You should read the following management's discussion and analysis in conjunction with the condensed consolidated financial statements ofKaleyra, Inc. ("Kaleyra ," the "Company," "we," "us," and "our" refer toKaleyra, Inc. and all of its consolidated subsidiaries) and the related notes included elsewhere in our Quarterly Report on Form 10-Q for the quarter endedMarch 31, 2022 . The discussion below includes forward-looking statements aboutKaleyra's business, operations and industry that are based on current expectations that are subject to uncertainties and unknown or changed circumstances.Kaleyra's actual results may differ materially from these expectations as a result of many factors, including, but not limited to, those risks and uncertainties described under "Risk Factors" and elsewhere in our Annual Report on Form 10-K for the year endedDecember 31, 2021 and this Quarterly Report on Form 10-Q. We assume no obligation to update the forward-looking statements or such risk factors. This Quarterly Report on Form 10-Q and the documents incorporated herein by reference include forwardlooking statements within the meaning and protections of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These forward-looking statements are also made in reliance upon the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements with respect toKaleyra's beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions, and future performance, and involve known and unknown risks, uncertainties and other factors, which may be beyond our control, and which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements.
Overview
1. History
Kaleyra is a result of the expansion of the former Ubiquity, which was founded inMilan, Italy in 1999. Ubiquity secured a leading market position in mobile messaging on behalf of the Italian financial services industry and then sought to expand its products and geographic offerings. Ubiquity acquired SolutionsInfini ofBangalore, India in 2017 and Buc Mobile ofVienna, Virginia in 2018. It was rebranded asKaleyra S.p.A . inFebruary 2018 . Following the integration of the acquired entities, the combined company is collectively engaged in the operation of the Platforms on behalf ofKaleyra's customers. OnFebruary 22, 2019 , the Company (f/k/aGigCapital, Inc. ) entered into a stock purchase agreement (the "Stock Purchase Agreement") by and among the Company,Kaleyra S.p.A .,Shareholder Representative Services LLC , as representative for the holders of the ordinary shares ofKaleyra S.p.A . immediately prior to the closing of the Business Combination, and all of the stockholders of all of theKaleyra S.p.A . stock (collectively, suchKaleyra S.p.A . stockholders, the "Sellers"), for the purpose of the Company acquiring all of the shares ofKaleyra S.p.A ..GigCapital Inc. was incorporated inDelaware onOctober 9, 2017 for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. As a result of the Business Combination, which closed onNovember 25, 2019 , the Company (headquartered inMilan, Italy ) became a multi-channel integrated communication services provider on a global scale.Kaleyra operates in the Communications Platform as a Service ("CPaaS") market with operations inItaly ,India ,Dubai andthe United States . In connection with the closing, the Company changed its name fromGigCapital, Inc. toKaleyra, Inc. Kaleyra provides mobile communication services to financial institutions, e-commerce players, OTTs, software companies, logistic enablers, healthcare providers, retailers, and other large organizations worldwide. Through its proprietary cloud communications platforms (collectively as the "Platforms"),Kaleyra manages multi-channel integrated communication services on a global scale, consisting of messaging, rich messaging and instant messaging (including WhatsApp®), video, push notifications, e-mail, programmable voice services, Interactive Voice Response ("IVR") configurations, and chatbots. OnJuly 29, 2020 ,Kaleyra registered a German branch ofKaleyra S.p.A . with theGerman Chamber Tax Authority of Commerce .Kaleyra established its branch inGermany to expandKaleyra's footprint inCentral Europe and the Nordic countries and allow it to leverageKaleyra's trusted business solutions for customers in additional jurisdictions.Kaleyra's subsidiary,Campaign Registry Inc. , a systems initiative to reduce spam by collecting robotically driven campaign information and processing and sharing that information with mobile operators and the messaging ecosystem, began its soft launch during the second quarter of fiscal year 2020, ending up with its first revenue contracts in the second half of 2020. OnFebruary 18, 2021 ,Kaleyra entered into an agreement and plan of merger (the "Merger Agreement") withVivial, Inc. ("Vivial") for the acquisition of the business known as mGage ("mGage"), a leading global mobile messaging provider (the transaction contemplated by the Merger Agreement, the "Merger"). 29 -------------------------------------------------------------------------------- OnJune 1, 2021 ,Kaleyra completed its acquisition of mGage for a total purchase price of$218.0 million . The Merger consideration consisted of both cash consideration and common stock consideration. OnAugust 30, 2021 , the Company prepared and delivered to the Stockholder Representative a written statement (the "Post-Closing Statement") setting forth the calculation of closing cash and closing net working capital which ultimately resulted in the final Merger consideration to be equal to$217.0 million pursuant to the terms of the Merger Agreement. The cash consideration amounted to$199.2 million of which$198.6 million was paid onJune 1, 2021 and the remaining amount was settled during the period endedSeptember 30, 2021 , including a working capital adjustment of$997,000 . The common stock consideration was paid with the issuance to Vivial's former equity holders of a total of 1,600,000 shares ofKaleyra common stock at the$11.77 per share closing price ofKaleyra common stock on the date of issuance, equal to$18.8 million in value. In support of the consummation of the Merger, onFebruary 18, 2021 ,Kaleyra entered into subscription agreements (the "PIPE Subscription Agreements"), with certain institutional investors (the "PIPE Investors "), pursuant to which, among other things,Kaleyra agreed to issue and sell, in private placements to close immediately prior to the closing of the Merger, an aggregate of 8,400,000 shares ofKaleyra common stock to thePIPE Investors at$12.50 per share.Kaleyra also entered into convertible note subscription agreements (the "Convertible Note Subscription Agreements") with certain institutional investors (the "Convertible Note Investors "), pursuant to whichKaleyra agreed to issue and sell, in private placements to close immediately prior to the closing of the Merger,$200 million aggregate principal amount of unsecured convertible notes (the "Merger Convertible Notes"). OnJuly 1, 2021 ,Kaleyra completed a company reorganization of the acquired business of mGage through the initial dissolution of theDelaware single member LLCs ofVivial Holdings, LLC ,Vivial Networks, LLC , and the following merger of mGage, LLC into the surviving holding company,Vivial Inc. , which subsequently changed its name intoKaleyra US Inc. , as a result of the reorganization. As a result of the merger,Kaleyra US Inc. became the holding company and one hundred percent (100%) owner of mGageEurope Ltd. (UK ) and mGageSA de SV (Mexico ). OnJuly 8, 2021 ,Kaleyra completed the acquisition of Bandyer Srl ("Bandyer") for cash consideration of$15.4 million . Bandyer offers cloud-based audio/video communications services via Web Real Time Communication ("WebRTC") technology to financial institutions, retail companies, utilities, industries, insurance companies, human resources, and digital healthcare organizations. Bandyer provides customers with programmable audio/video APIs and Software Development Kits ("SDKs") based on WebRTC technology for a variety of use cases, including Augmented Reality ("AR") applications for smart glasses. EffectiveAugust 31, 2021 , the common stock of the Company ceased trading on the NYSE American and commenced trading on the NYSE under the ticker symbol "KLR."Kaleyra's warrants continue to trade on the NYSE American under the symbol "KLR WS". OnOctober 11, 2021 ,Kaleyra Africa Ltd , a wholly owned subsidiary ofKaleyra Inc. , was incorporated under the law ofSouth Africa with the registered office in Waterfall City, Gauteng. This newly established subsidiary is part ofKaleyra's broader strategic plan of expanding into emerging markets wherebySouth Africa will serve asKaleyra's hub to enter the entire African market.
On
Kaleyra Dominicana, S.R.L., the ninety-nine percent (99%) direct owner of
incorporated under the laws of the
in
development and innovation.
OnJanuary 13, 2022 ,Kaleyra completed a company reorganization of the acquired business of Bandyer by means of the merger of the Italian legal entity of Bandyer into the holding company,Kaleyra S.p.A .. As a result of the merger, Bandyer ceased to exist as a separate legal entity and all its assets and liabilities have been incorporated underKaleyra S.p.A . effectiveJanuary 13, 2022 . 2. Positioning The demand for cloud communications is increasingly driven by the growing, and often mandated, need for enterprises to undertake a digital transformation that includes omnichannel, mobile-first and interactive customer communications. Mobile network operators and OTTs typically are the gateway to reach end-user consumers' mobile devices.Kaleyra enables its customers and business partners to connect enterprise software and applications to mobile network operators by providing carefully documented Application Programming Interfaces ("APIs"). In addition,Kaleyra also offers an extensive set of no-coding cloud-based visual interfaces to programme communications to the customers across multiple channels.Kaleyra's Platforms couple the possibility of sending communications to end-user customers to a "Software as a Service" or SaaS business model, creating what is generally referred to as a "Communications Platform as a Service", or simply CPaaS.Kaleyra's vision is to be the CPaaS provider which best aligns with its customers' and business partners' communication requirements, and the most trusted provider, in the world. This requires a combination of security, compliance and integration capabilities that protects the integrity and privacy ofKaleyra's customers' transactions and includes other key features such as ease of provisioning, reliable network connectivity, high availability for scaling, redundancy, embedded regulatory compliance, configurable monitoring and reporting.Kaleyra believes the percentage of CPaaS customers that will require security, compliance and integration will represent an increasingly larger portion of the market, particularly with the expected exponential growth of transactional-by-nature cloud communications applications, better enablingKaleyra to set itself apart from its competition. 30 --------------------------------------------------------------------------------Kaleyra's customers are primarily enterprises which use digital mobile communications in the conduct of their business.Kaleyra provides multiple levels of global customer support 24x7, SLAs and network reliability to meet the expectations and requirements of its customers. Customers and business partners which use the Platforms value the Platforms' network reliability, andKaleyra's responsive customer support, competitive pricing, and collaborative approach. In particular,Kaleyra has been listed by Gartner (Gartner, Market Guide for Communications Platform as a Service, Worldwide,Daniel O'Connell , Lisa Under-Farboud,October 2021 ) as a co-creator, in other words, a CPaaS focused on a consultative business model that charges customers charge through a combination of CPaaS usage, platform fee and professional service fees. Also,Kaleyra was given the Gold award for "CPaaS Provider of the Year" byJuniper Research inFebruary 2022 .Kaleyra services a broad base of customers and business partners throughout the world operating in diverse sectors and regions.Kaleyra's key customers are large Business to Consumer ("B2C") and Business to Business to Consumer ("B2B2C") enterprises that use digital and mobile communications in the conduct of their business.Kaleyra has a concentration of business within the financial services industry that serves its major European banking end-user customers. With each relationship,Kaleyra is the link between the financial institutions and their end-user customers. In linking these two parties,Kaleyra's Platforms leverage the telecommunications provider to transmit critical message data to these end-user customers. 3. Business During the three months endedMarch 31, 2022 ,Kaleyra processed nearly 14.4 billion billable messages and 1.6 billion voice calls.Kaleyra organizes its efforts in four regions,Americas ,Europe , APAC and MEA. Its workforce is spread across the globe either in full-remote or office-based mode, in one of its principal offices based inNew York, New York ,Vienna, Virginia ,Los Angeles, California ,Atlanta, Georgia ,Milan, Italy ,Munich, Germany ,London, United Kingdom , andBangalore, India .Kaleyra's has over 590 employees following the closing of the Merger.Kaleyra has more than 3,800 customers and business partners worldwide across industry verticals such as financial services, e-commerce and transportation. In both the three months endedMarch 31, 2022 and 2021,Kaleyra had no indivual customer which accounted for more than 10% ofKaleyra's revenues. For the three months endedMarch 31, 2022 , 64.2% of revenues came from customers which have been on the Platforms for at least one year. AlthoughKaleyra continues to expand by introducing new customers to the Platforms, the breadth and stability of its existing customers provide it with a solid base of revenue upon which it can continue to innovate and make investment to strengthen its product portfolio, expand its global presence, and in particular into theNorth America markets following the recent acquisition of mGage, recruit world-class talent and target accretive acquisitions to capitalize on its growing market penetration opportunities and value creation.
For the three months ended
revenue was derived from its multi-channel CPaaS product offering market.
Kaleyra's revenue is primarily driven by the number of messages delivered and voice calls connected to its customers and business partners.Kaleyra's fees vary depending on the contract. In the three months endedMarch 31, 2022 , the number of messages delivered to customers increased by 105.9%, compared to the three months endedMarch 31, 2021 , and the number of voice calls connected to customers increased by 33.1%, compared to the three months endedMarch 31, 2021 . The increase in the number of messages delivered to customers is mainly driven by the volume additions following the business combination with mGage. The increase in voice calls connected to its customers was mainly the result of higher voice activities inIndia , as compared to the same period of prior year. The number of messages delivered and voice calls connected to customers is still affected by the spread of the COVID-19 pandemic, including the most recent surge in the Omicron variant strain, which resulted in significant fluctuations inKaleyra's services carrying less revenue-generating traffic in areas subject to "shelter in place" restrictions or related government orders. Volume increase has been driven by the increased number of digital payments transactions made by the end-user customers (such as credit card transactions and other digital payments), by the increasing usage of mobile banking features, and by the increasing penetration rate of digital payments in the underlying payments markets.Kaleyra is exposed to fluctuations of the currencies in which its transactions are denominated. Specifically, a material portion ofKaleyra's revenues and purchases are denominated in Euro, Indian Rupees and United Arab Emirates Dirham.
FACTORS AFFECTING COMPARABILITY OF RESULTS
The business combination with mGage
OnJune 1, 2021 ,Kaleyra completed its Merger with Vivial, and the resulting acquisition of the business owned by Vivial known as mGage, a leading global mobile messaging provider. The acquisition of mGage, subsequently renamedKaleyra US Inc. 31 -------------------------------------------------------------------------------- following its reorganization, provided an opportunity forKaleyra to expand its network operator connections and become one of only four companies providing direct connectivity to all tier-1 US carriers. The purchase consideration amounting to$217.0 million consisted of cash consideration and common stock consideration. Cash consideration amounted to$199.2 million of which$198.6 million was paid onJune 1, 2021 and the remaining amount was settled during the period endedSeptember 30, 2021 , including a working capital adjustment of$997,000 . The common stock consideration was paid with the issuance to Vivial's former equity holders of a total of 1,600,000 shares ofKaleyra common stock. The resulting value of the common stock consideration, which was based upon the$11.77 per share closing price ofKaleyra common stock as ofJune 1, 2021 , was equal to$18.8 million and has been recognized as part of the consideration transferred.Kaleyra US Inc. contributed$32.1 million to the consolidated total revenues in the three months endedMarch 31, 2022 after it was consolidated and represented 39.9% of the consolidated revenues for the three months endedMarch 31, 2022 .
In 2021, the Company incurred costs related to the acquisition of mGage of
million
condensed consolidated statement of operations.
The business combination with Bandyer
OnJuly 8, 2021 , the Company announced the acquisition of Bandyer for cash consideration of$15.4 million . Bandyer offers cloud-based audio/video communications services via WebRTC technology to financial institutions, retail companies, utilities, industries, insurance, human resources and digital healthcare organizations. Bandyer provides customers with programmable audio/video APIs and SDKs based on WebRTC technology for a variety of use cases, including Augmented Reality ("AR") applications for smart glasses. The acquisition of Bandyer adds video capabilities toKaleyra's already wide offering of communication channels. With the addition of Bandyer's video offering,Kaleyra's offerings become a complete suite of tools for omnichannel customer engagement designed for cross-channel customer experiences. OnJanuary 13, 2022 ,Kaleyra completed a company reorganization of the acquired business of Bandyer by means of the merger of the Italian legal entity of Bandyer into the holding company,Kaleyra S.p.A .. As a result of the merger, Bandyer ceased to exist as a separate legal entity and all its assets and liabilities have been incorporated underKaleyra S.p.A . effectiveJanuary 13, 2022 . COVID-19 The current COVID-19 pandemic has affected and will continue to affect economies and businesses around the world. Notwithstanding the recent improvements in the spread of the pandemic, mostly as a result of the worldwide vaccine campaigns and the numerous measures implemented by various governmental authorities and private enterprises to contain the pandemic, disruptions to the global economies caused by COVID-19 may continue for a prolonged duration and keep triggering an extended period of economic slowdown. The magnitude and duration of the resulting decline in business activity and operations cannot be measured with any degree of certainty. Indeed, during the pandemic,Kaleyra experienced fluctuations in its services carrying less revenue-generating traffic in areas subject to "shelter in place" restrictions or related government orders. Nonetheless, in the three months endedMarch 31, 2022 ,Kaleyra accounted for increasing revenues and gross margin when compared to the same period of prior year, mainly driven by the newly acquired business of mGage. At this stage, the extent and duration of the pandemic, and its foreseeable unfolding following worldwide vaccine campaigns, is still uncertain and difficult to predict, also considering the severity of the recent surge in the Omicron variant strain.Kaleyra is actively monitoring and managing its response and assessing actual and potential impacts to its operating results and financial condition, which could also impact trends and expectations.
Critical Accounting Policies and Management Estimates
Our critical accounting policies and significant estimates are detailed in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 . Our critical accounting policies and significant estimates have not changed substantially from those previously disclosed in our Annual Report on Form 10-K for the year endedDecember 31, 2021 . Actual results and outcomes may differ from management's estimates and assumptions due to risks and uncertainties, including uncertainty in the current economic environment due to the outbreak of a novel strain of the coronavirus and the armed conflict betweenRussia andUkraine . Key Business Metrics RevenueKaleyra's revenue is generated primarily from usage-based fees earned from the sale of communication services offered through access to the Company's Platforms to large enterprises as well as small and medium-sized customers. Revenue can be billed in advance or in arrears depending on the terms of the agreement; for the majority of customers, revenue is invoiced on a monthly basis in arrears. 32 --------------------------------------------------------------------------------
Cost of Revenue and Gross Profit
Cost of revenue consists primarily of costs of communications services purchased from network service providers. Cost of revenue also includes the cost ofKaleyra's cloud infrastructure and technology platform, amortization of capitalized internal-use software development costs related to the platform applications and amortization of developed technology acquired in past business combinations.
Gross profit is equal to the revenue less cost of revenue associated with
delivering the communication services to
Operating Expenses
Kaleyra's operating expenses include research and development expense, sales and marketing expense, general and administrative expense, transactions costs and depreciation and amortization, excluding the depreciation and amortization expense related to the technology platform, which is included in cost of revenues as per above.
Research and Development Expense
Research and development expense consists primarily of personnel costs, including stock-based compensation, the costs of the technology platform used for staging and development, outsourced engineering services, amortization of capitalized internal-use software development costs (other than those related to the technology platform) and an allocation of general overhead expenses.Kaleyra capitalizes the portion of its software development costs that meet the criteria for capitalization. Sales and Marketing Expense Sales and marketing expense is comprised of compensation, variable incentive compensation, benefits related toKaleyra's sales personnel, along with travel expenses, other employee related costs including stock-based compensation, and expenses related to advertising, marketing campaigns and events.
General and Administrative Expense
General and administrative expense is comprised of compensation and benefits of
administrative personnel, including variable incentive pay and stock-based
compensation, and other administrative costs such as facilities expenses,
professional fees, and travel expenses.
Results of Operations
Comparison of the three months ended
Three Months Ended March 31,
2022 2021 $ Change % Change
Revenue $ 80,481 $ 39,714 $ 40,767 NM
Cost of revenue 62,743 33,390 29,353 88 %
Gross profit 17,738 6,324 11,414 NM
Operating expenses:
Research and development 4,890 2,868 2,022 71 %
Sales and marketing 7,100 2,859 4,241 NM
General and administrative 15,380 10,602 4,778 45 %
Total operating expenses 27,370 16,329 11,041 68 %
Loss from operations (9,632 ) (10,005 ) (373 ) (4 %)
Other income, net 46 45 1 2 %
Financial expense, net (3,152 ) (719 ) 2,433 NM
Foreign currency income 257 355 (98 ) (28 %)
Loss before income tax expense (12,481 ) (10,324 ) 2,157 21 %
Income tax expense 691 34 657 NM
Net loss $ (13,172 ) $ (10,358 ) $ 2,814 27 %
NM = Not meaningful
33
--------------------------------------------------------------------------------
Revenue
In the three months ended
103%, compared to the three months ended
mainly driven by the effects of the business combination with mGage, which
contributed
businesses, representing 22% of the aggregate growth period over period.
Cost of Revenue and Gross Profit
In the three months endedMarch 31, 2022 , cost of revenue increased by$29.4 million , or 88%, compared to the three months endedMarch 31, 2021 . The increase in cost of revenue was primarily attributable to the consolidation of the newly acquired business of mGage and the amortization of acquired intangible assets. In the three months endedMarch 31, 2022 , gross profit increased by 180% compared to the three months endedMarch 31, 2021 , mainly driven by the effects of the business combination with mGage.
Operating Expenses
In the three months endedMarch 31, 2022 , research and development expenses increased by$2.0 million , or 71%, compared to the three months endedMarch 31, 2021 . Research and development expenses included$1.0 million of stock-based compensation in the three months endedMarch 31, 2022 , compared to$971,000 of stock-based compensation in the three months endedMarch 31, 2021 . Excluding such costs and$2.3 million in capitalized software development costs, compared to$768,000 capitalized costs in the three months endedMarch 31, 2021 , research and development expenses would have increased by$3.5 million mainly due to the consolidation of the newly acquired business of mGage, representing 78% of the increase in research and development expenses, and to an increase in headcount compared to the prior period. In the three months endedMarch 31, 2022 , sales and marketing expenses increased by$4.2 million compared to the three months endedMarch 31, 2021 . Sales and marketing expenses included$783,000 of stock-based compensation, compared to$522,000 in the three months endedMarch 31, 2021 . Excluding such costs, sales and marketing expenses would have increased by$4.0 million . Such increase was primarily driven by the consolidation of the newly acquired business of mGage and the amortization of acquired intangible assets, aggregately representing a 107% of the increase in sales and marketing expenses. In the three months endedMarch 31, 2022 , general and administrative expenses increased by$4.8 million , or 45%, compared to the three months endedMarch 31, 2021 . General and administrative expenses included (i)$5.0 million of stock-based compensation in the three months endedMarch 31, 2022 , compared to$3.1 million in the three months endedMarch 31, 2021 ; and (ii)$81,000 of mGage and Bandyer acquisition transaction costs and$1.8 million of transaction costs and costs pertaining to initial public company compliance in the three months endedMarch 31, 2022 and 2021, respectively. Excluding such costs, general and administrative expenses would have increased by$4.6 million , mainly due to the consolidation of the newly acquired business of mGage, representing 74% of the increase in general and administrative expenses, and to an increase in the headcount compared to the same period of last year.
Financial Expense, Net
In the three months endedMarch 31, 2022 , financial expense, net increased by$2.4 million , compared to the same period last year. Such increase in financial expense is mainly attributable to the accrued contractual interest expense and amortization of issuance costs amounting to$3.0 million and$478,000 , respectively, partially offset by the decrease in the fair value of the private warrant liability of$534,000 . The same period last year accounted for$1.3 million in change in fair value of the private warrant liability, partially offset by the non-recurring reversal of interest expense on a forward share purchase agreement of$659,000 . Excluding the net change in fair value of the warrant of$534,000 and the interest expense on convertible notes of$3.5 million , financial expense, net would have increased by$71,000 .
Foreign Currency Income
In the three months endedMarch 31, 2022 , foreign currency income decreased by$98,000 , or 28%, compared to the three months endedMarch 31, 2021 . Such change was mainly attributable to the effects of the fluctuation of the Indian Rupee and Euro against theU.S. dollar.
Income Tax Expense
In the three months endedMarch 31, 2022 , income tax expense increased by$657,000 , mainly driven by domestic permanent differences, primarily related to the Global Intangible Low-Tax Income provision (GILTI) inclusion, and amount and mix of income (loss) from multiple tax jurisdictions. 34 --------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
As ofMarch 31, 2022 , the Company had$86.2 million of cash and cash equivalents,$1.7 million of restricted cash and$7.3 million of short-term investments with maturity terms between 4 and 12 months held inIndia . Of the$95.2 million in cash, restricted cash and short-term investments,$45.7 million was held inU.S. banks,$36.2 million was held inItaly ,$11.1 million was held inIndia with the remainder held in other banks. As ofDecember 31, 2021 , the Company had$90.0 million of cash and cash equivalents,$1.7 million of restricted cash and$6.2 million of short-term investments.
The condensed consolidated balance sheets as of
current assets of
million
OnFebruary 18, 2021 , and for the purposes of raising the cash portion of the consideration for the Merger,Kaleyra entered into the PIPE Subscription Agreements with thePIPE Investors and the Convertible Note Subscription Agreements with theConvertible Note Investors . Pursuant to these agreements, and prior to the closing of the Merger onJune 1, 2021 ,Kaleyra issued an aggregate of$105 million or 8,400,000 shares ofKaleyra common stock to thePIPE Investors at$12.50 per share and$200 million aggregate principal amount of unsecured Merger Convertible Notes. OnFebruary 25, 2021 , in accordance with the terms of the agreement ("Confirmation"), NGFP fully terminated the Forward Transaction and made a payment in the aggregate amount of$17.0 million toKaleyra . Following the cash settlement of the Forward Transaction, the Forward Transaction with NGFP has terminated pursuant to the terms of the Confirmation, and as a result the Company has no further obligations. Management currently plans to retain the cash in the jurisdictions where these funds are currently held.Kaleyra believes its cash, cash flows from operations and availability of borrowings will be sufficient to support its planned operations for at least the next 12 months.Kaleyra finances its operations through a combination of cash generated from operations and from borrowings underKaleyra bank facilities primarily with banks located inItaly , as well as proceeds from equity offerings and convertible note arrangements.Kaleyra's long-term cash needs primarily include meeting debt service requirements, working capital requirements and capital expenditures.Kaleyra may also pursue strategic acquisition opportunities that may impact its future cash requirements. There are a number of factors that may negatively impact its available sources of funds in the future including the ability to generate cash from operations, obtain additional financing or refinance existing short-term debt obligations, including those related to acquisitions completed in prior periods. The amount of cash generated from operations is dependent upon factors such as the successful execution ofKaleyra's business strategies and worldwide economic conditions. The amount of debt available under future financings is dependent onKaleyra's ability to maintain adequate cash flow for debt service and sufficient collateral, and general financial conditions inKaleyra's market. As noted above,Kaleyra entered into the Convertible Note Subscription Agreements with theConvertible Note Investors pursuant to whichKaleyra agreed to issue$200 million in aggregate principal of Merger Convertible Notes. Subject to the terms of the Merger Convertible Notes,Kaleyra may opportunistically raise debt capital, subject to market and other conditions, to refinance its existing capital structure at a lower cost of capital and extend the maturity period of certain debt. Additionally,Kaleyra may also raise debt capital for strategic opportunities which may include acquisitions of additional companies, and general corporate purposes. If additional financing is required from outside sources,Kaleyra may not be able to raise it on terms acceptable to it or at all. IfKaleyra is unable to raise additional capital when desired,Kaleyra's business, operating results and financial condition may be adversely affected.Kaleyra has a number of long-standing business and banking relationships with major Italian commercial banks where it maintains both cash accounts and a credit relationship. Historically,Kaleyra has used cash generated from operations and other sources to fund its growth and investment opportunities. AsKaleyra's management made the decision to expand its operations outside ofItaly and acquire additional companies, it took on certain additional financing in order to fund cash payments due on the acquisitions. As ofMarch 31, 2022 ,Kaleyra's total bank and other borrowings, including amounts drawn under the revolving credit line facilities was$35.3 million ($38.7 million as ofDecember 31, 2021 ).Kaleyra has credit line facilities of$6.6 million as ofMarch 31, 2022 , of which$4.6 million has been used. As ofDecember 31, 2021 ,Kaleyra had credit line facilities of$6.7 million , of which$5.3 million had been used. Amounts drawn under the credit line facilities are collateralized by specific customer trade receivables and funds available under the line are limited based on eligible receivables.
Notes Payable – Other
OnApril 16, 2020 , in connection with the Business Combination,Kaleyra entered into a Settlement Agreement and Release (the "Settlement Agreement") with its financial advisory service firms,Cowen and Company, LLC ("Cowen") andChardan Capital 35 --------------------------------------------------------------------------------Markets, LLC , ("Chardan" and collectively the "Service Firms"), pursuant to which it agreed to pay an affiliate of Cowen,Cowen Investments II LLC ("Cowen Investments"), and Chardan, in full satisfaction of all amounts owed to the Service Firms as ofDecember 31, 2019 ,$5.4 million in the aggregate, as follows: (i)$2.7 million in the aggregate in common stock ofKaleyra (the "Settlement Shares") to be issued the business day prior to the filing of a resale registration statement for such Settlement Shares (the "Resale Registration Statement"), (ii) convertible notes totaling$2.7 million in the aggregate with a maturity date three years after issuance and bearing interest at five percent (5%) per annum (but with lower interest rates if the notes are repaid earlier than one year or two years after issuance) and with interest paid in arrears to the payee onMarch 15 ,June 15 ,September 15 andDecember 15 of each year, with such convertible notes to also be issued the business day prior to the filing of the Resale Registration Statement and (iii) in the event that the Beneficial Ownership Limitation (as defined below) would otherwise be exceeded upon delivery of the Settlement Shares above, a warrant agreement also to be entered into with and issued to the Services Firms the business day prior to the filing of the Resale Registration Statement, whereby the amount of common stock ofKaleyra by which the Beneficial Ownership Limitation would otherwise have been exceeded upon delivery of the Settlement Shares will be substituted for by warrants with an exercise price of$0.01 per share issued pursuant to a Warrant Agreement (the "Warrant Agreement") and the common stock underlying the Warrant Agreement (the "Warrant Shares"). The Beneficial Ownership Limitation shall initially be 4.99% of the number of shares of the common stock outstanding ofKaleyra immediately after giving effect to the issuance of these shares of common stock. The number of Settlement Shares was calculated using as the price per Settlement Share an amount equal to a fifteen percent (15%) discount to the ten-day (10-day) trailing dollar volume-weighted average price for the common stock ofKaleyra on theNYSE American LLC stock exchange (the "VWAP") on the business day immediately prior to the date on whichKaleyra files the Resale Registration Statement. In addition, the price per share for determining the number of shares of common stock ofKaleyra to be issued upon the conversion of the convertible notes shall be a five percent (5%) premium to the ten-day (10-day) trailing VWAP as of the date immediately prior to the issuance date of the convertible notes, rounded down to the nearest whole number. OnMay 1, 2020 , in connection with the Settlement Agreement,Kaleyra issued: (i) an aggregate of 440,595 Settlement Shares to Cowen Investments and Chardan, consisting of 374,506 Settlement Shares issued to Cowen Investments, and 66,089 Settlement Shares issued to Chardan; and (ii) convertible promissory notes in the aggregate principal amount of$2.7 million to Cowen Investments and Chardan, consisting of a convertible promissory note in the principal amount of$2.3 million issued to Cowen Investments (the "Cowen Note") and a convertible promissory note in the principal amount of$405,000 issued to Chardan (the "Chardan Note"). The unpaid principal of the Cowen Note is convertible at the option of Cowen Investments into 303,171 shares of common stock ofKaleyra , if there has been no principal reduction, and the unpaid principal of the Chardan Note is convertible at the option of Chardan into 53,501 shares of common stock ofKaleyra , if there has been no principal reduction. As the Beneficial Ownership Limitation was not triggered by the issuance of the Settlement Shares, no Warrant Agreement was necessary and no warrants were issued. OnFebruary 4, 2021 , Cowen Investments elected to convert the outstanding amount of the Cowen Note into 303,171 shares of common stock pursuant to the terms of the Cowen Note, and as a result the Company has no further obligations with respect to the Cowen Note.
As of
and accrued interest was
Notes Payable to the Sellers
As mentioned above, at the Closing of the Business Combination,Kaleyra issued unsecured convertible promissory notes to each of Esse Effe and Maya in the amount of$6.0 million and$1.5 million , respectively, and also issued other unsecured promissory notes to each of Esse Effe and Maya in the identical respective amounts (the "Notes payable to the Sellers"). Interest on the Notes Payable to the Sellers shall accrue at a fixed interest rate equal to the one-yearU.S. dollar LIBOR interest rate published inThe Wall Street Journal on the date of the Business Combination, plus a margin of one percent (1%) per annum. The unsecured promissory notes held by Esse Effe and Maya were paid in full during fiscal year 2020 and no amount remains outstanding for such notes as ofMarch 31, 2022 . On the fifteen-month anniversary of the Business Combination date, orFebruary 25, 2021 , fifty percent (50%) of the previously outstanding amount of the unsecured convertible promissory notes held by Esse Effe and Maya was repaid, with a total of$3.0 million and$750,000 in principal and$176,000 and$44,000 in accrued interest being paid to Esse Effe and Maya, respectively, pursuant to the terms of the unsecured convertible promissory notes. Under the terms of the unsecured convertible promissory notes, the outstanding principal balance of the notes, plus all accrued and unpaid interest and fees due under these notes, became due and payable, upon the receipt by the Company of cash proceeds of an equity financing in an aggregate gross amount of$105.0 million or 8,400,000 shares ofKaleyra common stock at$12.50 per share issued to thePIPE Investors in the private placement equity financing event immediately prior to the closing of the Merger Agreement ofJune 1, 2021 . The principal amount of$3.8 million plus accrued interest of$84,000 for the unsecured convertible promissory notes held by Esse Effe and Maya was paid in full onJune 2, 2021 . Following the payment of the previously outstanding amount of convertible notes, the Notes Payable to the Sellers terminated pursuant to their terms and no further amounts were due. 36 --------------------------------------------------------------------------------
Forward Share Purchase Agreements Obligations
OnFebruary 25, 2021 , in accordance with the terms of the Confirmation, NGFP fully terminated the Forward Transaction and made a payment in the aggregate amount of$17.0 million toKaleyra . Following the cash settlement of the Forward Transaction, the Forward Transaction with NGFP was terminated pursuant to the terms of the Confirmation, and as a result the Company has no further obligations. During the period fromJanuary 25, 2021 throughMarch 2, 2021 , Yakira provided notice to the Company that it sold all but 219 of the 43,930 shares that it held onDecember 31, 2020 in the open market at a price above$11.00 per share that were subject to the Third Yakira Amendment. OnMarch 29, 2021 Yakira provided notice to the Company that it would not require the Company to purchase its remaining 219 shares by the term date ofMarch 31, 2021 . Following the sale of shares and the lapse of the Third Yakira Amendment mentioned above, the forward share purchase agreement with Yakira terminated pursuant to its terms, and as a result the Company has no further obligations under the Yakira Purchase Agreement. As ofMarch 31, 2022 , there are no outstanding obligations under this forward share purchase agreement. Refer to the Company's Annual Report on Form 10-K filed with theSEC onMarch 15, 2021 for further information.
Merger Convertible Notes
OnFebruary 18, 2021 , in support of the consummation of the Merger,Kaleyra entered into Convertible Note Subscription Agreements, each datedFebruary 18, 2021 , with theConvertible Note Investors . InJune 2021 , the Company issued the Merger Convertible Notes with an aggregate principal amount of$200 million . The Company incurred$11.4 million of issuance costs as a result of the issuance of the Merger Convertible Notes. In connection with the issuance of the Merger Convertible Notes pursuant to the terms of the Convertible Note Subscription Agreements, the Company entered into an indenture (the "Indenture") withWilmington Trust, National Association , a national banking association, in its capacity as trustee thereunder (the "Indenture Trustee"), in respect of the$200 million of Merger Convertible Notes that were issued to theConvertible Note Investors . The Merger Convertible Notes bear interest at a rate of 6.125% per annum, payable semi-annually, in arrears on eachJune 1 andDecember 1 of each year, commencing onDecember 1, 2021 , to holders of record at the close of business on the precedingMay 15 andNovember 15 , respectively. The Merger Convertible Notes are convertible into 11,851,852 shares ofKaleyra common stock at a conversion price of$16.875 per share ofKaleyra common stock in accordance with the terms of the Indenture, and mature five years after their issuance. The Company may, at its election, force conversion of the Merger Convertible Notes after (i) the first anniversary of the issuance of the Merger Convertible Notes, subject to a holder's prior right to convert, if the last reported sale price of theKaleyra common stock exceeds 150% of the conversion price for at least 20 trading days during the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter and (ii) the second anniversary of the issuance of the Merger Convertible Notes, subject to a holder's prior right to convert, if the last reported sale price of theKaleyra common stock exceeds 130% of the conversion price for at least 20 trading days during the period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter. Following certain corporate events that occur prior to the maturity date or if the Company forces a mandatory conversion, the Company will, in certain circumstances, increase the conversion rate for a holder who elects to convert its Merger Convertible Notes in connection with such a corporate event or has its Merger Convertible Notes mandatorily converted, as the case may be. In addition, in the event that a holder of the Merger Convertible Notes elects to convert its Merger Convertible Notes prior to the third anniversary of the issuance of the Merger Convertible Notes, the Company will be obligated to pay an amount equal to twelve months of interest, or if on or after such third anniversary of the issuance of the Merger Convertible Notes, any remaining amounts that would be owed to, but excluding, the fourth anniversary of the issuance of the Merger Convertible Notes (the "Interest Make-Whole Payment"). The Interest Make-Whole Payment will be payable in cash or shares ofKaleyra common stock as set forth in the Indenture. Upon the issuance of the Merger Convertible Notes management made the assessment whether the convertible instrument contained embedded conversion features for bifurcation and concluded that such embedded conversion features met the definition of a derivative but qualified for the scope exception under ASC 815-10-15-74(a) as they are indexed to the Company's stock and qualify for classification within stockholders' equity. Management determined that the Interest Make-Whole Payment feature met the definition of a derivative but did not fall within the above scope exception, nonetheless its value was de minimis and as such no amount was recorded at the time of the issuance of the Merger Convertible Notes nor at any subsequent reporting date. Management will continue to monitor the valuation of the Interest Make-Whole Payment provision and assess the need to record a liability in future periods. As ofMarch 31, 2022 , the outstanding amount of the Merger Convertible Notes was$190.2 million , net of issuance costs. During the three months endedMarch 31, 2022 , contractual interest expense on the Merger Convertible Notes amounted to$3.0 million , and amortization of the debt issuance costs amounted to$478,000 . The liability is included in the condensed consolidated balance sheet line item "Long-term portion of notes payable" and the interest expense is included in "Financial expense, net" on the condensed consolidated statements of operations. 37 --------------------------------------------------------------------------------
Long-term financial obligations
Long-term financial obligations, excluding the Notes Payable to the Sellers,
Merger Convertible Notes and credit line facilities, consisted of the following
(in thousands):
Interest Nominal Rate
As of As of As of As of
March 31, December 31,
Interest Contractual Rate
2022 2021 Maturity as of March 31, 2022 2022 2021
UniCredit S.p.A.
(Line A Tranche 1)
Euribor 3 months + 3.10% 2.80 % 2.80 %
UniCredit S.p.A.
(Line A Tranche 2) 97 113 November 2023 Euribor 3 months + 3.10% 2.80 % 2.80 % UniCredit S.p.A. (Line B) 2,061 2,337 May 2024 Euribor 3 months + 2.90% 2.60 % 2.60 % UniCredit S.p.A. (Line C) 1,546 1,833 August 2023 Euribor 3 months + 3.90% 3.44 % 3.33 % Intesa Sanpaolo S.p.A. (Line 1) 142 290 April 2022 Euribor 3 months + 2.30% 1.84 % 1.73 % Intesa Sanpaolo S.p.A. (Line 2) 2,544 2,872 April 2024 Euribor 3 months + 3.10% 2.64 % 2.53 % Intesa Sanpaolo S.p.A. (Line 3) 8,781 8,961 June 2026 Euribor 3 months + 2.15% 1.69 % 1.58 % Intesa Sanpaolo S.p.A. (Line 4) 5,519 5,927 July 2026 Euribor 3 months + 2.20% 1.74 % 1.63 %
Monte dei Paschi di
Siena S.p.A. (Line 1) 19 76 April 2022 0.95 % 0.95 % 0.95 %
Monte dei Paschi di
Siena S.p.A. (Line 2) 1,110 1,132 June 2023 1.50 % 1.50 % 1.50 % Banco BPM S.p.A. (Line 1) 486 593 June 2023 Euribor 3 months + 2.00% 2.00 % 2.00 % Banco BPM S.p.A. (Line 3) 4,483 5,014 September 2024 Euribor 3 months + 3.00% 2.54 % 2.43 % Simest 1 185 189 December 2023 0.50 % 0.50 % 0.50 % Simest 2 184 188 December 2023 0.50 % 0.50 % 0.50 % Simest 3 338 345 December 2023 0.50 % 0.50 % 0.50 % Simest 4 1,194 1,218 April 2027 0.50 % 0.50 % 0.50 %
Total bank and other borrowings 30,645 33,418 Less: current portion 10,657 10,508 Total long-term portion$ 19,988 $ 22,910
All bank and other borrowings are unsecured borrowings of
Cash Flows
The following table summarizes cash flows for the periods indicated (in
thousands):
Three Months Ended March 31,
2022 2021
Net cash provided by (used in) operating activities
$ (8,207 ) Net cash used in investing activities (3,983 ) (315 ) Net cash provided by (used in) financing activities (2,688 )
11,970
Effect of exchange rate changes on cash, cash equivalents and restricted cash (334 ) (911 )
Net increase (decrease) in cash, cash equivalents and
restricted cash
$ (3,813 )
In the three months endedMarch 31, 2022 , cash provided by operating activities was$3.2 million , primarily consisting of$2.2 million of changes in operating assets and liabilities and non-cash items, mainly$6.8 million of stock-based compensation,$5.9 million of depreciation and amortization expense,$820,000 of deferred taxes,$534,000 of change in the fair value of the warrant liability and$490,000 of non-cash interest expense, partially offset by a net loss of$13.2 million . 38 -------------------------------------------------------------------------------- In the three months endedMarch 31, 2021 , cash used in operating activities was$8.2 million , primarily consisting of net loss of$10.4 million and$5.6 million of net changes in operating assets and liabilities, partially offset by non-cash items, mainly$4.6 million of stock-based compensation,$909,000 of depreciation and amortization expense,$663,000 of deferred taxes changes,$1.3 million of change in fair value of the warrant liability,$659,000 of reversal of interest expense previously accrued on a forward share purchase agreement and$813,000 of provision for doubtful accounts.
In the three months ended
internally developed software,
investments and
In the three months endedMarch 31, 2021 , cash used in investing activities was$315,000 , primarily consisting of$768,000 of capitalized software development costs, partially offset by$546,000 of proceeds from the sale of short-term investments In the three months endedMarch 31, 2022 , cash used in financing activities was$2.7 million , primarily consisting of$2.1 million of repayments on term loans and$525,000 of repayments on lines of credit. In the three months endedMarch 31, 2021 , cash provided by financing activities was$12.0 million , primarily consisting of$17.0 million of receipts related to forward share purchase agreements,$1.2 million in proceeds related to the settlement of non-forfeited 2020 Sponsor Earnout Shares, partially offset by$1.9 million of repayments on term loans,$3.8 million of repayments on notes and$663,000 in repayments on lines of credit.
Seasonality
Historically,Kaleyra has experienced clear seasonality in its revenue generation, with slower traction in the first calendar quarter, and increasing revenues as the year progresses.Kaleyra typically experiences higher revenues in messaging and notification services during the fourth calendar quarter. This patterned revenue generation behavior takes place due toKaleyra's customers sending more messages to their end-user customers who are engaged in consumer transactions at the end of the calendar year, resulting in an increase in notifications of electronic payments, credit card transactions and e-commerce.
Taxes
The Company files income tax returns inthe United States and in foreign jurisdictions includingItaly ,Germany ,United Kingdom andIndia . As ofMarch 31, 2022 , the tax years 2017 through the current period remain open to examination in each of the major jurisdictions in which the Company is subject to tax.
The Company recorded an income tax expense of
of
Recent Accounting Pronouncements
See Note 2 – Summary of Significant Accounting Policies – to the condensed
consolidated financial statements included in Part I of this Quarterly Report on
Form 10-Q for more information on new accounting pronouncements.
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