Matterport(US:MTTR)2022-11-09 16:00Part I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) The unaudited financial statements for Q3 2022 show total assets decreased to $660.4 million, net loss narrowed to $51.0 million, and cash used in operations increased to $99.4 million, primarily due to liability changes and revenue growth Condensed Consolidated Balance Sheets Total assets decreased to $660.4 million, while total liabilities significantly reduced to $54.6 million due to earn-out settlement, leading to increased stockholders' equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $81,852 | $139,519 | | Short-term investments | $405,599 | $264,931 | | Total current assets | $535,779 | $437,703 | | Goodwill | $69,593 | $0 | | Total assets | $660,413 | $719,176 | | Liabilities & Stockholders' Equity | | | | Total current liabilities | $46,509 | $33,327 | | Warrants liability | $1,691 | $38,974 | | Contingent earn-out liability | $0 | $377,576 | | Total liabilities | $54,586 | $451,013 | | Total stockholders' equity | $605,827 | $268,163 | Condensed Consolidated Statements of Operations Q3 2022 total revenue grew 37% to $38.0 million, and net loss significantly improved to $58.3 million, primarily due to reduced non-cash charges from warrant and earn-out liabilities Financial Performance (in thousands, except per share data) | Metric | Q3 2022 | Q3 2021 | 9 Months 2022 | 9 Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $37,993 | $27,655 | $94,984 | $84,087 | | Subscription Revenue | $18,981 | $15,677 | $54,508 | $44,758 | | Gross profit | $16,391 | $14,181 | $40,013 | $48,723 | | Loss from operations | $(58,986) | $(44,356) | $(213,118) | $(52,488) | | Net loss | $(58,259) | $(167,989) | $(50,989) | $(177,070) | | Net loss per share | $(0.20) | $(0.86) | $(0.18) | $(1.90) | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities increased to $99.4 million, while investing activities provided $43.1 million, a reversal from prior year's usage, and financing activities used $1.2 million Cash Flow Summary (in thousands) | Activity | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(99,358) | $(21,091) | | Net cash provided by (used in) investing activities | $43,063 | $(473,235) | | Net cash provided by (used in) financing activities | $(1,212) | $591,670 | | Net change in cash | $(57,507) | $97,344 | Notes to the Consolidated Financial Statements (Unaudited) Notes detail accounting policies, the 2021 reverse recapitalization, 2022 acquisitions of Enview and VHT adding $69.6 million goodwill, settlement of earn-out shares, and $128.2 million in stock-based compensation - The company completed the acquisition of VHT, Inc. on July 7, 2022, for a total preliminary purchase consideration of $22.7 million, resulting in $15.6 million of goodwill878889 - The company completed the acquisition of Enview, Inc. on January 5, 2022, for a total purchase consideration of $64.3 million, consisting of cash and common stock, resulting in $54.0 million of goodwill9395 - All six Earn-out Triggering Events occurred as of January 18, 2022, resulting in the issuance of 21.5 million Earn-out Shares and the reclassification of the $242.4 million liability to additional paid-in capital66168169 Stock-Based Compensation Expense (in thousands) | Category | Q3 2022 | Q3 2021 | 9 Months 2022 | 9 Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Costs of revenue | $912 | $978 | $3,819 | $1,040 | | Research and development | $6,362 | $6,695 | $27,246 | $6,929 | | Selling, general, and administrative | $22,231 | $23,065 | $85,673 | $24,028 | | Total Stock-based compensation | $32,306 | $32,070 | $128,202 | $33,523 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q3 2022 revenue growth of 37% to $38.0 million, key metric changes including subscriber growth and net dollar expansion rate decline, gross margin compression, and increased operating expenses, while addressing macroeconomic impacts Key Metrics Key metrics show spaces under management at 8.7 million and total subscribers at 657,000, while the net dollar expansion rate decreased to 106% due to macroeconomic pressures Key Performance Indicators | Metric | As of Sep 30, 2022 | As of Sep 30, 2021 | | :--- | :--- | :--- | | Spaces under management (millions) | 8.7 | 6.2 | | Total subscribers (thousands) | 657 | 439 | | Paid subscribers (thousands) | 63 | 54 | | Net dollar expansion rate | 106% | 114% | Results of Operations Q3 2022 total revenue grew 37% to $38.0 million, driven by services and subscription growth, while gross margin declined to 43% and operating expenses increased, leading to a net loss of $58.3 million Revenue by Type - Q3 2022 vs Q3 2021 (in thousands) | Revenue Type | Q3 2022 | Q3 2021 | Change (%) | | :--- | :--- | :--- | :--- | | Subscription | $18,981 | $15,677 | 21% | | License | $21 | $118 | (82)% | | Services | $10,015 | $3,292 | 204% | | Product | $8,976 | $8,568 | 5% | | Total Revenue | $37,993 | $27,655 | 37% | - Gross margin decreased to 43% in Q3 2022 from 51% in Q3 2021, primarily due to lower product gross margins resulting from supply chain challenges and a decrease in subscription gross margin284 - Selling, general and administrative (SG&A) expenses increased by 28% to $56.3 million in Q3 2022, primarily due to an $11.1 million increase in personnel-related costs and a $2.4 million increase in marketing programs287 - Research and development (R&D) expenses increased by 32% to $19.1 million in Q3 2022, mainly due to a $3.7 million increase in salary compensation from increased headcount285 Liquidity and Capital Resources As of September 30, 2022, the company held $495.2 million in cash and investments, deemed sufficient for 12 months, with net cash used in operations at $99.4 million and $22.8 million in purchase obligations - As of September 30, 2022, the company had approximately $495.2 million in cash, cash equivalents, and investments296297 - Free cash flow for the nine months ended September 30, 2022 was negative $110.7 million, compared to negative $26.9 million for the same period in 2021231 - The company has non-cancellable purchase obligations of approximately $22.8 million as of September 30, 2022, due through 2024299 Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from foreign currency fluctuations, as a strengthening U.S. dollar could impact international revenue, and from inflation, which could harm results if costs cannot be offset - The company's results are subject to fluctuations from foreign currency exchange rates, as expenses are denominated in local currencies (primarily U.S., U.K., Singapore) while revenue is primarily in U.S. dollars; a strengthening dollar could adversely affect revenue316 - The company does not believe inflation has had a material effect on its business but notes that an inability to offset significant inflationary pressures with price increases could harm operating results317 Controls and Procedures Management concluded disclosure controls were ineffective as of September 30, 2022, due to material weaknesses in internal control over financial reporting, including personnel, reporting processes, and IT controls, for which a remediation plan is underway - Management concluded that disclosure controls and procedures were not effective as of September 30, 2022, due to material weaknesses in internal control over financial reporting319 - Identified material weaknesses include: not maintaining a sufficient complement of personnel with appropriate accounting knowledge, ineffective design of controls over the period-end financial reporting process, and ineffective design of IT general controls320326 - The company is executing a remediation plan that includes hiring a Chief Accounting Officer and other experienced finance personnel, formalizing its internal control framework, and implementing enhanced IT general controls with the help of third-party consultants327328331 Part II. OTHER INFORMATION Legal Proceedings The company is involved in an ongoing lawsuit with a former employee regarding share transfer restrictions and is indemnifying Redfin in a patent infringement case where a jury found non-infringement and invalidity - A lawsuit by former employee William J. Brown regarding share transfer restrictions is ongoing, with some claims pending after a court ruled in his favor on the invalidity of the restrictions as applied to him333 - The company is indemnifying Redfin in a patent lawsuit from Surefield; a jury found Redfin had not infringed and the patents were invalid, though post-trial motions are pending, and Matterport has also filed a related declaratory judgment action against Surefield334 Risk Factors Updated risk factors emphasize potential negative impacts from international geopolitical conflicts, such as Taiwan-China tensions and the war in Ukraine, and adverse macroeconomic conditions like inflation and recession - The company identifies risks from international geopolitical conflicts, including escalating tensions between Taiwan and China, which could impact suppliers and lead to increased costs from tariffs or other trade restrictions338 - The war in Ukraine may exacerbate global supply chain issues, inflation, and energy prices, which could negatively affect business, operations, and financial condition339 - Adverse macroeconomic conditions, including inflation, slower growth or recession, and higher interest rates, can reduce consumer confidence and spending, which could materially affect demand for the company's products and services340341 Unregistered Sales of Equity Securities and Use of Proceeds This section reports no unregistered sales of equity securities or use of proceeds during the reporting period - None Defaults Upon Senior Securities This section reports no defaults upon senior securities - None Mine Safety Disclosures This section is not applicable to the company - Not Applicable Other Information This section reports no other information - None Exhibits This section lists the exhibits filed with the report, including certifications by key officers and XBRL data files