We calculate our Net Dollar Retention Rate for a given period as the recognized
recurring revenue from the latest reported fiscal quarter from the set of
customers whose revenue existed in the reported fiscal quarter from the prior
year (the numerator), divided by recognized recurring revenue from such
customers for the same fiscal quarter in the prior year (denominator). For
annual periods, we report Net Dollar Retention Rate as the arithmetic average of
the Net Dollar Retention Rate for all fiscal quarters included in the period. We
consider subdivisions of the same legal entity (for example, divisions of a
parent company or separate campuses that are part of the same state university
system) to be a single customer for purposes of calculating our Net Dollar
Retention Rate. Our calculation of Net Dollar Retention Rate for any fiscal
period includes the positive recognized recurring revenue impacts of selling new
services to existing customers and the negative recognized recurring revenue
impacts of contraction and attrition among this set of customers. Our Net Dollar
Retention Rate may fluctuate as a result of a number of factors, including the
growing level of our revenue base, the level of penetration within our customer
base, expansion of products and features, and our ability to retain our
customers. Our calculation of Net Dollar Retention Rate may differ from
similarly titled metrics presented by other companies.
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--------------------------------------------------------------------------------Remaining Performance Obligations
Remaining Performance Obligations represents the amount of contracted future revenue that has not yet been delivered, including both subscription and professional services revenues. Remaining Performance Obligations consists of both deferred revenue and contracted non-cancelable amounts that will be invoiced and recognized in future periods. As ofJune 30, 2021 , our Remaining Performance Obligations was$156.0 million , which consists of both billed consideration in the amount of$61.0 million and unbilled consideration in the amount of$95.0 million that we expect to invoice and recognize in future periods. We expect to recognize 65% of our Remaining Performance Obligations as revenue over the next 12 months and the remainder thereafter, in each case, in accordance with our revenue recognition policy.
Non-GAAP Financial Measures
In addition to our results determined in accordance with GAAP, we believe that Adjusted EBITDA, a non-GAAP financial measure, is useful in evaluating the performance of our business.
We define EBITDA as net profit (loss) before interest expense, net, provision for income taxes and depreciation and amortization expense. Adjusted EBITDA is defined as EBITDA (as defined above), adjusted for the impact of certain non-cash and other items that we believe are not indicative of our core operating performance, such as non-cash stock-based compensation expenses. Adjusted EBITDA is a supplemental measure of our performance, is not defined by or presented in accordance with GAAP, and should not be considered in isolation or as an alternative to net profit (loss) or any other performance measure prepared in accordance with GAAP. Adjusted EBITDA is presented because we believe that it provides useful supplemental information to investors and analysts regarding our operating performance and is frequently used by these parties in evaluating companies in our industry. By presenting Adjusted EBITDA, we provide a basis for comparison of our business operations between periods by excluding items that we do not believe are indicative of our core operating performance. We believe that investors' understanding of our performance is enhanced by including this non-GAAP financial measure as a reasonable basis for comparing our ongoing results of operations. Additionally, our management uses Adjusted EBITDA as a supplemental measure of our performance because it assists us in comparing the operating performance of our business on a consistent basis between periods, as described above.
Although we use EBITDA and Adjusted EBITDA, as described above, EBITDA and Adjusted EBITDA, have significant limitations as analytical tools. Some of these limitations include:
• such measures do not reflect our cash expenditures, or future requirements for
capital expenditures or contractual commitments;
• such measures do not reflect changes in, or cash requirements for, our working
capital needs;
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• such measures do not reflect the interest expense, or the cash requirements
necessary to service interest or principal payments on our debt;
• such measures do not reflect our tax expense or the cash requirements to pay
our taxes;
• although depreciation and amortization expense and non-cash stock-based
compensation expense are non-cash charges, the assets being depreciated and
amortized will often have to be replaced in the future and such measures do
not reflect any cash requirements for such replacements; and
• other companies in our industry may calculate such measures differently than
we do, thereby further limiting their usefulness as comparative measures.
Due to these limitations, EBITDA and Adjusted EBITDA should not be considered as measures of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our GAAP results and using non-GAAP measures only supplementally. Adjusted EBITDA includes an adjustment for non-cash stock-based compensation expenses. It is reasonable to expect that this item will occur in future periods. However, we believe this adjustment is appropriate because the amount recognized can vary significantly from period to period, does not directly relate to the ongoing operations of our business, and complicates comparisons of our internal operating results between periods and with the operating results of other companies over time. Each of the normal recurring adjustments and other adjustments described above help to provide management with a measure of our core operating performance over time by removing items that are not related to day-to-day operations. Nevertheless, because of the limitations described above, management does not view Adjusted EBITDA in isolation and also uses other measures, such as revenue, operating loss, and net loss, to measure operating performance.
Components of Our Results of Operations
Revenue
Subscriptions
Our revenues are mainly comprised of revenue from SaaS and PaaS subscriptions.
SaaS and PaaS subscriptions provide access to our Video Experience Cloud which
powers all types of video experiences: live, real-time, and on-demand video. We
provide access to our platform either as a cloud-based service, which represent
most of our SaaS and PaaS subscriptions, or, less commonly, as a term license to
software installed on the customer's premises. Revenue from SaaS and PaaS
subscriptions is recognized ratably over the time of the subscription, beginning
from the date on which the customer is granted access to our Video Experience
Cloud. Revenue from the sale of a term license is recognized at a point in time
in which the license is delivered to the customer. Revenue from post-contract
services included in On-Prem projects is recognized ratably over the time of the
post-contract services.
Professional Services
Our revenue also includes professional services, which consist of consulting,
integration and customization services, technical solution services and training
related to our video experience. In some of our arrangements, professional
services are accounted for as a separate performance obligation, and revenue is
recognized upon rendering the service. In some of our SaaS and PaaS
subscriptions, we determined that the professional services are solely set up
activities that do not transfer goods or services to the customer and therefore
are not accounted for as a separate performance obligation and are recognized
ratably over the time of the subscription.
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--------------------------------------------------------------------------------Cost of Revenue
Cost of subscriptions and professional services revenues primarily consist of costs related to supporting and hosting our product offerings and delivering our professional services. These costs include salaries, benefits, incentive compensation and stock-based compensation expenses related to the management of our data centers, our customer support team, and our professional services staff. In addition to these expenses, we incur third-party service provider costs, such as cloud infrastructure, data center and content delivery network expenses, rent expenses, depreciation expenses, and amortization of acquired intangible assets. We allocate overhead costs such as rent, utilities, and supplies to all departments based on relative headcount. The costs associated with providing professional services are significantly higher as a percentage of related revenue than the costs associated with delivering our subscriptions due to the labor costs of providing professional services. As such, the implementation and professional services costs relating to an arrangement with a new customer are more significant than the costs to renew an existing customer's license and support arrangement.
Cost of revenue increased in absolute dollars from the three and six months
ended
Gross Margins
Gross margins have been and will continue to be affected by a variety of factors, including the average sales price of our products and services, volume growth, the mix of revenue between SaaS and PaaS subscriptions, software licenses, maintenance and support and professional services, onboarding of new media and telecom customers, hosting of major Virtual Events and changes in cloud infrastructure and personnel costs. In particular, the gross margins in our M&T segment are negatively impacted due to the resources required for implementation of our Media Services for TV experiences, which generally exceed those of our other offerings, resulting in a longer period from initial booking to go-live and a higher proportion of professional services revenue as a percentage of overall revenue. Additionally, a higher proportion of revenue comes from customerswho choose to license our offerings through private cloud and on-premise deployments, which also impacts our gross margin. In the long-term, we expect the margins for this segment to improve due to the following: increasing the ratio of subscription revenue to professional services with scale, improved efficiencies of both production and professional services costs, and an increase in the proportion of revenues from media customers, which generally entail simpler deployments compared to telecom customers. However, in the near and medium term, our gross margins in our M&T segment will vary from period to period based on the onboarding of new customers, as well as the timing and aggregate usage of our solutions by such customers. For the three months endedJune 30, 2021 and 2020, our gross margins were 62% (73% for subscriptions and (9)% for professional services) and 62% (75% for subscriptions and (17)% for professional services), respectively. For the six months endedJune 30, 2021 and 2020, our gross margins were 61% (71% for subscriptions and (8)% for professional services) and 61% (75% for subscriptions and (41)% for professional services), respectively. For our EE&T segment, gross margins for the three months endedJune 30, 2021 and 2020 were 70% (76% for subscriptions and 13% for professional services) and 74% (83% for subscriptions and (71)% for professional services), respectively, and gross margins for the six months endedJune 30, 2021 and 2020 were 69% (76% for subscriptions and 19% for professional services) and 74% (84% for subscriptions and (130)% for professional services), respectively. For our M&T segment, gross margins for the three months endedJune 30, 2021 and 2020 were 42% (61% for subscriptions and (41)% for professional services) and 40% (54% for subscriptions and 3% for professional services), respectively, and gross margins for the six months endedJune 30, 2021 and 2020 were 38% (58% for subscriptions and (49)% for professional services) and 37% (53% for subscriptions and (11)% for professional services), respectively. In the second quarter of 2020, we experienced an increase in usage as people spent more time working and learning remotely due to the COVID-19 pandemic, thereby increasing demand from new and existing customers for our offerings and contributing to an acceleration in our revenue growth when compared to prior periods. However, in some cases because the agreements for certain of our solutions, primarily in education, do not limit usage or increase pricing for usage in excess of a specified amount, the additional usage that we experienced in 2020 did not result in a corresponding increase in revenue. Additionally, in order to meet the needs of our customers in 2020, we accelerated our existing plans to move from our own data centers to a public cloud infrastructure in order to provide required stability, reliability, scalability, and elasticity. The combination of the increase in usage for certain of our solutions as described above, along with the migration from our own data centers to a public cloud infrastructure, contributed to a decrease in gross margins in 2020 to 60% from 63% in 2019. We are still in the process of scaling our network infrastructure and anticipate incurring additional costs in 2021 related thereto, which will negatively impact our gross margins. 9 --------------------------------------------------------------------------------
Operation Expenses
Research and Development
Our research and development expenses consist primarily of costs incurred for personnel-related expenses for our technical staff, including salaries and other direct personnel-related costs. Additional expenses include consulting and professional fees for third-party development resources. We expect our research and development expenses to increase in absolute dollars for the foreseeable future as we continue to dedicate substantial resources to develop, improve, and expand the functionality of our solutions. We also anticipate that research and development expenses will increase as a percentage of revenue in the near and medium-term. Subsequent costs incurred for the development of future upgrades and enhancements, which are expected to result in additional functionality, may qualify for capitalization under internal-use software and therefore may cause research and development expenses to fluctuate.
Selling and Marketing Expenses
Our selling and marketing expenses consist primarily of personnel related costs for our sales and marketing functions, including salaries and other direct personnel-related costs. Additional expenses include marketing program costs and amortization of acquired customer relationships intangible assets. We expect our selling and marketing expenses will increase on an absolute dollar basis for the foreseeable future as we continue to increase investments to support our growth. We also anticipate that selling and marketing expenses will increase as a percentage of revenue in the near and medium-term.
General and Administrative Expenses
Our general and administrative expenses consist primarily of personnel-related costs for our executive, finance, human resources, information technology, and legal functions, including salaries and other direct personnel-related costs. We expect general and administrative expense to increase on an absolute dollar basis for the foreseeable future as we continue to increase investments to support our growth and as a result of our becoming a public company. We also anticipate that general and administrative expenses will increase as a percentage of revenue in the near and medium-term.
We allocate overhead costs such as rent, utilities, and supplies to all departments based on relative headcount to each operating expense category.
Financial Expenses, Net
Financial expenses, net consists of interest expense accrued or paid on our
indebtedness and the change in the fair value of warrants to purchase the
Company's preferred and common stock, net of interest income earned on our cash
balances. Financial expenses, net also includes foreign exchange gains and
losses. We expect interest expenses to vary each reporting period depending on
the amount of outstanding indebtedness and prevailing interest rates.
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--------------------------------------------------------------------------------We expect interest income will vary in each reporting period depending on our average cash balances during the period and applicable interest rates.
Upon the closing of our IPO, warrants to purchase preferred and common stock were converted to common stock and therefore, no fair value remeasurements are expected with respect to such warrants in future periods occurring after the closing of our IPO. Refer to Note 15 of the notes to our unaudited condensed consolidated financial statements included in this Form 10-Q for further information regarding the impact resulted from the remeasurement of the warrants prior to conversion. Provision for Income Taxes We are subject to taxes inthe United States as well as other tax jurisdictions or countries in which we conduct business. Earnings from our non-U.S. activities are subject to local country income tax and may be subject to currentU.S. income tax. Due to cumulative losses, we maintain a valuation allowance against our deferred tax assets. We consider all available evidence, both positive and negative, in assessing the extent to which a valuation allowance should be applied against our deferred tax assets. Realization of ourU.S. deferred tax assets depends upon future earnings, the timing and amount of which are uncertain. Our effective tax rate is affected by tax rates in foreign jurisdictions and the relative amounts of income we earn in those jurisdictions, as well as non-deductible expenses, such as share-based compensation, and changes in our valuation allowance.
Results of Operations
The following tables summarize key components of our results of operations for
the periods presented. The period-to-period comparisons of our historical
results are not necessarily indicative of the results that may be expected in
the future.
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Three Months Ended Six Months Ended
June 30, Period-over-Period Change June 30, Period-over-Period Change
2021 2020 Dollar Percentage 2021 2020 Dollar Percentage
(unaudited) (unaudited)
(in thousands, except percentages)
Revenue:
Enterprise, Education
& Technology $ 30,237 $ 18,781 $ 11,456 61 % $ 57,555 $ 35,168 $ 22,387 64 %
Media & Telecom 11,366 9,968 1,398 14 % 21,761 19,487 2,274 12 %
Total revenue 41,603 28,749 12,854 45 % 79,316 54,655 24,661 45 %
Cost of revenue 15,622 10,788 4,834 45 % 31,203 21,204 9,999 47 %
Total gross
profit 25,981 17,961 8,020 45 % 48,113 33,451 14,662 44 %
Operating expenses:
Research and
development 11,787 6,489 5,298 82 % 22,687 13,268 9,419 71 %
Selling and marketing 10,524 6,521 4,003 61 % 20,685 14,800 5,885 40 %
General and
administrative 9,440 3,828 5,612 147 % 17,387 8,183 9,204 112 %
Other operating
expenses 1,724 1,724
Total operating
expenses 31,751 16,838 14,913 89 % 62,483 36,251 26,232 72 %
Operating income
(loss) (5,770 ) 1,123 (6,893 ) (614 )% (14,370 ) (2,800 ) (11,570 ) 413 %
Financial (income)
expenses, net (4,497 ) 11,575 16,072 139 % 653 11,284 (10,631 ) (94 )%
Loss before provision
for income taxes 1,273 10,452 (9,179 ) (88 )% 15,023 14,084 939 7 %
Provision for income
taxes 1,446 554 892 161 % 3,252 1,906 1,346 71 %
Net loss $ 2,719 $ 11,006 $ (8,287 ) (75 )% $ 18,275 $ 15,990 $ 2,285 14 %
Segments
We manage and report operating results through two reportable segments:
• Enterprise, Education & Technology (73% and 65% of revenue for the three
months ended
for the six months ended
segment represents revenues from all of our products, industry solutions for
education customers, and Media Services (except for M&T customers), as well as
associated professional services for those offerings.
12--------------------------------------------------------------------------------
• Media & Telecom (27% and 35% of revenue for the three months ended
2021 and 2020, respectively, and 27% and 36% of revenue for the six months
ended
represents revenues from our TV Solution and Media Services sold to media and
telecom customers.
Comparison of the Three Months Ended
Enterprise, Education & Technology
The following table presents our EE&T segment revenue and gross profit (loss)
for the periods indicated:
Three Months Ended
June 30, Period-over-Period Change
2021 2020 Dollar Percentage
(in thousands, except percentages)
Enterprise, Education & Technology
revenue:
Subscription revenue $ 27,197 $ 17,751 $ 9,446 53 %
Professional services revenue 3,040 1,030 2,010 195 %
Total Enterprise, Education & Technology
revenue $ 30,237 $ 18,781 $ 11,456 61 %
Enterprise, Education & Technology gross
profit:
Subscription gross profit $ 20,765 $ 14,705 $ 6,060 41 %
Professional services gross profit
(loss) 386 (729 ) 1,115 153 %
Total Enterprise, Education & Technology
gross profit $ 21,151 $ 13,976 $ 7,175 51 %
Enterprise, Education & Technology Revenue
Total EE&T revenue increased by$11.5 million , or 61%, to$30.2 million for the three months endedJune 30, 2021 , from$18.8 million for the three months endedJune 30, 2020 . Approximately$7.4 million of this increase was attributable to revenue from new customers, and the remaining$4.1 million was attributable to growth from existing customers.
EE&T subscription revenue increased by
EE&T professional services revenue increased by
13
--------------------------------------------------------------------------------Enterprise, Education & Technology Gross Profit
EE&T gross profit increased by$7.2 million , or 51%, to$21.2 million for the three months endedJune 30, 2021 , from$14.0 million for the three months endedJune 30, 2020 . This increase was mainly due to the$11.5 million increase in revenue, offset by a 4% decrease in gross margin to 70% for the three months endedJune 30, 2021 from 74% for the three months endedJune 30, 2020 . The decrease in gross margin was attributable primarily to an increase in cloud-related costs and third-party solutions driven by higher consumption and our migration to a public cloud infrastructure, as further described above under "-Components of our Results of Operations-Gross Margins."
EE&T subscription gross profit increased by
EE&T professional services gross profit increased by
Media & Telecom
The following table presents our M&T segment revenue and gross profit for the
periods indicated:
Three Months Ended
June 30, Period-over-Period Change
2021 2020 Dollar Percentage
(in thousands, except percentages)
Media & Telecom revenue:
Subscription revenue $ 9,270 $ 7,218 $ 2,052 28 %
Professional services revenue 2,096 2,750 (654 ) (24 )%
Total Media & Telecom revenue $ 11,366 $ 9,968 $ 1,398 14 %
Media & Telecom gross profit:
Subscription gross profit $ 5,683 $ 3,912 $ 1,771 45 %
Professional services gross profit
(loss) (853 ) 73 (926 ) (1,268 )%
Total Media & Telecom gross profit
845 21 %
Media & Telecom Revenue
M&T revenue increased by $1.4 million , or 14%, to $11.4 million for the three
months ended June 30, 2021 , from $10.0 million for the three months ended June
30, 2020 . Approximately $0.8 million of this increase was attributable to
revenue from new customers, and the remaining $0.6 million was attributable to
growth from existing customers.
M&T subscription revenue increased by $2.1 million , or 28%, to $9.3 million for
the three months ended June 30, 2021 , from $7.2 million for the three months
ended June 30, 2020 .
M&T professional services revenue decreased by
14
--------------------------------------------------------------------------------Media & Telecom Gross Profit
M&T gross profit increased by$0.8 million , or 21%, to$4.8 million for the three months endedJune 30, 2021 , from$4.0 million for the three months endedJune 30, 2020 . This increase was mainly due to the$1.4 million increase in revenue and the 3% increase in gross margin to 43% for the three months endedJune 30, 2021 , compared to 40% for the three months endedJune 30, 2020 .
M&T subscription gross profit increased by
M&T professional services gross loss increased by$ 0.9 million , or 1,268%, to$(0.8) million for the three months endedJune 30, 2021 , from a gross profit of$0.1 million for the three months endedJune 30, 2020 .
Operating Expenses
Research and Development expenses
Three Months Ended
June 30 , Period-over-Period Change
2021 2020 Dollar Percentage
(in thousands, except percentages)
Employee compensation $ 9,610 $ 4,998 $ 4,612 92 %
Subcontractors and Consultants 901 901 - - %
Other 1,276 590 686 116 %
Total research and development expenses
5,298 82 %
Research and development expenses increased by $5.3 million , or 82%, to $11.8
million for the three months ended June 30, 2021 , from $6.5 million for the
three months ended June 30, 2020 . The increase was primarily due to a $4.6
million increase in compensation which mainly related to higher headcount and
increased stock-based compensation expenses.
15
--------------------------------------------------------------------------------Selling and Marketing expenses
Three Months Ended
June 30, Period-over-Period Change
2021 2020 Dollar Percentage
(in thousands, except percentages)
Employee compensation & commission $ 8,903 $ 5,491 $ 3,412 62 %
Marketing expenses 812 373 439 118 %
Travel and entertainment 28 47 (19 ) (40 )%
Other 781 610 171 28 %
Total selling and marketing expenses
4,003 61 %
Selling and marketing expenses increased by
General & Administrative
Three Months Ended
June 30, Period-over-Period Change
2021 2020 Dollar Percentage
(in thousands, except percentages)
Employee compensation $ 7,188 $ 2,753 $ 4,435 161 %
Professional fees and insurance 793 348 445 128 %
Travel and entertainment 40 9 31 344 %
Other 1,419 718 701 98 %
Total general and administrative expenses
5,612 147 %
General and administrative expenses increased by
16
--------------------------------------------------------------------------------Financial Expenses (income), net
Financial expenses (income), net decreased by$16.1 million , or 139% to$(4.5) million for the three months endedJune 30, 2021 , from$11.6 million for the three months endedJune 30, 2020 . The decrease was primarily due to a$16.6 million in remeasurement of warrants to fair value, partially offset by an increase of$0.7 million related to exchange rate fluctuations in the foreign currency. Provision for Income Taxes Provision for income taxes increased by$ 0.9 million , or 161%, to$1.4 million for the three months endedJune 30, 2021 , from$0.6 million for the three months endedJune 30, 2020 , primarily due to increased tax liability related to income generated by our subsidiaries organized under the laws ofIsrael and theUnited Kingdom .
Comparison of the Six Months Ended
Enterprise, Education & Technology
The following table presents our EE&T segment revenue and gross profit (loss)
for the periods indicated:
Six Months Ended
June 30, Period-over-Period Change
2021 2020 Dollar Percentage
(in thousands, except percentages)
Enterprise, Education & Technology
revenue:
Subscription revenue $ 51,167 $ 33,523 $ 17,644 53 %
Professional services revenue 6,388 1,645 4,743 288 %
Total Enterprise, Education & Technology
revenue $ 57,555 $ 35,168 $ 22,387 64 %
Enterprise, Education & Technology gross
profit:
Subscription gross profit $ 38,696 $ 28,320 $ 10,376 37 %
Professional services gross profit
(loss) 1,204 (2,140 ) 3,344 156 %
Total Enterprise, Education & Technology
gross profit $ 39,900 $ 26,180 $ 13,720 52 %
Enterprise, Education & Technology Revenue
Total EE&T revenue increased by$22.4 million , or 64%, to$57.6 million for the six months endedJune 30, 2021 , from$35.2 million for the six months endedJune 30, 2020 . Approximately$13.5 million of this increase was attributable to revenue from new customers, and the remaining$8.9 million was attributable to growth from existing customers. EE&T subscription revenue increased by$17.6 million , or 53%, to$51.1 million for the six months endedJune 30, 2021 , from$33.5 million for the six months endedJune 30, 2020 . EE&T professional services revenue increased by$4.8 million , or 288%, to$6.4 million for the six months endedJune 30, 2021 , from$1.6 million for the six months endedJune 30, 2020 . 17 --------------------------------------------------------------------------------
Enterprise, Education & Technology Gross Profit
EE&T gross profit increased by$13.7 million , or 52%, to$39.9 million for the six months endedJune 30, 2021 , from$26.2 million for the six months endedJune 30, 2020 . This increase was mainly due to the$22.4 million increase in revenue, offset in part by a 5% decrease in gross margin to 69% for the six months endedJune 30, 2021 from 74% for the six months endedJune 30, 2020 . The decrease in gross margin was attributable primarily to an increase in cloud-related costs and third-party solutions driven by higher consumption and our migration to a public cloud infrastructure, as further described above under "-Components of our Results of Operations-Gross Margins."
EE&T subscription gross profit increased by
EE&T professional services gross profit increased by$3.3 million , or 156%, to$1.2 million for the six months endedJune 30, 2021 , from a gross loss of$(2.1) million for the six months endedJune 30, 2020 .
Media & Telecom
The following table presents our M&T segment revenue and gross profit for the
periods indicated:
Six Months Ended
June 30, Period-over-Period Change
2021 2020 Dollar Percentage
(in thousands, except percentages)
Media & Telecom revenue:
Subscription revenue $ 17,641 $ 14,650 $ 2,991 20 %
Professional services revenue 4,120 4,837 (717 ) (15 )%
Total Media & Telecom revenue $ 21,761 $ 19,487 $ 2,274 12 %
Media & Telecom gross profit:
Subscription gross profit $ 10,218 $ 7,817 $ 2,401 31 %
Professional services gross loss (2,005 ) (546 ) (1,459 ) 267 %
Total Media & Telecom gross profit
942 13 %
18--------------------------------------------------------------------------------
Media & Telecom Revenue
M&T revenue increased by$2.3 million , or 12%, to$21.8 million for the six months endedJune 30, 2021 , from$19.5 million for the six months endedJune 30, 2020 . Approximately$1.3 million of this increase was attributable to revenue from new customers, and the remaining$1.0 million was attributable to growth from existing customers. M&T subscription revenue increased by$3.0 million , or 20%, to$17.6 million for the six months endedJune 30, 2021 , from$14.6 million for the six months endedJune 30, 2020 . M&T professional services revenue decreased by$0.7 million , or 15%, to$4.1 million for the six months endedJune 30, 2021 , from$4.8 million for the six months endedJune 30, 2020 .
Media & Telecom Gross Profit
M&T gross profit increased by$0.9 million , or 13%, to$8.2 million for the six months endedJune 30, 2021 , from$7.3 million for the six months endedJune 30, 2020 . This increase was mainly due to the$2.3 million increase in revenue.
M&T subscription gross profit increased by
M&T professional services gross loss increased by
Operating Expenses
Research and Development expenses
Six Months Ended
June 30 , Period-over-Period Change
2021 2020 Dollar Percentage
(in thousands, except percentages)
Employee compensation $ 18,559 $ 10,364 $ 8,195 79 %
Subcontractors and Consultants 1,792 1,543 249 16 %
Other 2,336 1,361 975 72 %
Total research and development expenses
9,419 71 %
Research and development expenses increased by $9.4 million , or 71%, to $22.7
million for the six months ended June 30, 2021 , from $13.3 million for the six
months ended June 30, 2020 . The increase was primarily due to a $8.2 million
increase in compensation mainly related to higher headcount and to stock-based
compensation expenses.
19
--------------------------------------------------------------------------------Selling and Marketing expenses
Six Months Ended
June 30 , Period-over-Period Change
2021 2020 Dollar Percentage
(in thousands, except percentages)
Employee compensation & commission $ 17,553 $ 10,826 $ 6,727 62 %
Marketing expenses 1,506 2,317 (811 ) (35 )%
Travel and entertainment 67 392 (325 ) (83 )%
Other 1,559 1,265 294 23 %
Total selling and marketing expenses
5,885 40 %
Selling and marketing expenses increased by $5.9 million , or 40%, to $20.7
million for the six months ended June 30, 2021 , from $14.8 million for the six
months ended June 30, 2020 . The increase was primarily due to a $5.7 million
increase in compensation related to higher headcount and a $1.0 million increase
in amortization of deferred commission expenses driven by higher bookings. The
increase was partially offset by a $0.8 million decrease in marketing expenses
mainly due to a large in-person customer conference that took place in the six
months ended June 30, 2020 while a similar event was not held in the six months
ended June 30, 2021 , and a $0.3 million decrease in travel and entertainment
expenses due to the ongoing COVID-19 pandemic.
General and Administrative expenses
Six Months Ended
June 30 , Period-over-Period Change
2021 2020 Dollar Percentage
(in thousands, except percentages)
Employee compensation $ 13,736 $ 5,883 $ 7,853 133 %
Professional fees and insurance 1,165 634 531 84 %
Travel and entertainment 52 134 (82 ) (61 )%
Other 2,434 1,532 902 59 %
Total general and administrative expenses
9,204 112 %
20-------------------------------------------------------------------------------- General and administrative expenses increased by$9.2 million , or 112%, to$17.4 million for the six months endedJune 30, 2021 , from$8.2 million for the six months endedJune 30, 2020 . The increase was primarily due to a$7.9 million increase in compensation related to stock-based compensation expense and higher headcount. Other Operating Expenses Other operating expenses were$1.7 million during the six months endedJune 30, 2021 and mainly related to the forgiveness of loans to certain of our directors and executive officers immediately prior to the public filing of the registration statement for our IPO, including related tax gross-up amounts payable by us to such directors and executive officers. We did not incur other operating expenses during the six months endedJune 30, 2020 .
Financial Expenses (Income), net
Financial expenses, net decreased by$10.6 million , or 94%, to$0.7 million for the six months endedJune 30, 2021 , from$11.3 million for the six months endedJune 30, 2020 . The decrease was primarily due to a$11.8 million in remeasurement of warrants to fair value, partially offset by an increase of$1.3 million related to exchange rate fluctuations in foreign currency.
Provision for Income Taxes
Provision for income taxes increased by$1.3 million , or 71%, to$3.2 million for the six months endedJune 30, 2021 , from$1.9 million for the six months endedJune 30, 2020 . primarily due to increased tax liability related to income generated by our subsidiaries organized under the laws ofIsrael and theUnited Kingdom .
Liquidity and Capital Resources
Overview
Since our inception, we have financed our operations primarily through net cash provided by operating activities, equity issuances, and borrowings under our long-term debt arrangements. Our primary requirements for liquidity and capital are to finance working capital, capital expenditures and general corporate purposes. Our principal sources of liquidity are expected to be our cash and borrowings available under our Revolving Credit Facility. As ofJune 30, 2021 , we had approximately$22.4 million of borrowings outstanding under the Revolving Credit Facility (net of$0.1 million of unamortized issuance costs) and approximately$12.5 million of additional borrowings available thereunder. We believe that our net cash provided by operating activities, cash on hand and availability under our Revolving Credit Facility will be adequate to meet our operating, investing, and financing needs for at least the next 12 months. Our future capital requirements will depend on many factors, including our revenue growth, the timing and extent of investments to support such growth, the expansion of sales and marketing activities, increases in general and administrative costs and many other factors as described under "Risk Factors" and "-Key Factors Affecting Our Performance." If necessary, we may borrow funds under our Revolving Credit Facility to finance our liquidity requirements, subject to customary borrowing conditions. To the extent additional funds are necessary to meet our long-term liquidity needs as we continue to execute our business strategy, we anticipate that they will be obtained through the incurrence of additional indebtedness, additional equity financings or a combination of these potential sources of funds; however, such financing may not be available on favorable terms, or at all. In particular, the widespread pandemic related to COVID-19 and its variants has resulted in, and may continue to result in, significant disruption of global financial markets, reducing our ability to access capital. If we are unable to raise additional funds when desired, our business, financial condition and results of operations could be adversely affected. 21 --------------------------------------------------------------------------------
Credit Facilities
InJanuary 2021 , we entered into a new credit agreement (as amended, the "Credit Agreement") with one of our existing lenders, which provides for a new senior secured term loan facility in the aggregate principal amount of$40.0 million (the "Term Loan Facility") and a new senior secured revolving credit facility in the aggregate principal amount of$10.0 million (the "Revolving Credit Facility" and, together with the Term Loan Facility, the "Credit Facilities"). InJune 2021 , we entered into an amendment to the Credit Agreement (the "First Amendment") to, among other things, increase commitments under the Revolving Credit Facility to$35.0 million , and make certain other changes to certain covenants and definitions. The amount available for borrowing under the Revolving Credit Facility is limited to a borrowing base, which is equal to the product of (a) 800% (which will automatically reduce to 350% on the date the Term Loan Facility is repaid in full), multiplied by (b) monthly Recurring Revenue for the most recently ended monthly period, multiplied by (c) the Retention Rate (in each case, as defined in the Credit Agreement). The Revolving Credit Facility includes a sub-facility for letters of credit in the aggregate availability amount of$10.0 million and a swingline sub-facility in the aggregate availability amount of$5.0 million , each of which reduces borrowing availability under the Revolving Credit Facility. Borrowings under the Credit Facilities are subject to interest, determined as follows: (a) Eurodollar loans accrue interest at a rate per annum equal to the Eurodollar rate determined for such day plus a margin of 3.50% (the Eurodollar rate is calculated based on the applicable LIBOR forU.S. dollar deposits, subject to a 1.00% floor, divided by 1.00 minus the maximum effective reserve percentage for Eurocurrency funding, provided that if the applicable LIBOR is no longer available or we and the administrative agent elect to transition to a new benchmark, the calculation of the Eurodollar rate will be subject to certain adjustments as described in the Credit Agreement), and (b) Alternate Base Rate ("ABR") loans accrue interest at a rate per annum equal to the ABR plus a margin of 2.50% (ABR is equal to the highest of (i) the prime rate and (ii) the Federal Funds Effective Rate plus 0.50%, subject to a 2.00% floor). In addition to paying interest on the principal amounts outstanding under the Credit Facilities, we are required to pay a commitment fee under the Revolving Credit Facility on unused amounts at a rate of 0.25% per annum. We are also required to pay customary letter of credit and agency fees. We are required to prepay amounts outstanding under the Term Loan Facility with 100% of the net cash proceeds of any indebtedness incurred by us or any of our subsidiaries other than certain permitted indebtedness. In addition, we are required to prepay amounts outstanding under the Credit Facilities with the net cash proceeds of any Asset Sale or Recovery Event (each as defined in the Credit Agreement), subject to certain limited reinvestment rights. Amounts outstanding under the Credit Facilities may be voluntarily prepaid at any time and from time to time, in whole or in part, without premium or penalty. All voluntary prepayments (other than ABR loans borrowed under the Revolving Credit Facility) must be accompanied by accrued and unpaid interest on the principal amount being prepaid and customary "breakage" costs, if any, with respect to prepayments of Eurodollar loans. The Term Loan Facility is payable in consecutive quarterly installments on the last day of each fiscal quarter in an amount equal to (x)$250,000 for installments payable onMarch 31, 2021 throughDecember 31, 2021 , (y)$750,000 for installments payable onMarch 31, 2022 throughDecember 31, 2022 , and (z)$1.5 million for installments payable on and afterMarch 31, 2023 . The remaining unpaid balance on the Term Loan Facility is due and payable onJanuary 14, 2024 , together with accrued and unpaid interest on the principal amount to be paid to, but excluding, the payment date. Borrowings under the Revolving Credit Facility do not amortize and are due and payable onJanuary 14, 2024 . Our obligations under the Credit Facilities are currently guaranteed byKaltura Europe Limited , and are required to be guaranteed by all of our future direct and indirect subsidiaries other than certain excluded subsidiaries and immaterial foreign subsidiaries. Our obligations and those ofKaltura Europe Limited are, and the obligations of any future guarantors are required to be, secured by a first priority lien on substantially all of our respective assets. 22 --------------------------------------------------------------------------------
The Credit Agreement contains a number of covenants that, among other things and subject to certain exceptions, restrict our ability, and the ability of our subsidiaries, to:
• create, issue, incur, assume, become liable in respect of or suffer to exist
any debt or liens;
• consummate any merger, consolidation or amalgamation, or liquidate, wind up or
dissolve, or dispose of all or substantially all of our or their respective
property or business;
• dispose of property or, in the case of our subsidiaries, issue or sell any
shares of such subsidiary's capital stock;
• repay, prepay, redeem, purchase, retire or defease subordinated debt;
• declare or pay dividends or make certain other restricted payments;
• make certain investments;
• enter into transactions with affiliates;
• enter into new lines of business; and
• make certain amendments to our or their respective organizational documents or
certain material contracts.
The Credit Agreement also contains certain financial covenants that require us to maintain (i) a minimum amount of Annualized Recurring Revenue (as defined in the Credit Agreement) as of the last day of each fiscal quarter (which minimum amount increases through the fiscal quarter endingDecember 31, 2023 ) (the "ARR Covenant"), and (ii) Liquidity (as defined in the Credit Agreement) of at least$10 million as of the last day of any calendar month. We were in compliance with these covenants as ofJune 30, 2021 . In addition, pursuant to the First Amendment, until the consummation of a qualified IPO, we were required to maintain, in lieu of the ARR covenant, a minimum amount of Adjusted EBITDA, measured on a trailing twelve-month basis, as of the last day of each fiscal quarter (which minimum amount increases through the fiscal quarter endingDecember 31, 2023 ) (the "Adjusted EBITDA Covenant"). Following the closing of the IPO, we are no longer required to comply with the Adjusted EBITDA Covenant. The Credit Agreement also contains certain customary representations and warranties and affirmative covenants, and certain reporting obligations. In addition, the lenders under the Credit Facilities will be permitted to accelerate all outstanding borrowings and other obligations, terminate outstanding commitments and exercise other specified remedies upon the occurrence of certain events of default (subject to certain grace periods and exceptions), which include, among other things, payment defaults, breaches of representations and warranties, covenant defaults, certain cross-defaults and cross-accelerations to other indebtedness, certain events of bankruptcy and insolvency, certain judgments and Change of Control events. "Change of Control" is defined as (a) any "person" or "group" (as defined in Sections 13(d) and 14(d) of the Exchange Act) becoming the beneficial owner of 40% or more of the ordinary voting power for the election of our directors, (b) during any 24-month period, a majority of the members of our board of directors ceasing to be composed of individuals (i)who were members thereof on the first day of such period, (ii) whose election or nomination thereto was approved by individuals referred to in the foregoing clause constituting at least a majority of such board, or (iii) whose election or nomination thereto was approved by individuals referred to in the foregoing clauses (i) and (ii) constituting at least a majority of such board; or (c) at any time, if we cease to own and control 100% of each class of outstanding capital stock of each guarantor free and clear of all liens (other than certain permitted liens). 23 -------------------------------------------------------------------------------- As ofJune 30, 2021 , following the effectiveness of the First Amendment to the Credit Agreement and our borrowing of an additional$12.5 million of debt under the Revolving Credit Facility in connection with such amendment, we had approximately$22.4 million of borrowings outstanding under the Revolving Credit Facility (net of$0.1 million of unamortized issuance costs) and approximately$12.5 million of additional borrowings available thereunder. The foregoing summary describes the material provisions of our Credit Facilities, but may not contain all information that is important to you. We urge you to read the provisions of the Credit Agreement and the other agreements governing the Credit Facilities, which have been filed as exhibits to this Quarterly Report on Form 10-Q.
Initial public offering
OnJuly 23, 2021 , in connection with our IPO, we issued and sold 15,000,000 shares of our common stock at a price to the public of$10.00 per share. OnAugust 6, 2021 , the underwriters in the IPO exercised in full their option to purchase an additional 2,250,000 shares of our common stock at the offering price of$10.00 per share. The transactions resulted in gross proceeds to us of approximately$155.4 million , after deducting the underwriting discount, commissions, and estimated offering expenses payable by us.
Cash Flows
The following table summarizes our cash flows for the periods presented:
Six Months Ended June 30,
2021 2020
(unaudited)
(in thousands)
Net cash provided by (used in) operating activities $ (5,695 ) $ (3,188 )
Net cash provided by (used in) investing activities (2,290 ) (654 )
Net cash provided by (used in) financing activities 9,809 759
Net (decrease) increase in cash, cash equivalents, and restricted cash
1,824 (3,083 )
Cash, cash equivalents, and restricted cash at beginning of period
28,355 27,144
Cash, cash equivalents and restricted cash at end of period
Operating Activities
Net cash flows used in operating activities increased by
Net cash used in operating activities of$5.7 million for the six months endedJune 30, 2021 was primarily due to$18.3 million in incremental net loss, adjusted for non-cash charges of$9.7 million , and net cash inflows of$2.9 million provided by changes in our operating assets and liabilities. Non-cash charges primarily consisted of$9.2 million stock-based compensation expenses and$1.2 million of depreciation and amortization, partially offset by remeasurement of warrants to fair value of$1.8 million and loan forgiveness of$0.9 million . The main drivers of net cash inflows were derived from the changes in operating assets and liabilities and were related to an increase in deferred revenue of$11.3 million and an aggregate increase in employee accruals and accrued expenses and other current liabilities of$7.2 million , partially offset by an increase in trade receivables of$6.6 million , a$6.6 million increase in deferred contract acquisition and fulfillment costs, a$1.9 million increase in prepaid expenses and other current assets, and an aggregate decrease of$0.5 million in trade payables and other liabilities, noncurrent, each as compared to the six months endedJune 30, 2020 . 24 -------------------------------------------------------------------------------- Net cash used in operating activities of$3.2 million for the six months endedJune 30, 2020 was primarily due to$16.0 million in incremental net loss, adjusted for non-cash charges of$14.0 million , and net cash outflows of$1.2 million provided by changes in our operating assets and liabilities. Non-cash charges primarily consisted of$10.0 million in remeasurement of warrants to fair value,$2.1 million in depreciation expenses, and$1.8 million in stock-based compensation expenses. The main drivers of net cash outflows were derived from the changes in operating assets and liabilities and were related to a decrease in deferred revenue of$2.1 million , a$0.4 million decrease in trade payables, a$1.8 million increase in deferred contract acquisition and fulfillment costs, and an aggregate increase in trade receivables and prepaid expenses and other assets of$0.9 million , partially offset by an increase in accrued expenses and other current liabilities of$2.8 million and an aggregate increase of$1.2 million in employee accruals and other liabilities, noncurrent, each as compared to the six months endedJune 30, 2020 .
Investing Activities
Net cash flows used in investing activities increased by
Net cash used in investing activities of$2.3 million for the six months endedJune 30, 2021 was related to$1.3 million internal use software and$1.0 million in capital expenditures.
Net cash used in investing activities of
Financing Activities
Net cash flows provided by financing activities increased by$9.0 million for the six months endedJune 30, 2021 as compared to the six months endedJune 30, 2020 . Net cash provided by financing activities of$9.8 million for the six months endedJune 30, 2021 was primarily due to proceeds from long term loan loans of$42.0 million offset by$28.9 million loan repayments, deferred offering costs of$2.6 million , and principal payments of finance lease liabilities of$1.0 million . Net cash provided by financing activities of$0.8 million for the six months endedJune 30, 2020 was primarily due to proceeds from long term loans, offset by$1.3 million principal payment of finance lease liabilities.
Contractual Obligations and Commitments
Our principal commitments consist of obligations under operating and finance leases, purchase obligations for contracts with third-party providers for use of cloud hosting and other services, and outstanding debt. There were no material changes to our commitments and contractual obligations during the six months endedJune 30, 2021 from the commitments and contractual obligations disclosed in Management's Discussion and Analysis of Financial Condition and Results of Operations, set forth in our Prospectus, except for those described under Note 6 and Note 11 of the notes to our unaudited condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of
25
--------------------------------------------------------------------------------Critical Accounting Policies and Estimates
The preparation of financial statements in conformity withU.S. GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Our management believes that the estimates, judgment and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates. Our critical accounting policies are discussed in Note 2 to the consolidated financial statements included in the Prospectus. There have been no significant changes to these policies for the six months endedJune 30, 2021 .
Jumpstart Our Business Startups Act of 2012
Under the JOBS Act, an "emerging growth company" can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an "emerging growth company" to delay the adoption of new or revised accounting standards that have different transition dates for public and private companies until those standards would otherwise apply to private companies. We meet the definition of an "emerging growth company" and have elected to use this extended transition period for complying with new or revised accounting standards until the earlier of the date we (x) are no longer an emerging growth company, or (y) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our consolidated financial statements and the reported results of operations contained therein may not be directly comparable to those of other public companies.
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