WEJO GROUP LIMITED "For purposes of this section, "we," "our," "us," "Wejo ," and the "Company" refer toWejo Group Limited and all of its subsidiaries post the consummation of the Virtuoso Business Combination, unless the context otherwise requires. The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes to those consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K. In conjunction with this Annual Report on Form 10-K, the audited consolidated financial statements and notes thereto and management's discussion and analysis of financial condition and results of operations for the year endedDecember 31, 2021 included in our 2021 Annual Report on Form 10-K/A should also be read. This discussion contains forward-looking statements that involve significant risks and uncertainties. As a result of many factors, such as those set forth in Part II, Item 1A. Risk Factors of this Annual Report on Form 10-K, our actual results may differ materially from those anticipated in these forward-looking statements. Overview Virtuoso Business CombinationWejo Group Limited was incorporated under the laws ofBermuda onMay 21, 2021 for the purpose of effectuating the Virtuoso Business Combination contemplated by that certain Agreement and Plan of Merger (the "Agreement and Plan of Merger"), dated as ofMay 28, 2021 , by and among Virtuoso,Yellowstone Merger Sub, Inc. (the "Merger Sub"),Wejo Bermuda Limited ("Wejo Bermuda") andWejo Limited ("Legacy Wejo"), described herein and becoming the parent company of the combined business following the consummation of the Virtuoso Business Combination with Virtuoso, a blank check company incorporated onAugust 25, 2020 as aDelaware corporation and formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. Until the consummation of the Virtuoso Business Combination, Virtuoso did not engage in any operations nor generate any revenue; however, it did generate interest on the funds held in the trust account and incurred costs around its formation and other operating costs. Prior to the Virtuoso Business Combination, onJanuary 26, 2021 , Virtuoso consummated the Initial Public Offering ("IPO") of 23,000,000 units (the "Units" and, with respect to the common shares included in the Units being offered, the "public shares"), at$10.00 per Unit, generating gross proceeds of$230.0 million . Simultaneously with the closing of the IPO, Virtuoso consummated the sale of 6,600,000 warrants (the "Private Placement Warrant"), at a price of$1.00 per Private Placement Warrant. Through the Virtuoso Business Combination, among other things, (i) Merger Sub merged with and into Virtuoso, with Virtuoso being the surviving corporation in the merger and a direct, wholly-owned subsidiary ofWejo ; and (ii) all of LegacyWejo's outstanding share options, warrants, and convertible loan notes were converted into shares in Legacy Wejo and the shareholders of Legacy Wejo exchanged all classes of their shares and Virtuoso exchanged all of their Class A and Class B common shares for common shares inWejo , which became publicly listed on the NASDAQ as of the consummation of the Virtuoso Business Combination. As part of the Virtuoso Business Combination, we raised net proceeds of$206.8 million , consisting of$230.0 million cash received in the trust and$0.4 million of cash received in the operating accounts, less redemptions of$132.8 million and transaction fees paid by Virtuoso of$19.3 million , and$128.5 million , through a PIPE investment. In addition, we incurred transaction costs of$30.0 million , of which$22.3 million was included in Additional Paid in Capital with the remaining$7.7 million being recorded in General and administrative expenses. The$176.9 million in net proceeds were offset by a payment of$75.0 million by us to Apollo as stipulated in the Forward Purchase Agreement.
Business Overview
We were originally formed asWejo Limited , a private limited liability company incorporated under the laws ofEngland andWales , onDecember 13, 2013 . From our formation until 2018, we tested proof of concept and implemented original equipment manufacturer ("OEM") engagement activities to assess and build the case for connected vehicle data business and to create our capabilities to process data using data sources such as vehicle plug-in devices. These activities helped us understand the potential for the connected vehicle data business and design our platform for processing and analyzing large volume data flows. After obtaining our first OEM data contract inDecember 2018 , we launched our proprietary cloud software and analytics platform, Wejo ADEPT (which has since become a part of Wejo Neural Edge, our current platform) for processing OEM data and began generating revenue from our Wejo Marketplace Data Solutions in 2019. Connected vehicles contain hundreds of data sensors, emitting information such as location, speed, direction, braking, temperature and weather conditions. This raw data when harnessed can create intelligence, both historical and in real-time that is unavailable from any other source. Based on both external and internal research completed by our management, we expect that connected vehicles will make up 44% of all vehicles in 2030. This is a greater than three-fold gain, increasing from 196 million connected vehicles in 2020 to approximately 600 million connected vehicles in 2030. As ofDecember 31, 2022 ,Wejo had 20.8 million monetizable vehicles on the 42 -------------------------------------------------------------------------------- Table of Contents Wejo Neural Edge platform from currently onboarded OEMs, a 29% increase over the prior year-end. Of these monetizable vehicles, 13.9 million were active on our Wejo Neural Edge platform within the last six months of which we ingested and standardized their related data, tracking over 78.8 million journeys and 17.6 billion data points a day, primarily inthe United States . Based on existing OEM, automotive suppliers (Tier 1) and distributor (automotive dealer) relationships, we expect that near real time live streaming vehicles on our platform will increase to 124 million connected vehicles by 2030.Wejo data, insights, and solutions enable customers, including, among others, departments of transportation, retailers, construction firms and research departments to unlock unique insights about vehicle journeys, city infrastructures, EV usage, road safety and more. In addition to the strength of our intellectual property, as ofDecember 31, 2022 , we had relationships with 29 OEMs, Tier 1, and Fleet providers of connected vehicle data components. The OEMs on our platform provide the unique data sets that we ingest regularly in Wejo Neural Edge 24 hours a day. To date, no industry standard for connected vehicle data exists. This is whereWejo technology has a singular leadership position in the market, and by creating that standard, we will enable future product developments such as vehicle-to-vehicle communications, pay-as-you-drive insurance, automated breakdown recovery, predictive maintenance and touchless "pay-by-car" commerce for parking, retail and more. We are also working with the OEMs, Tier 1s, and Fleet providers to provideWejo Software & Cloud Solutions (comprised of platforms as a service, data processing capabilities, customer privacy management or business insights derived from connected vehicle data) such as component intelligence. Data For Good™: from our inception, this mantra has captured our Company's values that connected vehicle data will reduce emissions, make roads safer and create positive driver experiences. Our foundation is built upon a total commitment to data privacy and security, including compliance with regulations including GDPR and CCPA. We plan to leverage our leading position inNorth America and continue expansion intoEurope ,Asia and the rest of the world. We continue to evolve, scaling past data traffic management solutions into a host of new compelling proprietary offerings and fields of use. As the business progresses, we expect an increasing level of subscription and licensing revenue to be generated by Wejo Marketplace Data Solutions andWejo Software & Cloud Solutions . InApril 2022 , we announced our revolutionary Real-Time Traffic Intelligence solution ("Wejo RTTI"). Wejo RTTI is a real-time traffic intelligence solution that can be utilized by public agencies, civil engineering firms, mapping and navigation providers, and logistics companies to get a more accurate view of real-time road conditions. These insights allow for a significant impact on road safety and congestion while enabling more efficient vehicle routing within a community by utilizing easily digestible real-time traffic data. InJune 2022 , we announced Wejo Historic Traffic Patterns,Wejo Labs andWejo Autonomous Vehicle Operating System ("AVOS"). These products, solutions, and platforms position us to accelerate our revenue, as they are scalable and reusable across many product verticals and SaaS solutions. Wejo Historic Traffic Patterns offers users the ability to request specific data and insights from highly granular and accurate historic traffic patterns over the last several years from any specific location in theU.S. , even if no monitors or sensors were previously installed. Wejo Historic Traffic Patterns allows government agencies, civil engineering firms, mapping/navigation providers, logistics companies and commercial real estate developers to gather insights directly via an Application Programming Interface ("API") from theWejo platform or via theWejo Studio analytics portal.Wejo Labs is a cloud-based platform that allows researchers and data scientists from universities, research organizations and civil and traffic engineering consultancies to run traffic and mobility studies at scale with accurate connected vehicle data from tens of millions of connected vehicles across theU.S. andEurope . Wejo AVOS is a platform that we anticipate will leverage billions of daily data points from millions of connected vehicles, including autonomous vehicle data, to generate autonomous vehicle outcomes. The platform is being developed to rapidly accelerate the development and adoption of autonomous vehicles for the world's leading automakers and fleet developers by opening up and democratizing access to connected vehicle data. Wejo AVOS intended features include support for vehicle to vehicle communication, demonstration and simulation such as meta-verse concepts, road profile information for product development and deployment, and live road information support for autonomous driver decision making. To become an integral partner within the AV ecosystem we endeavor to offer a full suite of services that leverage our data platform to generate insights and analytics which can help solidify the path forward.
We anticipate these services to include:
•Real Time Traffic Intelligence or RTTI for AVs: a focused offering of RTTI that
will identify lane closures, road closures, and other traffic incident hot spots
in real time for AVs to easily access while on the road.
•Event Reactions for AVs: a tool that leverages a catalog of driver reactions to
inform an AV how to react on the road if they encounter a known hotspot.
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•Road characterizations for AVs: a product that can help AV manufacturers
minimize risk and maximize investment by using road profiles like speed limit,
amount of traffic, and number of adverse events, to determine where the company
should roll-out its next set of AVs.
•Road characterizations for DOTs: Similar to the previous product, but Road
Characterization for DOTs is focused on helping regulators determine the safest
place to roll out AVs based on specific road profile parameters.
•Journey Intelligence for AVs: Solution that can identify the most common types
of journeys, informing AV companies of the most common types of trips its AVs
should be trained for.
We operate our business to take advantage of a sizeable market opportunity.
Through our own bottom-up analysis, coupled with third party research, we
estimate our SAM to be worth approximately $61.0 billion by 2030. We determined
the SAM as two components: Wejo Marketplace Data Solutions and Wejo Software &
Cloud Solutions. For Wejo Marketplace Data Solutions, we used the data and
research from the connected vehicle analyst firm Ptolemus. We have projected
TAMs for each of our eight current and potential Wejo Marketplace Data Solutions
products (namely Traffic Management, Audience and Media Measurement, End-to-End
Insurance Services , Remote Diagnostic, Fleet Management, Car Sharing & Rental,
Roadside Assistance, and Integrated Payments) by region and timeframe. We then
applied a discount factor by calculating 70% of each TAM to create the Wejo SAM.
For Wejo Software & Cloud Solutions , we worked with Gartner research to
determine the total spend in this area of SaaS solutions for the automotive
industry and calculated our SaaS SAM as 5% of the total SAM of $61.0 billion .
We have demonstrated our ability to standardize and generate valuable data insights, and in the process created a growing network effect of attracting additional OEMs, automotive suppliers, and customers. These forces converge to grow the products and services that consumers, and enterprises in the transportation industry want and are willing to pay for.
We build privacy by design into the core of our Wejo Neural Edge platform, enabling compliance with existing privacy laws and regulations. We operate to high global data privacy standards and are a leader in the industry on protection of data, assuring that we play a pivotal role in our industry.
Key Factors Affecting Our Results of Operations
Attract, Retain and Grow our Customer Base
Our recent growth is driven by the expansion of our customer base particularly in the area of traffic management and, related mapping and logistics, and high customer retention rates. Substantially all of our current sales come fromU.S. connected vehicle data. We are in the early stages of monetization in its planned markets, starting with traffic management, including mapping. As seen in some of our key performance indicators outlined below, early-stage demand for connected vehicle data is very strong, and we believe that we will continue to see this demand in the future as we expand in traffic management and launch additional product offerings. We are expanding its customer base in multiple ways. Wejo Marketplace Data Solutions will expand from one product line to six product lines over the next couple of years, and the number of market verticals to which we will sell these solutions will expand significantly as we rollout new product lines. We are expanding our base on larger enterprise customers in both Wejo Marketplace Data Solutions andWejo Software & Cloud Solutions . This customer base expansion can be seen in 2022 through our reported Revenue, net and the following metrics (as projected by management and all as ofDecember 31, 2022 ): •Revenue, net increased to$8.4 million , or 227%, compared to the prior year. •Total Contract Value increased to$39.4 million , or 92%, compared to the prior year. Of this amount, unrecognized total contract value is$16.5 million .1 •Gross Bookings of customers increased to$18.8 million , or 124%, compared to the prior year.1 ______________________ 1 These key metrics are not considered in conformity withU.S. GAAP. The Company and its management believe that these key metrics are useful to investors in measuring the comparable results of the Company period-over-period. We define Total Contract Value ("TCV") as the projected value of all contracts the Company has ever signed to-date with its customers. The 92% increase in TCV as compared to the prior year, speaks to the Company's ability to close deals and secure additional contracts. The increase in contracts represents the potential for an increase in revenue. Unrecognized total contract value represents estimated total contract value minus the amount of revenue recognized to-date before any revenue share payments to OEMs. We define Gross Bookings as the total projected value of contracts signed in the relevant period, excluding taxes and renewal options available to customers in future periods, a portion of which often will be shared with certain OEM preferred partners. Gross 44 -------------------------------------------------------------------------------- Table of Contents Bookings increased year-over-year by approximately 124% to$18.8 million for the year endedDecember 31, 2022 demonstrating a growth in additional new customers and expansion of existing customer relationships in 2022. Notably, asWejo offers new visualization tools and software solutions to its customers in multiple market verticals, it is migrating its revenue towards a stronger base of recurring revenue. As ofDecember 31, 2022 ,Wejo had Annual Recurring Revenue ("ARR") of$8.4 million , up from$4.5 million as ofDecember 31, 2021 , an increase of 87%. We calculate ARR by taking the gross Monthly Recurring Revenue ("MRR") for the last month of the reporting period and multiplying it by twelve months. MRR for each month is calculated by aggregating revenue from customers with contracts with more than four months in duration and includes recurring software licenses, data licenses, and subscription agreements. ARR and MRR should be viewed independently of revenue, and do not represent our revenue underU.S. GAAP on a monthly or annualized basis, as they are operating metrics that can be impacted by contract start and end dates and renewal rates. ARR and MRR are helpful metrics to understand how the customer base is increasingly contracting on a recurring basis and are not intended to be replacements or forecasts of revenue. We define Adjusted EBITDA, a non-GAAP measure, as Loss from operations excluding: (1) share-based payments to employees and third party vendors; (2) depreciation of equipment and amortization of intangible assets; (3) transaction-related bonuses and costs, and (4) restructuring charges. We believe this measure is useful for analysts and investors as this measure allows a more meaningful comparison between our performance and that of our competitors. Adjusted EBITDA has certain limitations because it excludes the impact of these expenses. Adjusted EBITDA should not be considered in isolation or as a substitute for net loss or other income statement data prepared in accordance withU.S. GAAP. Our presentation of Adjusted EBITDA may not be comparable to similarly titled measures used by other companies. Adjusted EBITDA for the years endedDecember 31, 2022 and 2021 is as follows: Year Ended December 31, (in thousands) 2022 2021 Net loss$ (159,253) $ (217,778) Income tax expense 413 357 Loss before taxation (158,840) (217,421) Interest expense 5,249 9,597 Other expense, net 33,645 49,067 Loss from operations (119,946) (158,757) Add: Depreciation and amortization 4,037 4,411 Transaction-related bonus - 26,656 Transaction-related costs 11,558 7,686 Share-based payments 7,102 52,316 Adjusted EBITDA$ (97,249) $ (67,688)
The following expenses are excluded from our non-GAAP measure:
•Depreciation: is a non-cash expense relating to our office equipment and furniture and fixtures and is computed using the straight-line method to allocate the cost of depreciable assets to operations over their estimated useful lives.
•Amortization: is a non-cash expense related primarily related to our GM Data Sharing Agreement intangible asset and internally developed software which are amortized over their estimated lives. •Transaction-related bonus and costs: consist of expenses primarily related to financing or merger-related activities including legal, advisory and other fund raising and professional services costs, as well as certain employment-related costs that are required to be expensed underU.S. GAAP. These costs are excluded from our assessment of performance because they are considered non-operational in nature and therefore are not indicative of current or future performance or the ongoing cost of doing business. 45
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•Share-based payments to employees and third party vendors: consists of expense associated with awards that were granted under various stock and incentive plans and with shares granted as payment for goods or services provided by third parties. These expenses are not paid in cash and we view the economic costs of share-based payments to be the dilution to our share base; we will also include the related shares in our fully diluted shares outstanding forU.S. GAAP earnings per share ("EPS") using the treasury stock method when they are no longer anti-dilutive. The change in our definition of Adjusted EBITDA to exclude share-based payment to third parties was undertaken due to on-going negotiations to make payments to certain third party vendors in common shares of the Company in lieu of cash. These payments are being excluded on the same basis as our exclusion of share-based payments. The impact of these costs had no impact on our quarterly or full-year results reported for any such periods in 2022 or 2021. For 2023 and beyond, management believes that excluding share-based payments to third parties from Adjusted EBITDA will more accurately present the Company's actual cash usage. •Restructuring charges: may consist of expense associated with implementing strategic workforce reductions, streamlining operations, and terminating certain non-core agreements. These costs are excluded from our assessment of performance because they are considered non-operational in nature and therefore are not indicative of current or future performance or the ongoing cost of doing business. The impact of these charges had no impact on our quarterly or full-year results reported for any such periods in 2022 or 2021. For 2023 and beyond, management believes that excluding restructuring charges from Adjusted EBITDA will more accurately present the Company's actual cash usage.Wejo is expanding its revenue base and at the same time expanding its base of monetizable connected vehicles. As ofDecember 31, 2022 ,Wejo had 20.8 million monetizable vehicles on the Wejo Neural Edge platform from currently onboarded OEMs, a 29% increase over the prior year-end. Of these monetizable vehicles, 13.9 million vehicles were active on our Wejo Neural Edge platform. Gross Bookings per average monetizable connected vehicle in the year endedDecember 31, 2022 was$1.47 per vehicle, up 97% from$0.75 in the year endedDecember 31, 2021 . We expect Gross Bookings per vehicle to significantly expand as we roll out new product lines to multiple market verticals in theWejo Marketplace Data Solutions and customers inWejo Software & Cloud Solutions . We continue to add functionality to our Wejo Neural Edge platform to offer new and more valuable services to our customers. We believe that our business is at the genesis of the connected vehicle ecosystem, demonstrating new services that will one day be viewed as necessary, and positioned to pioneer even more desirable services in the future. As these services continue to demonstrate their value, many of our customers will move a greater percentage of their funds to connected vehicle data. We will fuel this growth with marketing efforts to increase awareness of our offerings.
Key Components of Results of Operations
Revenue, net
We work with some of the world's leading OEMs to obtain, process, and create products using vast amounts of connected vehicle data. OEMs provide this data through license agreements. We process the data in our Wejo Neural Edge platform running in cloud data centers and offer services including live data feeds, batch feeds and analytics. These services provide customers with traffic intelligence, high frequency vehicle movements, and common driving events and trends, among other insights. Our customers pay fees to obtain one or more of these data services that may include a portion or all the data in their market including license fees, professional services fees, and platform and delivery fees. Our revenue is the amount of consideration we expect to receive in the form of Gross Bookings to customers, reduced by associated revenue share due under our data sharing agreements with OEMs, where we have determined that we are acting as an agent in the relationship.
Cost of Revenue (exclusive of depreciation and amortization)
Cost of revenue consists primarily of data acquisition costs and hosting service expenses for our Wejo Neural Edge platform as well as hardware, software and personnel to support the revenue process. In addition, cost of revenue includes fees paid for access to data from certain of our OEM partners, where we have determined that we are acting as the principal in the relationship with customers.
Technology and Development Expenses
Technology and development expenses consist primarily of compensation-related
expenses incurred for our data scientists and other technology personnel for the
research and development of, enhancements to, and maintenance and operation of
our products, equipment and related infrastructure.
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Sales and Marketing Expenses
Sales and marketing expenses consist primarily of compensation-related expenses
to our direct sales and marketing personnel, as well as costs related to
advertising, industry conferences, promotional materials, other sales and
marketing programs, facility costs related to sales and marketing functions,
advertising costs are expensed as incurred.
General and Administrative Expenses
General and administrative expenses consist primarily of compensation related expenses for executive management, finance, accounting, human resources, legal, and corporate information systems functions, professional fees, costs related to capital raising efforts and strategic initiatives.
Other Expense, net
Loss on Issuance of Convertible Loan Notes
In 2022, no convertible loans were outstanding. We issued convertible notes inJanuary 2021 andApril 2021 for which the initial fair value of the convertible notes was greater than the proceeds we received. We recognized the loss on issuance as the difference between the initial fair value of the convertible notes and cash proceeds received within Other expense, net in our audited Consolidated Statements of Operations and Comprehensive Loss.
Loss on Extinguishment of Convertible Loan Notes
In 2022, no convertible loans were outstanding. InNovember 2021 , in connection with the completion of the Virtuoso Business Combination, all of the outstanding principal and accrued interest under the convertible loan notes that were issued in 2021 and 2020 automatically converted into ordinary shares of Legacy Wejo, which were then converted intoWejo Group Limited common stock. We recorded a loss on extinguishment of convertible notes related to this conversion within Other expense, net in our audited Consolidated Statements of Operations and Comprehensive Loss.
Gain on Fair Value of Derivative Liability
In 2022, no derivative liabilities were outstanding. In 2021, we issued convertible notes that contain redemption features, which met the definition of a derivative instrument. We classified these derivative instruments as a liability on our audited Consolidated Balance Sheets. We remeasured this derivative liability to fair value at each reporting date and recognized changes in the fair value of the derivative liability within Other expense, net in our audited Consolidated Statements of Operations and Comprehensive Loss. Upon the closing of the Virtuoso Business Combination, all of the outstanding principal and accrued interest under the convertible notes automatically converted into ordinary shares ofWejo Limited , which were ultimately converted intoWejo Group Limited common shares, the derivative liability was derecognized and no further fair value remeasurement needs to be performed.
Gain on Fair Value of Public Warrant Liabilities
We have an aggregate of 11,500,000 publicly traded warrants (the "Public Warrants") we assumed as part of the Virtuoso Business Combination. We classify the warrants as a liability on our audited Consolidated Balance Sheets and we are required to remeasure to fair value at each reporting date. In 2022 and 2021, we recognized changes in the fair value of the public warrant liability within Other expense, net in our audited Consolidated Statements of Operations and Comprehensive Loss and will continue to do so until the warrants are exercised, expire or qualify for equity classification.
Loss on Fair Value of Forward Purchase Agreement
OnNovember 10, 2021 ,Wejo Limited entered into the Forward Purchase Agreement with Apollo (See Note 6 to the accompanying audited consolidated financial statements). We account for the Forward Purchase Agreement in accordance with the guidance contained in ASC 815-40, under which the Forward Purchase Agreement does not meet the criteria for equity treatment and must be recorded as an asset. Accordingly, we classify the Forward Purchase Agreement as a current asset on our audited Consolidated Balance Sheets with changes in fair value in 2022 and 2021 reflected within Other expense, net in our audited Consolidated Statements of Operations and Comprehensive Loss. 47 -------------------------------------------------------------------------------- Table of Contents Gain on Fair Value of Exchangeable Right Liability We have an aggregate of 6,600,000 Exchangeable Rights, as defined in Note 17 to the accompanying audited consolidated financial statements, we assumed as part of the Virtuoso Business Combination. We classify the Exchangeable Right as a liability on our audited Consolidated Balance Sheets and we are required to remeasure to fair value at each reporting date. In 2022 and 2021, we recognized changes in the fair value of the Exchangeable Right liability within Other expense, net in our audited Consolidated Statements of Operations and Comprehensive Loss and will continue to do so until they are exercised, expire or qualify for equity classification.
Loss on Issuance of Forward Purchase Agreement
We issued the Forward Purchase Agreement inNovember 2021 for which the initial fair value of the Forward Purchase Agreement was less than the amount we prepaid. We recognized the loss on issuance as the difference between the initial fair value of the Forward Purchase Agreement and cash prepaid within Other expense, net in our audited Consolidated Statements of Operations and Comprehensive Loss.
Gain on Settlement of Forward Purchase Agreement
InNovember 2021 , the partial Forward Purchase Agreement shares were terminated in part and the proceeds we received are greater than the fair value of terminated Forward Purchase Agreement shares. We recorded a gain on settlement of the terminated 251,632 shares under the Forward Purchase Agreement as the difference between the fair value of terminated Forward Purchase Agreement and the cash proceeds received within Other expense, net in our audited Consolidated Statements of Operations and Comprehensive Loss.
Loss on Fair Value of Advanced Subscription Agreements
Prior to completing the Virtuoso Business Combination, we issued Advanced
Subscription Agreements ("ASAs") that contained an automatic conversion feature,
which was triggered by either the occurrence of Series C round financing or
share sale triggering a change of control. We concluded that it was appropriate
to apply the fair value option to the ASAs because there were no non-contingent
beneficial conversion features related to the ASAs. We classified these ASAs as
a liability on our audited Consolidated Balance Sheets and remeasure them to
fair value at each reporting date to the date of conversion, and recognized
changes in the fair value of the ASAs within Other expense, net in our audited
Consolidated Statements of Operations and Comprehensive Loss. All remaining
outstanding ASAs converted into ordinary shares of Legacy Wejo on July 31, 2021 ,
which were then converted into Wejo Group Limited common shares upon the closing
of the Virtuoso Business Combination.
Loss on Issuance of GM Securities Purchase Agreement
We entered into a Securities Purchase Agreement withGM inDecember 2022 where we issued and sold toGM a secured convertible note and warrants to acquire common shares (the "GM Warrants"). Under that transaction, the initial fair value of the GM SPA was greater than the amount of proceeds. We recognized the loss on issuance as the difference between the initial fair value of the GM SPA and proceeds within Other expense, net in our audited Consolidated Statements of Operations and Comprehensive Loss.
Gain on Fair Value of GM Securities Purchase Agreement
We classified the SCN as a current liability and the GM Warrants as a non-current liability on the audited Consolidated Balance Sheets with changes in fair value reflected within Other expense, net in the audited Consolidated Statements of Operations and Comprehensive Loss at each reporting period.
Other, net
Other, net primarily consists of foreign exchange gain or loss arising from foreign currency transactions and a benefit from research and development tax credits.
Income TaxesWejo Limited is a tax resident in theUK with business units taxable in other territories, including theU.S. Due to the nature of our business, we have generated losses since inception and therefore have not paid corporation tax in theUK or other territories. 48
-------------------------------------------------------------------------------- Table of ContentsUK operating losses may be carried forward indefinitely and may be offset against future taxable profits, subject to numerous utilization criteria and restrictions. The amount that can be offset each year is limited to £5.0 million plus an incremental 50% ofUK taxable profits. After accounting for tax credits receivable, we had accumulated tax losses for carry forward in theUK of$297.0 million and$212.4 million as ofDecember 31, 2022 andDecember 31, 2021 , respectively. We do not recognize these losses on our audited Consolidated Balance Sheets.
Results of Operations
Comparison of the years ended
The following table summarizes our results of operations for the years ended
Year Ended December 31,
2022 2021 $ Change % Change
Revenue, net $ 8,396 $ 2,566 $ 5,830 227 %
Costs and operating expenses:
Cost of revenue (exclusive of depreciation
and amortization shown separately below) 7,739 3,583 4,156 116 %
Technology and development 33,893 26,265 7,628 29 %
Sales and marketing 20,569 22,920 (2,351) (10) %
General and administrative 62,104 104,144 (42,040) (40) %
Depreciation and amortization 4,037 4,411 (374) (8) %
Total costs and operating expenses 128,342 161,323 (32,981) (20) %
Loss from operations (119,946) (158,757) 38,811 (24) %
Interest expense (5,249) (9,597) 4,348 (45) %
Other expense, net (33,645) (49,067) 15,422 (31) %
Loss before taxation (158,840) (217,421) 58,581 (27) %
Income tax expense (413) (357) (56) 16 %
Net loss $ (159,253) $ (217,778) $ 58,525 (27) %
Revenue, net
In 2022, Revenue, net increased by $5.8 million , or 227%, driven by strong
growth in the Traffic Management product line of the Wejo Marketplace Data
solutions, which increased by $4.4 million , driven by an increase in the average
revenue, net, per revenue generating customer. Additionally, there was a
$1.5 million increase in the Wejo Software & Cloud Solutions business line
revenue, which was driven by the completion of various Wejo Software & Cloud
Solutions projects. Revenue, net displayed strong growth in our fundamental
performance in our markets, as seen with a 59% year-over-year increase in the
number of customers and growth in Gross Bookings1 of 124%. At the same time, we
ended 2022 with a $8.4 million Annual Recurring Revenue1 base. The majority of
our revenue in the 2022 and 2021 was from the United States .
Cost of Revenue (exclusive of depreciation and amortization)
In 2022, Cost of revenue increased by
Technology and Development Expenses
In 2022, Technology and development expenses increased by$7.6 million , or 29% primarily due to an increase of$10.7 million in IT expenses, driven by costs associated with the Master Subscription Agreement with Palantir and increased data 1 These key metrics are not considered in conformity withU.S. GAAP. The Company and its management believe that these key metrics are useful to investors in measuring the comparable results of the Company period-over-period. 49 -------------------------------------------------------------------------------- Table of Contents storage costs. This was offset by a decrease of share-based compensation expense of$2.5 million (as a result of the vesting of stock awards that had been granted to employees prior to our Virtuoso Business Combination inNovember 2021 ).
Sales and Marketing Expenses
In 2022, Sales and marketing expenses decreased by
General and Administrative Expenses
In 2022, General and administrative expenses decreased by$42.0 million , or 40%, driven by a decrease of$40.1 million of share-based compensation expense as a result of the vesting of stock awards that had been granted to employees and certain directors prior to our Virtuoso Business Combination inNovember 2021 .
Depreciation and Amortization
In 2022, Depreciation and amortization remained relatively flat compared to 2021.
Interest Expense
In 2022, Interest expense decreased by
Other expense, net
Year Ended December 31,
(in thousands) 2022 2021 $ Change % Change
Loss on issuance of convertible loan notes $ - $ (53,967) $ 53,967 NM
Loss on extinguishment of convertible loan
notes - (25,598) 25,598 NM
Gain on fair value of derivative liability - 12,922 (12,922) NM
Gain on fair value of public warrant
liabilities 12,056 13,800 (1,744) (13) %
Loss on fair value of Forward Purchase
Agreement (40,452) (15,609) (24,843) 159 %
Gain on fair value of Exchangeable Right
liability 10,751 34,452 (23,701) (69) %
Loss on issuance of Forward Purchase Agreement - (11,674) 11,674 NM
Gain on settlement of Forward Purchase
Agreement - 399 (399) NM
Loss on fair value of Advanced Subscription
Agreements, including related party of nil and$(3,665) , respectively - (4,470) 4,470 NM Loss on issuance of GM Securities Purchase Agreement (4,116) - (4,116) NM Gain on fair value of GM Securities Purchase Agreement 1,883 - 1,883 NM Other, net1 (13,767) 678 (14,445) NM Other expense, net$ (33,645) $ (49,067) $ 15,422 (31) %
______________________
1 Line item Other, net was presented as Other income, net for the year endedDecember 31, 2021 . Substantially all of the activity for 2022 is related to foreign exchange translation. NM - Not meaningful.
Loss on Issuance of Convertible Loans
In 2022, no convertible loans were outstanding as compared to a loss on issuance of convertible loans of$54.0 million in 2021. The loss in the prior period was driven primarily by aggregate costs exceeding the allocated proceeds of the convertible loans. 50 -------------------------------------------------------------------------------- Table of Contents Loss on Extinguishment of Convertible Notes InNovember 2021 , in connection with the completion of the Virtuoso Business Combination, all of the outstanding principal and accrued interest under the convertible loan notes that were issued in 2021 automatically converted into ordinary shares of Legacy Wejo, which were then converted intoWejo Group Limited common shares. In 2021, we recorded a loss on extinguishment of$25.6 million related to this conversion within Other expense, net on our audited Consolidated Statements of Operations and Comprehensive Loss. Upon the completion of the Virtuoso Business Combination, all of the outstanding principal and accrued interest under the convertible loans automatically converted into ordinary shares of Legacy Wejo, which were then converted intoWejo Group Limited common shares and carried zero balances on the audited Consolidated Balance Sheets as ofDecember 31, 2022 and 2021.
Gain on Fair Value of Derivative Liability
In 2022, no derivative liabilities were outstanding as compared to a$12.9 million gain on the fair value of the derivative liability in 2021. The gain in the prior period was driven primarily by the increase in the embedded derivative liabilities that were bifurcated from the convertible loans issued betweenJuly 2020 andMarch 2021 . The derivative liability carried a zero balance on the audited Consolidated Balance Sheets as ofDecember 31, 2022 and 2021, respectively, as the convertible loans associated with the derivative liability automatically converted into ordinary shares of Legacy Wejo, which were then converted intoWejo Group Limited common shares upon the Virtuoso Business Combination.
Gain on Fair Value of Public Warrant Liabilities
In 2022, we recognized a$12.1 million gain on fair value of public warrant liabilities, which is due to our quoted warrant liabilities' price decreasing from$1.10 per share as ofDecember 31, 2021 to$0.05 per share as ofDecember 31, 2022 . In 2021, we recognized a$13.8 million gain on fair value of public warrant liabilities due to our quoted warrant liabilities' price decreasing from$2.30 as ofNovember 18, 2021 to$1.10 per share as ofDecember 31, 2021 .
Loss on Fair Value of Forward Purchase Agreement
In 2022, we recognized a$40.5 million unrealized loss on the fair value of the Forward Purchase Agreement due to the decrease in the fair value of our common shares betweenDecember 31, 2021 andDecember 31, 2022 . In 2021, we recognized a$15.6 million unrealized loss on the fair value of the Forward Purchase Agreement.
Gain on Fair Value of Exchangeable Right Liability
In 2022, we recognized a$10.8 million gain on fair value of Exchangeable Right Liability, due to the value decreasing from$1.69 per share as ofDecember 31, 2021 to$0.06 per share as ofDecember 31, 2022 . In 2021, we recognized a$34.5 million gain on the fair value of the Exchangeable Right Liability, due to the value decreasing from$6.91 per share as ofNovember 18, 2021 to$1.69 per share as ofDecember 31, 2021 .
Loss on Issuance of Forward Purchase Agreement
InNovember 2021 , we entered into a Forward Purchase Agreement for which the initial fair value of the Forward Purchase Agreement of$63.3 million was less than the amount of$75.0 million we prepaid. We recognized the loss on issuance of$11.7 million within Other expense, net on our audited Consolidated Statements of Operations and Comprehensive Loss. There were no issuances in 2022.
Gain on Settlement of Forward Purchase Agreement
InNovember 2021 , 251,632 Forward Purchase Agreement shares were terminated. The cash proceeds of$2.5 million we received was greater than the$2.1 million Terminated Shares' fair value. We recorded$0.4 million gain on settlement of Forward Purchase Agreement related to within Other expense, net in our audited Consolidated Statements of Operations and Comprehensive Loss for the year endedDecember 31, 2021 . Settlement ofFPA shares in 2022 was not material.
Loss on Fair Value of Advanced Subscription Agreements
In 2022, no Advanced Subscription Agreements were outstanding. In 2021, we
recognized a
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Loss on Issuance of the GM Securities Purchase Agreement
In December 2022 , we entered into the GM Securities Purchase Agreement with an
initial fair value of $13.6 million , which was more than the amount of proceeds
received of $9.5 million . We recognized the loss on issuance of $4.1 million
related to the issuance within Other expense, net in our audited Consolidated
Statements of Operations and Comprehensive Loss.
Gain on Fair Value of the GM Securities Purchase Agreement
In 2022, we recognized a
Other, net
In 2022, Other, net decreased by
Income Tax Expense
In 2022, Income tax expense was$0.4 million for the year endedDecember 31, 2022 . This income tax expense is the result of taxable income recognized by the operating entities inthe United States . Financial Condition (in thousands) December 31, December 31, 2022 2021 $ Change % Change Total assets$ 31,133 $ 142,007 $ (110,874) (78) % Total liabilities$ 99,896 $ 94,313 $ 5,583 6 % Total shareholders' (deficit) equity$ (68,763) $ 47,694 $ (116,457) (244) % Total assets decreased by$110.9 million , or 78%, primarily due to a$58.7 million decrease in cash driven by our operating cash flow needs, a$42.9 million decrease in the fair value of theFPA driven by a decrease in our share price from$6.84 as ofDecember 31, 2021 to$0.48 as ofDecember 31, 2022 and a decrease of$10.8 million in Prepaid expense and other current assets associated with the Master Subscription Agreement with Palantir partially offset by the SCN and PIPE proceeds received of$9.5 million and$15.9 million , respectively, during the year endedDecember 31, 2022 . Total liabilities remained relatively flat compared to prior year with an increase of$5.6 million , or 6%. Total shareholders' (deficit) equity increased by$116.5 million , or 244%, primarily due to a$159.3 million increase in the Accumulated deficit as a result of our Net loss, which was partially offset by a$30.2 million increase in Additional paid in capital as a result of theJuly 2022 PIPE and CEF proceeds received during the year endedDecember 31, 2022 .
Liquidity and Capital Resources
Sources of Liquidity
We have incurred significant operating losses since our formation, and consequently, we will need significant additional capital to fund our operations for the next twelve months, which we may obtain through the sale of equity, debt financings, or other capital sources. Prior to the closing of the Virtuoso Business Combination onNovember 18, 2021 , we received gross proceeds of$175.8 million through sales of equity, ASAs, convertible loan notes and debt financings. In 2021, we issued Secured Loan Notes (as defined in Note 15 to the accompanying audited financial statements) with a principal amount of$39.0 million . OnNovember 18, 2021 , we completed the Virtuoso Business Combination, which raised$206.8 million , consisting of$230.0 million cash received in the trust and$0.4 million of cash received in the operating accounts, less redemptions of$132.8 million and transaction fees paid by Virtuoso of$19.3 million , and$128.5 million , through a PIPE investment. AfterWejo incurred transaction costs of$30.0 million , of which$22.3 million was included in Additional Paid in Capital with the remaining$7.7 million being recorded in General and administrative expenses, net proceeds were$176.9 million . The proceeds were offset by a payment of$75.0 million from us to Apollo as stipulated in theFPA . InNovember 2021 , 251,632 shares were sold by Apollo under theFPA and$2.5 million was paid back to us. During 2022, pursuant to theFPA , 1,662,785 common shares were sold at a weighted average price of 52 -------------------------------------------------------------------------------- Table of Contents$1.51 which generated aggregate proceeds of$2.5 million . As ofDecember 31, 2022 andDecember 31, 2021 , there were 5,585,583 and 7,248,368 total outstanding shares, respectively, under theFPA . OnJuly 27, 2022 , we closed the PIPE Financing, which was anchored by Sompo Light Vortex and included current investors and certain members of the Company's Board of Directors, and which raised$15.9 million before transaction costs of$0.2 million (see Note 3 to the accompanying audited consolidated financial statements). OnDecember 16, 2022 , we entered into a Securities Purchase Agreement withGM . Pursuant to the GM Securities Purchase Agreement, we issued toGM the SCN for net proceeds of$9.5 million and the GM Warrant to acquire up to an aggregate amount of 1,190,476 common shares at an exercise price of$0.75112 per common share (see Note 14 to the accompanying audited consolidated financial statements).
As of
Nevertheless, revenue is continuing to grow, and we have taken measurable actions to significantly reduce expenses against the 2022 operating plan, prioritizing growth in the traffic, insurance and audience measurement marketplaces, and delivering SaaS solutions for the automotive industry because of their near-term revenue opportunity. We are continuing to look at further measures to reduce cash burn from expenses, while continuing to grow revenue at rates in the range of 200% to 300% per year. Management believes that a combination of strong and disciplined expense management, rapid revenue growth and outside capital are necessary steps in the long-term capital strategy ofWejo . Our long-term plans have not changed other than the timing of certain product launches as we have made choices to target cash flow breakeven in mid-2024. Cost reductions include a reduction in our workforce, elimination of non-revenue projects, and reductions in expenditures by negotiations with vendors in areas such as data acquisition, cloud costs, license fees for software, legal and professional fees, insurance and other costs. OnMarch 22, 2023 , our Board of Directors approved a plan to reduce our workforce by approximately 40 employees, representing approximately 16% of our total current global workforce. This decision was based on cost-reduction initiatives intended to reduce operating expenses, focus on revenue growth opportunities, and target cash flow positive operations prior to the end of the first half of 2024. As ofMarch 22, 2023 , we estimated that we will pay approximately$1.8 million in connection with the reduction in force, which consists of notice period and severance payments, previously accrued compensation expenses, and other related costs. We expect that these payments will be made in the second and third quarters of 2023, and that the reduction in force will be substantially complete in the third quarter of 2023, subject to local law and consultation requirements. The payments we expect to make are subject to assumptions, including local law requirements, and actual charges may differ from the estimate disclosed above. In the aggregate, we currently expect the reduction in force to result in approximately$9.0 million in annualized cash operating expense savings. As a part of our efforts to reduce cash burn until we are able to generate positive operating cash flows, we are in discussions with key vendors to allow us to pay for services with our common shares in lieu of cash for some or all of the amounts owed. This partial payment in common shares, and any modification of the timing for such payments, would allow us to manage our cash obligations while we complete the capital raising initiatives discussed below or that otherwise may be available to us. As ofDecember 31, 2022 , we have two funding options from which we can continue to raise cash, although the amounts to be received through those instruments are uncertain: (1) the ATM Agreement (upon the effectiveness of our Shelf Registration Statement) as described in Note 3 to the accompanying audited consolidated financial statements, and (2) the Forward Purchase Agreement as described in Note 6 to the accompanying audited consolidated financial statements (collectively, the "Facilities"). Both Facilities are driven by the future price of our common shares and future trading volumes of our common shares, each of which will likely limit the timing and actual level of funds that can be raised. In addition, the window in which we can utilize the Facilities may be restricted during "black-out periods" under our insider trading policy and if we are in possession of material non-public information. TheFPA facility expires inNovember 2023 . In furtherance of its long-term capital strategy, onJanuary 10, 2023 , we announced that we entered into the TKB Business Combination Agreement as a result of which, at the closing of the transaction, we expect to acquire approximately$57.0 million in cash TKB has retained in trust, less any further redemptions by TKB shareholders in connection with the vote to approve the transaction as described in Note 25 to the accompanying audited consolidated financial statements. The goal of this business combination, combined with a PIPE financing, is to raise enough capital to provide us with the capital required through to cash flow breakeven, which is expected to occur by mid-2024, assuming revenue growth and expense reduction targets are met. As part of this long-term capital strategy, we have been reaching out to strategic, institutional and other investors to fund a PIPE equity financing transaction in connection with the TKB Business Combination from which we are targeting a capital raise of$75.0 million . As ofMarch 31, 2023 , we 53 -------------------------------------------------------------------------------- Table of Contents entered into a non-binding letter of intent, subject to certain closing and other conditions, with a strategic investor to anchor the PIPE with a potential$20.0 million investment. Through a combination of the closing of the TKB Business Combination and the related PIPE, we hope to raise at least$100.0 million , net of transaction costs, on the closing of those transactions. In arriving at this goal of a$100.0 million total capital raise, we have considered the possibility of additional redemptions from the TKB trust in connection with the vote to approve that transaction. In order to bridge to the TKB Business Combination and PIPE transactions, we are working to raise at least an additional$20.0 million (which would be an advance on the targeted$75.0 million PIPE) from investors in the form of debt that converts into common shares, at the option of the investor, before the closing of the TKB Business Combination or at the closing of that transaction and the related PIPE (the "Bridge Financing"). We expect to use the proceeds of the Bridge Financing to redeem the$3.7 million Second Lien Notes and the$2.0 million Unsecured Notes (each as described in Note 25 to the accompanying audited consolidated financial statements) and provide financing through the second quarter of 2023. We are currently negotiating this transaction and expect it to be completed during the second quarter of 2023. No legally binding agreement is yet in place for Bridge Financing and therefore there can be no assurances that this transaction will be completed. Given the liquidity issues and the uncertainty whether the short and long-term capital financing transactions discussed above will close in the anticipated amounts and time frames, management has concluded there is substantial doubt regarding our ability to continue as a going concern within one year from the issuance date of our audited consolidated financial statements. Our accompanying audited consolidated financial statements have been prepared assuming that we will continue as a going concern, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The audited consolidated financial statements do not reflect any adjustments relating to the recoverability and reclassification of assets and liabilities that might be necessary from the outcome of this uncertainty.
Cash Flows
The following table summarizes our cash flows for each of the periods presented
(in thousands):
Year Ended December 31,
2022 2021
Net cash used in operating activities
(2,876) (3,278)
Net cash provided by financing activities 29,987
159,441
Effect of exchange rate changes on cash (306)
3,304
Net (decrease) increase in cash$ (58,696) $
52,901
Cash Used in Operating Activities
During the year endedDecember 31, 2022 , net cash used in operating activities was$85.5 million , primarily resulting from our net loss of$159.3 million , partially offset by non-cash adjustments of$49.2 million and movements in our operating assets and liabilities of$24.5 million , driven by a decrease of$9.4 million in Prepaid expenses and other current assets due to prepaying insurance in 2021, a$8.2 million increase in Accounts Payable as a result of an increase in days payable outstanding, and a$8.9 million increase in Accrued expenses and other liabilities as a result of increased operating expenses, partially offset by a$2.8 million increase in Accounts receivable, as a result of an increase in Revenue, net. During the year endedDecember 31, 2021 , net cash used in operating activities was$106.6 million , primarily resulting from our net loss of$217.8 million , which was offset by non-cash adjustments of$110.3 million and net cash provided by changes in our operating assets and liabilities of$0.9 million . Significant changes in components of working capital consisted of an increase of$12.5 million in Accrued expenses and other liabilities, offset by an increase of$9.8 million in Prepaid expenses and other current assets.
Cash Used in Investing Activities
During the year endedDecember 31, 2022 , net cash used in investing activities was$2.9 million , primarily driven by capitalized internally developed software costs of$2.6 million . During the year endedDecember 31, 2021 , net cash used in investing activities was$3.3 million , primarily driven by capitalized internally developed software costs of$2.7 million and purchase of office equipment of$0.6 million . 54
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Cash Provided by Financing Activities
During the year ended
During the year endedDecember 31, 2021 , net cash provided by financing activities was$159.4 million , primarily driven by$193.0 million net cash proceeds received from the Virtuoso Business Combination andNovember 2021 PIPE, partially offset by$75.0 million net prepayment related to the Apollo Forward Purchase Agreement,$31.9 million net cash proceeds received from issuance of the Secured Loan Notes,$16.2 million net cash proceeds received from issuance of convertible notes,$2.1 million cash proceeds received from the exercise of stock options by the holders thereof, and$0.6 million cash proceeds received from the exercise of warrants to purchase common shares by the holders thereof, offset by$10.1 million repayment of our related party debt.
Certain Information Concerning Contractual Obligations
Palantir Master Subscription Agreement
InMay 2021 , we entered into a master subscription agreement with Palantir for access to Palantir's proprietary software for a six-year period. The remaining payments for this software subscription are$35.0 million .
Microsoft Customer Agreement
InJune 2021 , we entered into a cloud hosting agreement with Microsoft for access to Microsoft's Azure cloud services platform for a five-year period. The remaining payments for this cloud computing service will be made as these cloud computing services are used; the total remaining commitment amount under the agreement is £70.3 million ($84.5 million ) which is due in 2026.
The Company is party to a cloud hosting agreement withAmazon Web Services, Inc. andAmazon Web Services EMEA SARL (collectively, "AWS") for access to AWS's cloud services platform for a three year period that ends inApril 2023 . The remaining payments for this cloud computing service are$5.5 million in 2023.
Fixed Rate Secured Loan Notes Issuance
InApril 2021 , we entered into a Loan Note Instrument Agreement providing for the Secured Loan Notes withSecuris Investment Partners LLP , as security agent, under which we issued fixed rate secured loan notes in a principal amount of$21.5 million that bear interest at a fixed per annum rate of 9.2% until its maturity date inApril 2024 . Pursuant to the Loan Note Agreement, we issued further notes of$10.0 million inJuly 2021 and$7.5 million inOctober 2021 . Under the Loan Note Instrument Agreement, the Company has the ability to issue further loan notes of$4.0 million .
GM Securities Purchase Agreement
OnDecember 16, 2022 , the Company entered into a Securities Purchase Agreement withGM under which it issued and sold toGM the SCN in the aggregate principal amount of$10.0 million , and the GM Warrants to acquire up to an aggregate amount of 1,190,476 common shares at an exercise price of$0.75112 per common share (the "Offering"). The GM Warrants may be exercised at any time following the closing of the Offering untilDecember 16, 2025 . The Company received$9.5 million of proceeds fromGM associated with the Offering. The SCN accrues compounding interest at the rate of 5.0% per annum in arrears semi-annually until maturity date ofDecember 16, 2023 (the "SCN Maturity Date"), which date will automatically be extended for an additional 24 months toDecember 16, 2025 (the "SCN Extended Maturity Date") in the event that the Company engages in certain qualifying transactions. In the event that the maturity date of the SCN is extended to the SCN Extended Maturity Date, the principal under the SCN shall be payable in equal monthly installments beginning onDecember 16, 2023 and ending on the SCN Extended Maturity Date. The Company's payment obligations pursuant to the SCN are guaranteed by all of its subsidiaries pursuant to a Guaranty datedDecember 16, 2022 . AtGM's option, at any time during the 20-business day period following certain qualifying transactions,GM may require the Company to redeem all or any part of the outstanding principal and accrued but unpaid interest of the SCN, in whole or in part, at a price of 120% of the then-outstanding principal amount plus all accrued and unpaid interest. 55
-------------------------------------------------------------------------------- Table of Contents Critical Accounting Estimates The preparation of our audited consolidated financial statements in conformity withU.S. GAAP requires estimates and assumptions that affect the reported amounts and classifications of assets and liabilities, revenue and expenses, and the related disclosures of contingent liabilities in the financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. Our estimates form the basis for our judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Although we believe that our estimates, assumptions, and judgments are reasonable, they are based upon information available at the time. Actual results may differ significantly from these estimates under different assumptions, judgments or conditions. An accounting policy is critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimate that are reasonably likely to occur, could materially impact the audited consolidated financial statements. We believe that of our significant accounting policies, which are described in Note 2 to the accompanying audited consolidated financial statements, the following accounting policies involve a greater degree of judgment and complexity. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of our operations.
Revenue Recognition
We recognize revenue under ASC 606, Revenue from Contracts with Customers ("ASC 606") for all periods presented.
Our customer agreements include one or a combination of the following
contractual promises for a fixed contractual fee: (i) the supply of specified
connected vehicle data and derived insights through the Wejo Neural Edge
platform made available via a secured access to the Wejo Neural Edge platform or
via a web-based portal; (ii) the granting of a nontransferable license to use
the specified data in the manner described in each customer agreement; and, only
if required; and (iii) Wejo Neural Edge platform set up and connectivity
services. We assess our customer agreements under ASC 606 and determined that
the above contractual promises collectively represent a single performance
obligation.
The transaction price is comprised of the contractual fixed fee specified in
each customer agreement and is allocated to the single performance obligation.
We recognize revenue when our performance obligation is satisfied through the
fulfillment of the contractual promises. Our performance obligation is generally
fulfilled when we provide access to the specified data either throughout the
duration of each customer agreement's contractual term or upon delivery of a
one-time batch of historic data. We may deliver data and the license without
supplying connectivity services. As such, we recognize revenue for customers
with a contractual agreement to provide data over a period ratably over the term
of the contract which is typically one year. We recognize revenue for historic
batches of data to the customer, upon delivery of such data. Standard payment
terms are 30 days from the date of the invoice which is typically sent to the
customer monthly or upon delivery of the one-time historic batch of data.
In arrangements where another party (i.e. OEMs) is involved in providing
specified services to a customer, we evaluate whether we are the principal or
agent. In this evaluation, we consider if we obtain control of the specified
goods or services before they are transferred to the customer, as well as other
indicators such as the party primarily responsible for fulfillment and
discretion in establishing price. The terms of our OEM data sharing agreements
vary, and in some situations, the OEMs retain certain rights over the connected
vehicle data being supplied to the customers and in these situations where we
have determined that the OEMs had retained control over the data we have
determined that we act as the agent in these arrangements and recognize revenue
on a net basis. In revenue arrangements where the Company provides intelligence
data, visualization tools, or analytical products to customers, as well as in
circumstances where it provides significant integration services to create a
combined output, the Company has control over the underlying data and is acting
as the principal, and, as a result, the Company recognizes revenue on a gross
basis.
Software & Cloud Solutions
Our software and cloud customer agreements contain one or a combination of the
following contractual promises: (i) access to a single-tenant SaaS platform; and
(ii) professional services, which may include consulting, design, data
evaluation, engineering, implementation and training. We assessed these customer
agreements under ASC 606 (see Note 2 to accompanying audited consolidated
financial statements) and determined that the above contractual promises each
represent distinct performance obligations. In cases where the customer has a
unilateral right to terminate the contract for convenience and without penalty,
the contract term is limited to the
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period through which the parties have enforceable rights and obligations. In
addition to impacting the revenue recognition pattern, the shorter contract term
also impacts our determination of performance obligations and transaction price,
as certain services and their related fees are considered part of optional
contract renewals, as opposed to the original contract.
To date, the transaction price of our software and cloud contracts has been
comprised of contractual fees specified in each customer agreement with
milestone-based payment terms. The transaction price is allocated to the
performance obligations based on standalone selling price. Performance
obligations around access to the SaaS platform are satisfied over time as Wejo
provides the customer with access to the platform, and related revenue is
recognized ratably over the term of the contract. Professional services
performance obligations are satisfied over time as Wejo renders the service, and
related revenue is recognized proportionate with performance on the basis of
labor hours expended in relation to total budgeted labor hours.
We applied the practical expedient in ASC 606 to expense as incurred those costs
to obtain a contract with a customer for which the amortization period would
have been one year or less.
In accordance with ASC 606, we have not disclosed the value of unsatisfied
performance obligations for contracts with an original expected length of one
year or less. Further, because customers with contracts with no substantive
termination penalty have the ability to terminate for convenience, the total
amount of the transaction price allocated to the unsatisfied performance
obligation were not disclosed.
Internally Developed Software Costs
We capitalize certain costs incurred for the internal development of software. Internally developed software includes our proprietary portal software and related applications and various applications used in our management's portals. We expense costs incurred during the preliminary project stage for internal software programs as incurred. We capitalize external and internal costs incurred during the application development stage of new software development, as well as for upgrades and enhancements for software programs that result in additional functionality. Where applicable, we amortize over a software's estimated useful life costs for the internally developed software. We take impairment charges when circumstances indicate that the carrying values of the assets were not fully recoverable. In the years endedDecember 31, 2022 and 2021, we have not recognized any impairment charges.
Valuation of Advanced Subscription Agreements, Forward Purchase Agreement, Exchangeable Right Liability, Derivative Liability, and GM Securities Purchase Agreement.
We record our ASAs, Forward Purchase Agreement, Exchangeable Right Liability, and GM Securities Purchase Agreement at fair value with changes in fair value recorded in the audited Consolidated Statements of Operations and Comprehensive Loss. Our previously outstanding convertible notes contained redemption features that meet the definition of a derivative instrument. We classified these instruments as a liability on our audited Consolidated Balance Sheets because the redemption features were not clearly and closely related to its host instrument and met the definition of a derivative. The derivative liability was initially recorded at fair value upon issuance of the convertible notes and was subsequently remeasured to fair value at each reporting date. Changes in the fair value of the derivative liability were recognized in the audited Consolidated Statements of Operations and Comprehensive Loss. In connection with the Virtuoso Business Combination in 2021, all of the outstanding principal and accrued interest under the convertible notes was automatically converted into ordinary shares ofWejo Limited , which were then converted intoWejo Group Limited common shares, and the derivative liability was extinguished. As a result of the amendment to theFPA , the Company's share price atDecember 31, 2022 approximates the fair value of theFPA most closely as the$10 per share ceiling is not probable to be triggered. Apollo's rights to retain excess proceeds beyond the Forward Price economically serves as a cap for our potential future value per share. Following our entry into the FPA Amendment (see Note 6 to the accompanying audited consolidated financial statements), the Company may direct each Apollo seller to sell the remaining FPA Shares at any time, provided that such direction is made outside of a blackout period. The fair value of the Exchangeable Right Liability was determined using a Black-Scholes model. The Company has 6,600,000 outstanding Exchangeable Rights. Each Exchangeable Right entitles the holder to exchange one Exchangeable Right for one of the Company's common shares at an exercise price of$11.50 per share, subject to adjustment, or cash, at Wejo Bermuda's option. The Exchangeable Rights cannot be exercised until 12 months after the issuance thereof, which occurred in connection with the closing of the Virtuoso Business Combination onNovember 18, 2021 . Thereafter, it can be exercised at any time up until the fifth year following the close of the Virtuoso Business Combination. 57 -------------------------------------------------------------------------------- Table of Contents The fair value of the GM Securities Purchase Agreement was determined utilizing the fair value option to determine the fair value of the SCN. The fair value of the SCN was calculated using a hybrid of the probability-weighted expected return method, scenario-based method, and binomial lattice methods as the ultimate maturity date and put price are contingent upon the Company's engagement (or lack thereof) in certain qualifying transactions; accordingly, it is reasonable to estimate the SCN's fair value in each scenario and to determine the probability-weighted value. Within each scenario, the binomial lattice model was applied to capture the various optionality available to borrower and lender. We utilized the Black-Scholes option pricing model to determine the fair value of the GM Warrants and we concluded that the GM Warrants be classified as a liability on the audited Consolidated Balance Sheets. The fair value of the ASAs and derivative liability were determined using a scenario-based analysis. Five primary scenarios were considered: qualified financing, unqualified financing, merger or acquisition, held to maturity, and insolvency ("Exit Events"). The fair value of the Advanced Subscription Agreements and derivative liability is comprised of the value of a conversion component and a put option component. The estimated fair value of each component is calculated independently and the added together to determine the total estimated fair value of the Advanced Subscription Agreements or derivative liability under each scenario. The value of the Advanced Subscription Agreements and derivative liability under each scenario was then probability weighted to arrive at the respective instrument's recorded estimated fair value.
Assumptions and inputs used to calculate the value of the conversion component include the following:
•the amount of principal and accrued interest, if applicable; •the conversion price; •the estimated time until the scenario's respective Exit Event; and •the current estimated fair value of our Ordinary share
The fair value of the conversion component was estimated using the Black-Scholes option pricing model ("OPM").
Assumptions used in the ASAs and derivative liability OPM include the following:
•Expected volatility - We applied re-levered equity volatility based on the historical unlevered and re- levered equity volatility of our publicly traded peer companies.
•Expected dividend - Expected dividend yield of zero is because we have never paid cash dividends on ordinary shares and do not expect to pay any cash dividends in the foreseeable future.
•Expected term - The estimated time until the scenario's respective Exit Event.
•Risk-free interest rate - The risk-free interest rate is determined by
reference to the
•Fair value of ordinary share - See "Share-Based Compensation" below for discussion of how the fair value of our ordinary share is determined.
Assumptions used in the Exchangeable Right Liability and the
•Expected volatility - We applied volatility based on the volatility of our publicly traded peer companies.
•Expected dividend - Expected dividend yield of zero is because we have never paid cash dividends on ordinary shares and do not expect to pay any cash dividends in the foreseeable future.
•Expected term - is based on the term of Exchangeable Rights and the term
corresponding to the date at which the
•Risk-free interest rate - The risk-free interest rate is determined by
reference to the
Assumptions used in the SCN and the GM Warrants include the following:
•Expected volatility - Our historical volatility over a range of look-back periods and observable implied volatility data.
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•Risk-free interest rate - The risk-free interest rate is determined by
reference to the U.S. Treasury yield curve for the period commensurate with the
scenario-specific term to maturity of the notes.
•Estimated credit spread - The credit spread is determined by estimated credit
spreads ranges (depending on the timeframe considered) based upon the results of
two synthetic credit rating models that include considerations for items such as
fundamental analysis per S&P Global Intelligence, discussions with Management,
the Company's current liquidity position, and observed market data for CCC
corporate bond composite yields.
•Value of common share - Stock price is determined using the Company's closing
price as of
•Expected term - is based on the maturity date of the SCN.
Share-Based Compensation
The Company recognizes compensation expense for option awards and restricted share units based on the grant date fair value of the award. For equity awards with a service condition only, the Company recognizes non-cash share-based compensation costs over the requisite service period, which is the vesting period, on a straight-line basis. For equity awards without a substantive service condition, the Company recognizes non-cash share-based compensation costs upon the grant date in full. For equity awards with a combination of service and performance conditions, the Company recognizes non-cash share-based compensation expense on a straight-line basis over the requisite service period when the achievement of a performance-based milestone is probable of being met, based on the relative satisfaction of the performance condition as of the reporting date. The Company accounts for forfeitures as they occur. The Company uses the intrinsic value to determine the fair value of restricted share units granted to the directors. The fair value of each share option grant is estimated on the date of grant using the Black-Scholes option pricing model. See Note 18 to the accompanying audited consolidated financial statements for the Company's assumptions used in connection with option grants made during the periods covered by these audited consolidated financial statements. Assumptions used in the option pricing model include the following: Expected volatility - The Company historically has been a private company and lacks company-specific historical and implied volatility information. Therefore, it estimates its expected share volatility based on the historical volatility of a publicly traded set of peer companies and expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded share price. Expected term - For those options granted and that become exercisable upon a performance condition, the Company uses the contractual term of the award to estimate its fair value and in the event that the option does not have a contractual expiration date, the Company uses an expected term determined by the expected timing of the performance condition. For those options granted by the Company, the expected term of the Company's share options has been determined utilizing the "simplified" method for awards that qualify as "plain-vanilla" options. Risk-free interest rate - The risk-free interest rate is determined by reference to theUK andU.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to either the expected or contractual term of the award. Expected dividend - Expected dividend yield of zero is based on the fact that the Company has never paid cash dividends on common shares and does not expect to pay any cash dividends in the foreseeable future. Fair value of common shares - Given the absence of an active market for the Company's common shares prior to the Virtuoso Business Combination, the Company calculated the fair value of its common shares in accordance with the guidelines in theAmerican Institute of Certified Public Accountants' Accounting and Valuation Guide , Valuation of Privately-Held-Company Equity Securities Issued as Compensation. The Company's valuations of common shares were prepared using a market approach, based on precedent transactions in the shares, to estimate the Company's total equity value using the OPM, which used a combination of market approaches and an income approach to estimate the Company's enterprise value. After Virtuoso Business Combination, the fair value of common shares is determined by reference to the closing price of common shares on the NASDAQ on the date of grant. The OPM derives an equity value such that the value indicated is consistent with the investment price, and it provides an allocation of this equity value to each class of the Company's securities. The OPM treats the various classes of stock as call options on the total equity value of a company, with exercise prices based on the value thresholds at which the allocation among the various holders of a company's securities changes. Under this method, each class of stock has value only if the funds available for distribution to shareholders exceed the value of the share liquidation preferences of the class or classes of stock with senior preferences at the time of 59 -------------------------------------------------------------------------------- Table of Contents the liquidity event. A discount of lack of marketability of the common shares is then applied to arrive at an indication of value for the common shares. Key inputs and assumptions used in the OPM calculation include the following: Expected volatility. The Company applied re-levered equity volatility based on the historical unlevered and re-levered equity volatility of publicly traded peer companies. Expected dividend. Expected dividend yield of zero is based on the fact that the Company has never paid cash dividends on common shares and does not expect to pay any cash dividends in the foreseeable future.
Expected term. The expected term of the option or the estimated time until a liquidation event.
Risk-free interest rate. The risk-free interest rate is determined by reference to theUK Treasury yield curve for the period commensurate with the expected timing of the exit event. In addition, the Company's Board of Directors considered various objective and subjective factors to determine the fair value of its common shares as of each grant date, including: •the prices at which the Company sold common shares; •the Company's stage of development and business strategy; •external market conditions affecting the industry, and trends within the industry; •the Company's financial position, including cash on hand, and its historical and forecasted performance and operating results; •the lack of an active public market for its common shares; •the likelihood of achieving a liquidity event, such as an IPO or a sale of the company in light of prevailing market conditions; and •the analysis of IPOs and the market performance of similar companies in the industry. The assumptions underlying the Company's valuations represented management's best estimates, which involved inherent uncertainties and the application of management's judgment. As a result, if the Company had used significantly different assumptions or estimates, the fair value of its common shares could be materially different.
Recently issued accounting pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to the accompanying audited consolidated financial statements appearing in this Annual Report on Form 10-K.
Emerging Growth Company Status
We are an "emerging growth company" as defined in Section 2(a) of the Securities
Act and have elected to take advantage of the benefits of the extended
transition period for new or revised financial accounting standards. We expect
to remain an EGC at least during the 2023 fiscal year and expect to continue to
take advantage of the benefits of the extended transition period, although we
may decide to early adopt such new or revised accounting standards to the extent
permitted by such standards. This may make it difficult or impossible to compare
our financial results with the financial results of another public company that
is either not an EGC or is an EGC that has chosen not to take advantage of the
extended transition period exemptions because of the potential differences in
accounting standards used.
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