Quarterly report pursuant to Section 13 or 15(d)

Business Combinations

v3.22.2
Business Combinations
6 Months Ended
Jun. 30, 2022
Business Combinations [Abstract]  
Business Combinations

3. BUSINESS COMBINATIONS

Acquisition of mGage

On June 1, 2021, the Company 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 provided an opportunity for the Company to expand its network operator connections and become one of only four companies providing direct connectivity to all tier-1 US carriers.

Pursuant to the Merger Agreement dated as of February 18, 2021, by and among the Company, Merger Sub, Vivial and GSO Special Situations Master Fund LP, solely in its capacity as the Stockholder Representative, Vivial was merged with and into Merger Sub, with Vivial surviving as a wholly-owned subsidiary of the Company. The name of Vivial was changed to mGage Group Holdings, Inc. (“mGage Group Holdings”) as a result of the Merger. Subsequently, on July 1, 2021, mGage Group Holdings changed its name to Kaleyra US Inc.

The Merger consideration consisted of cash consideration and common stock consideration and was subject to post-closing price adjustments as set forth in the Merger Agreement. On August 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 original cash consideration amounted to $199.2 million of which $198.6 million was paid on June 1, 2021 and the remaining amount was settled through the period ended September 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 of Kaleyra common stock. The resulting value of the common stock consideration, which was based upon the $11.77 per share closing price of Kaleyra common stock as of June 1, 2021, was equal to $18.8 million and has been recognized as part of the consideration transferred.

The Merger was financed through (i) the proceeds from the issuance and sale by the Company, of an aggregate of 8,400,000 shares of Kaleyra common stock to PIPE Investors at $12.50 per share, pursuant to the subscription agreements dated February 18, 2021; and (ii) the proceeds from the issuance in a private placement, of $200 million aggregate principal amount of Merger Convertible Notes to certain institutional investors. See Note 9 – Notes Payable – for additional details on the Merger Convertible Notes.

The Merger was accounted for as a business combination and the total fair value of the consideration transferred of $217 million was allocated on a preliminary basis to the net tangible and intangible assets and liabilities based on their estimated fair values as of the acquisition date and the excess was recorded as goodwill. The Company evaluated certain assets, liabilities and tax estimates that were subject to change throughout the measurement period ended on June 1, 2022 (one year from the acquisition date).

During the three months ended September 30, 2021, Kaleyra redetermined the estimated fair value of certain identified finite-lived intangible assets, net of deferred tax liabilities and the resulting residual goodwill. The measurement period adjustment was recognized through a decrease of $8.9 million in the current period condensed consolidated balance sheet line item “Intangible assets, net” mostly relating to the acquired developed technology, a net decrease of $1.9 million in the current period condensed consolidated balance sheet line item “Deferred tax liability” and an increase of $5.9 million in the current period condensed consolidated balance sheet line item “Goodwill”.

During the three months ended June 30, 2022, Kaleyra redetermined the value of Deferred tax assets on loss carryforward following the filing of mGage Group Holding’s pre-affiliation tax return and remeasured the tax effected values of its identified finite-

lived intangible assets based upon the tax rates calculated in each domestic and foreign tax jurisdiction, including the UK. The measurement period adjustment was recognized through a net decrease of $5.1 million in the current period condensed consolidated balance sheet line item “Deferred tax assets”, a decrease of $2.0 million in the current period condensed consolidated balance sheet line item “Deferred tax liability” and a net increase of $3.1 million in the current period condensed consolidated balance sheet line item “Goodwill”.

As referred to above, the measurement period adjustment also included a working capital adjustment of $997,000, pursuant to the terms of the Merger Agreement. The acquired entity’s results of operations have been included in the condensed consolidated financial statements of the Company from the date of acquisition.

The following table summarizes the fair value amount recognized for the assets acquired and liabilities assumed as of the acquisition date (in thousands):

 

Customer relationships (1)

 

$

76,256

 

Developed technology (1)

 

 

30,033

 

Trade names (1)

 

 

13,060

 

Deferred tax assets on loss carryforward

 

 

19,899

 

Goodwill (2)

 

 

89,391

 

Accounts receivable and other current assets

 

 

29,996

 

Property and equipment

 

 

8,450

 

Cash and cash equivalents

 

 

2,856

 

Total assets acquired

 

 

269,941

 

Deferred tax liabilities

 

 

30,242

 

Accounts payable and other current liabilities

 

 

22,665

 

Total liabilities assumed

 

 

52,907

 

Net assets acquired

 

$

217,034

 

 

(1)

Identified finite-lived intangible assets. The estimated fair value of the intangible assets acquired was determined by the Company, which considered or relied in part upon a valuation report of a third-party expert. The Company used income approaches to estimate the fair values of the identifiable intangible assets. The estimated useful life is 7 to 9 years for customer relationships, 6 years for developed technology and 8 years for trade names.

 

(2)

Goodwill is the excess of fair value of the consideration transferred over the fair value of identifiable tangible and intangible assets acquired and liabilities assumed and represents expected synergies of the combination of the acquired business. Goodwill is not deductible for income tax purposes.

In 2021, the Company incurred costs related to this acquisition of $5.5 million that were expensed in general and administrative expenses in the accompanying condensed consolidated statements of operations.

The contribution of Kaleyra US Inc. to the consolidated revenue and consolidated net loss for the three months ended June 30, 2022 was $30.2 million, and net loss of $1.9 million.

The contribution of Kaleyra US Inc. to the consolidated revenue and consolidated net loss for the six months ended June 30, 2022 was $62.3 million, and net loss of $2.9 million.

Acquisition of Bandyer

On July 8, 2021, Kaleyra completed the acquisition of the entire share capital of Bandyer, a company based in Italy that offers cloud based audio/video communications services to Italian financial institutions, retail companies, utilities, insurance, human resources and digital healthcare organizations (the “Bandyer Acquisition”). Bandyer’s services are suitable for different industries and completely compatible with any device and expand and complete Kaleyra’s already wide offering of communication channels.

The consideration for the Bandyer Acquisition consisted of cash consideration of $15.4 million (€13 million) of which $13.3 million (€11.5 million) was paid at the acquisition date and the remaining amount was retained in an escrow account. The acquisition of Bandyer was financed through the available financial resources of Kaleyra.

The Bandyer Acquisition was accounted for as a business combination and the total fair value of the consideration transferred of $15.4 million was allocated to the net tangible and intangible assets and liabilities based on their estimated fair values as of the acquisition date and the excess was recorded as goodwill. The Company evaluated certain assets, liabilities and tax estimates that were subject to change throughout the measurement period ended on July 8, 2022 (one year from the acquisition date).

During the three months ended March 31, 2022, and pursuant to the Bandyer purchase agreement, the above purchase consideration was decreased by $58,000, which is an amount equal to the sum of the acquisition date net debt and the portion of the

acquisition date net working capital that was collected by December 31, 2021 (the “Price Adjustment”). The Price Adjustment favorable to Kaleyra was considered in the calculation of the final goodwill balance as of March 31, 2022.

During the three months ended March 31, 2022, Kaleyra adjusted the deferred tax liabilities arising from the acquired tangible and intangible assets and the resulting residual goodwill. The measurement period adjustment was recognized through an increase of $164,000 in the current period condensed consolidated balance sheet line item “Deferred tax liability” and a corresponding increase in the current period condensed consolidated balance sheet line item “Goodwill”.

As referred to above, the measurement period adjustment also included the above Price Adjustment of $58,000. The acquired entity’s results of operations have been included in the condensed consolidated financial statements of Kaleyra from the date of acquisition.

The following table summarizes the fair value amount recognized for the assets acquired and liabilities assumed as of the acquisition date (in thousands):

 

Property and equipment, net

 

$

116

 

Developed technology (1)

 

 

7,999

 

Customer relationship (1)

 

 

1,798

 

Goodwill (2)

 

 

8,146

 

Cash and cash equivalents

 

 

349

 

Trade receivables and other current assets

 

 

671

 

Other non current assets

 

 

21

 

Total assets acquired

 

 

19,100

 

Deferred tax liabilities

 

 

2,616

 

Accounts payable and other current liabilities

 

 

986

 

Long term portion of employee benefit obligation

 

 

126

 

Current portion of bank and other borrowings

 

 

39

 

Total liabilities assumed

 

 

3,767

 

Net assets acquired

 

$

15,333

 

 

(1)

Identified finite-lived intangible assets. The estimated fair value of the intangible assets acquired was determined by Kaleyra, which considered or relied in part upon a valuation report of a third-party expert. The Company used income approaches to estimate the fair values of the identifiable intangible assets. The estimated useful life is 8 years for customer relationships and 15 years for developed technology.

 

(2)

Goodwill is the excess of fair value of the consideration transferred over the fair value of identifiable tangible and intangible assets acquired and liabilities assumed and represents expected synergies of the combination of the acquired business. Goodwill is not deductible for income tax purposes.

On January 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 under Kaleyra S.p.A. effective January 13, 2022.

On April 4, 2022, following the above Price Adjustment and pursuant to the terms of the purchase agreement, Kaleyra paid an aggregate of $1.1 million (€1.0 million) out of the escrow account as remaining consideration for the Bandyer Acquisition. As of June 30, 2022 the resulting balance of the escrow account that was originally retained at the acquisition date amounted to $468,000 (€451,000).

Unaudited supplemental pro-forma information

The results of operations for the three and six months ended June 30, 2022 are included in the condensed consolidated financial statements. The following table presents unaudited supplemental pro-forma information for the three and six months ended June 30, 2021 as if the Merger had occurred on January 1, 2021. The main adjustments reflected in the unaudited pro-forma financial information for the three and six months ended June 30, 2021 are as follows:

 

(i)

the amortization of intangible assets arising from the purchase price allocation amounting to $1.9 million and $4.6 million, respectively, for three and six months ended June 30, 2021, net of the related tax effect of $687,000 and $1.7 million, respectively, which are referred to the period starting on January 1, 2021 through the date of the business combination;

 

(ii)

the financial expenses incurred in connection with the Merger Convertible Notes amounting to $2.4 million and $5.9 million, respectively, for three and six months ended June 30, 2021, which are referred to the period starting on January 1, 2021 through the date of the Merger. No pro forma tax benefit has been reflected in connection with the pro forma

 

adjustment to financial income (expense), net as Kaleyra is in a net loss tax position and a valuation allowance would be established for the amount of any deferred tax assets.

Transaction costs incurred in connection with the transaction were not eliminated. The pro-forma financial information is not necessarily indicative of the results of operation that would have occurred had the transaction been affected on the assumed dates.

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

(in thousands, except share and per share amounts)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Revenue

 

$

81,109

 

 

$

76,552

 

 

$

161,590

 

 

$

148,892

 

Net loss

 

 

(15,837

)

 

 

(5,792

)

 

 

(29,009

)

 

 

(19,772

)

Net loss per common share, basic and diluted

 

$

(0.36

)

 

$

(0.14

)

 

$

(0.68

)

 

$

(0.48

)

Weighted-average shares used in computing net loss per common share, basic and diluted

 

 

43,410,858

 

 

 

41,181,763

 

 

 

42,829,188

 

 

 

40,773,353

 

 

The contribution of Kaleyra US Inc. to the consolidated and pro-forma consolidated revenue was $30.2 million and $32.7 million for the three months ended June 30, 2022 and 2021, respectively.

The contribution of Kaleyra US Inc. to the consolidated and pro-forma consolidated revenue was $62.3 million and $64.6 million for the six months ended June 30, 2022 and 2021, respectively.

The contribution of Kaleyra US Inc. to the consolidated and pro-forma consolidated net loss was a loss of $1.9 million and an income of $3.9 million for the three months ended June 30, 2022 and 2021, respectively.

The contribution of Kaleyra US Inc. to the consolidated and pro-forma consolidated net loss was a loss of $2.9 million and an income of $7.5 million for the six months ended June 30, 2022 and 2021, respectively.