Matterport(MTTR) - 2021 Q3 - Quarterly Report

Cautionary Note Regarding Forward-looking Statements This section advises readers on the nature of forward-looking statements, emphasizing inherent risks and uncertainties - This report contains forward-looking statements covered by safe harbor provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. These statements are predictions based on current expectations and projections, subject to known and unknown risks and uncertainties that could cause actual results to differ materially[9][10][11] - Readers are cautioned not to rely on these statements as predictions of future events, as actual results may vary significantly. The company does not plan to publicly update or revise any forward-looking statements unless required by law[11][12] PART I. FINANCIAL INFORMATION This part provides Matterport's unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations Item 1. Financial Statements (Unaudited) This section presents Matterport, Inc.'s unaudited condensed consolidated financial statements for the periods ended September 30, 2021, and December 31, 2020, including balance sheets, statements of operations and comprehensive income (loss), statements of redeemable convertible preferred stock and stockholders' equity (deficit), and statements of cash flows, along with detailed notes explaining the company's organization, accounting policies, and significant financial events like the reverse recapitalization and warrant liabilities Condensed Consolidated Balance Sheets This section presents Matterport's financial position, detailing assets, liabilities, and equity at specific reporting dates Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | September 30, 2021 | December 31, 2020 | | :-------------------------------- | :------------------- | :------------------ | | ASSETS | | | | Cash and cash equivalents | $148,853 | $51,850 | | Short-term investments | $174,168 | — | | Total current assets | $348,445 | $62,273 | | Long-term investments | $290,900 | — | | Total assets | $653,438 | $71,852 | | LIABILITIES & EQUITY | | | | Total current liabilities | $24,532 | $23,250 | | Public warrants liability | $53,682 | — | | Private warrants liability | $34,621 | — | | Contingent earn-out liability | $334,389 | — | | Total liabilities | $447,712 | $28,384 | | Total stockholders' equity (deficit) | $205,726 | $(120,700) | | Total liabilities, redeemable convertible preferred stock and stockholders' equity (deficit) | $653,438 | $71,852 | - Total assets significantly increased from $71.85 million at December 31, 2020, to $653.44 million at September 30, 2021, primarily driven by substantial increases in cash, cash equivalents, and the introduction of short-term and long-term investments[15] - Total liabilities also saw a substantial rise from $28.38 million to $447.71 million, largely due to the recognition of public warrants liability, private warrants liability, and a significant contingent earn-out liability[15] - Stockholders' equity shifted from a deficit of $(120.70) million to a positive $205.73 million, reflecting the impact of the reverse recapitalization and related equity transactions[15] Condensed Consolidated Statements of Operations and Comprehensive Income (loss) This section outlines Matterport's financial performance, including revenue, expenses, and net income or loss over specified periods Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) Highlights (in thousands, except per share data) | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :------------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Total revenue | $27,655 | $25,074 | $84,087 | $62,297 | | Gross profit | $14,181 | $15,066 | $48,723 | $34,461 | | Income (loss) from operations | $(44,356) | $1,263 | $(52,488) | $(8,757) | | Change in fair value of warrants liabilities | $(24,176) | — | $(24,176) | — | | Change in fair value of contingent earn-out liability | $(98,478) | — | $(98,478) | — | | Net income (loss) | $(167,989) | $906 | $(177,070) | $(10,892) | | Net income (loss) per share, basic and diluted | $(0.86) | $0.00 | $(1.90) | $(0.34) | | Weighted-average shares used in per share calculation, basic and diluted | 196,478 | 32,552 | 93,061 | 32,334 | - Total revenue increased by 10% YoY for the three months ended September 30, 2021, and by 35% YoY for the nine months ended September 30, 2021, driven by growth across all revenue streams, particularly subscription and services[16][219][220][222][223] - The company reported significant net losses of $(167.99) million for the three months and $(177.07) million for the nine months ended September 30, 2021, primarily due to substantial increases in operating expenses (R&D, SG&A) and non-cash charges related to changes in fair value of warrants liabilities and contingent earn-out liability following the Merger[16][229][230][236][238] Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit) This section details changes in Matterport's equity structure, including preferred stock conversions and capital adjustments Changes in Stockholders' Equity (Deficit) (in thousands) | Metric | December 31, 2020 | September 30, 2021 | | :------------------------------------------ | :------------------ | :------------------- | | Redeemable Convertible Preferred Stock | $164,168 | $0 | | Common Stock (Shares) | 38,981 | 242,413 | | Common Stock (Amount) | $4 | $24 | | Additional Paid-In Capital | $9,159 | $512,808 | | Accumulated Deficit | $(129,998) | $(307,068) | | Total Stockholders' Equity (Deficit) | $(120,700) | $205,726 | - The company's redeemable convertible preferred stock was fully converted into Class A common stock as of September 30, 2021, as part of the reverse recapitalization, eliminating the preferred stock balance[17][108] - Additional paid-in capital increased significantly from $9.16 million to $512.81 million, primarily due to the proceeds from the reverse recapitalization and PIPE financing, net of transaction costs, and stock-based compensation[17][110] - The accumulated deficit widened from $(129.99) million to $(307.07) million, reflecting the net losses incurred during the period[17] Condensed Consolidated Statements of Cash Flows This section summarizes Matterport's cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(21,091) | $(7,140) | | Net cash used in investing activities | $(473,235) | $(3,644) | | Net cash provided by financing activities | $591,670 | $49,590 | | Net change in cash, cash equivalents, and restricted cash | $97,344 | $38,806 | | Cash, cash equivalents, and restricted cash at end of period | $149,321 | $48,936 | - Net cash used in operating activities increased to $(21.09) million for the nine months ended September 30, 2021, from $(7.14) million in the prior year, primarily due to a higher net loss, partially offset by non-cash adjustments like changes in fair value of warrants and earn-out liabilities[21][252][253] - Net cash used in investing activities significantly increased to $(473.24) million, mainly driven by substantial purchases of investments in available-for-sale securities[21][254] - Net cash provided by financing activities surged to $591.67 million, primarily from proceeds of the reverse recapitalization and PIPE financing, net of transaction costs and debt repayments[21][256] Notes to the Condensed Consolidated Financial Statements (Unaudited) This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements Note 1. Organization and Description of Business This note describes Matterport's corporate structure, business activities, and the impact of its recent merger - Matterport, Inc. is a Delaware-incorporated company founded in 2011, headquartered in Sunnyvale, California, specializing in the digitization and datafication of the built world through its AI-powered spatial data platform and 3D capture technology[23] - On July 22, 2021, the company completed a merger with Gores Holding VI, Inc. (GHVI), resulting in GHVI changing its name to Matterport, Inc. and Legacy Matterport becoming a wholly-owned subsidiary, Matterport Operating, LLC[24] Note 2. Summary of Significant Accounting Policies This note outlines the key accounting principles and estimates used in preparing Matterport's financial statements - The unaudited condensed consolidated financial statements are prepared in conformity with U.S. GAAP and SEC interim reporting rules, with certain disclosures condensed or omitted[26] - Significant estimates include fair value of common stock, stock-based compensation, deferred tax assets, inventory valuation, doubtful accounts, warrants, earn-out shares, and stand-alone selling prices, with increased judgment due to the COVID-19 pandemic's uncertain future impact[30][31] - The company operates as a single operating and reportable segment, with substantially all long-lived assets located in the United States[32] - Matterport classifies marketable and non-marketable securities as available-for-sale, with unrealized gains and losses excluded from net income and reported in accumulated other comprehensive income (loss)[42][43] - The company accounts for warrants not indexed to its own stock as liabilities at fair value, subject to remeasurement at each balance sheet date, with changes recognized in the statement of operations[46] - Earn-out shares issuable to Legacy Matterport common stockholders are accounted for as contingent earn-out liability, remeasured at fair value each reporting period, with changes recorded in other income (expense), net[48] - As an 'emerging growth company,' Matterport has elected to adopt new or revised accounting guidance within the same time periods as non-public business entities, which may affect comparability with other public companies[56][260] Note 3. Reverse Recapitalization This note details the financial impact and accounting treatment of Matterport's merger and related capital transactions - On July 22, 2021, Matterport completed a reverse recapitalization, raising $640.1 million in gross proceeds from Gores' trust account and a PIPE financing. Transaction costs totaled $36.3 million, with $35.7 million recorded as a reduction of proceeds in additional paid-in capital and $0.6 million expensed[62] - The merger was accounted for as a reverse recapitalization, treating Gores as the 'acquired' company. Matterport's financial statements continue, with Gores' net assets recorded at historical cost and no goodwill recognized[65] Class A Common Stock Issued Post-Merger (in thousands) | Shareholder Group | Shares | | :-------------------------- | :----- | | Legacy Matterport Stockholders | 169,425 | | Public Stockholders of Gores | 34,406 | | Initial Stockholders (Class F Stock) | 8,625 | | PIPE Investors | 29,500 | | Total | 241,956 | Note 4. Revenue This note provides a breakdown of Matterport's revenue streams by geography and recognition method Revenue by Geography (in thousands) | Geography | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :---------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | United States | $16,383 | $16,638 | $51,518 | $40,983 | | International | $11,272 | $8,436 | $32,569 | $21,314 | | Total revenue | $27,655 | $25,074 | $84,087 | $62,297 | Over Time vs. Point-in-Time Revenue (in thousands) | Revenue Type | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Over time revenue | $18,969 | $13,858 | $53,618 | $34,530 | | Point-in-time revenue | $8,686 | $11,216 | $30,469 | $27,767 | | Total | $27,655 | $25,074 | $84,087 | $62,297 | - International revenue grew significantly, increasing by 33.6% for the three months and 52.8% for the nine months ended September 30, 2021, compared to the same periods in 2020[70] - Over time revenue, primarily subscription-based, increased by 36.9% for the three months and 55.3% for the nine months ended September 30, 2021, indicating a growing recurring revenue base[71] Note 5. Balance Sheet Components This note offers detailed breakdowns of specific asset and liability accounts on Matterport's balance sheet Allowance for Doubtful Accounts (in thousands) | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :---------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Balance—beginning of period | $(32) | $(566) | $(799) | $(337) | | Increase in reserves | $(309) | $(340) | $(460) | $(581) | | Write-offs | $159 | — | $1,077 | $12 | | Balance—end of period | $(182) | $(906) | $(182) | $(906) | Inventories (in thousands) | Category | September 30, 2021 | December 31, 2020 | | :------------------------ | :------------------- | :------------------ | | Finished Goods | $1,026 | $538 | | Work in process | $1,480 | $2,219 | | Purchased parts and raw materials | $1,483 | $889 | | Total inventories | $3,989 | $3,646 | Property and Equipment, Net (in thousands) | Category | September 30, 2021 | December 31, 2020 | | :-------------------------------- | :------------------- | :------------------ | | Total property and equipment | $27,929 | $20,653 | | Accumulated depreciation and amortization | $(16,552) | $(12,443) | | Total property and equipment, net | $11,377 | $8,210 | - Capitalized software and development costs, a component of property and equipment, net, increased by $6.7 million for the nine months ended September 30, 2021, reflecting ongoing investment in the company's platform[73][74] Note 6. Fair Value Measurements This note describes Matterport's financial assets and liabilities measured at fair value, categorized by input levels Financial Assets and Liabilities Measured at Fair Value (in thousands) - September 30, 2021 | Category | Level 1 | Level 2 | Level 3 | Total | | :-------------------------------- | :-------- | :-------- | :-------- | :-------- | | Financial Assets: | | | | | | Money market funds | $138,730 | — | — | $138,730 | | Short-term investments | — | $174,168 | — | $174,168 | | Long-term investments | $180,988 | $109,912 | — | $290,900 | | Convertible notes receivable | — | — | $1,095 | $1,095 | | Total assets measured at fair value | $319,718 | $284,080 | $1,095 | $604,893 | | Financial Liabilities: | | | | | | Public warrants liability | $53,682 | — | — | $53,682 | | Private warrants liability | — | $34,621 | — | $34,621 | | Contingent earn-out liability | — | — | $334,389 | $334,389 | | Total liabilities measured at fair value | $53,682 | $34,621 | $334,389 | $422,692 | - The company holds significant financial assets, including $138.73 million in money market funds (Level 1), $174.17 million in short-term investments (Level 2), and $290.90 million in long-term investments (Level 1 and 2)[79] - Key financial liabilities measured at fair value include public warrants liability ($53.68 million, Level 1), private warrants liability ($34.62 million, Level 2), and a substantial contingent earn-out liability ($334.39 million, Level 3)[79] - The convertible note receivable, classified as an available-for-sale debt security, is valued using Level 3 inputs, reflecting unobservable inputs and management's estimates based on probability-weighted redemption and conversion scenarios[82] Note 7. Debt This note details Matterport's debt obligations, including repayments and their impact on interest expense - Matterport fully repaid all outstanding debt obligations, including the 2019 Term Loan, Line of Credit, 2018 Term Loan, and 2020 Term Loan, as of September 30, 2021[90][95][98][100][245] Debt Obligations as of December 31, 2020 (in thousands) | Debt Type | Amount | | :------------------ | :----- | | Line of credit | $3,000 | | 2019 term loan | $2,417 | | 2018 term loan | $5,650 | | 2020 term loan | $2,000 | | Total debt | $13,067 | | Less: unamortized debt discount | $(350) | | Total debt, net of debt discount | $12,717 | | Less: Current portion of long-term debt | $(8,215) | | Long-term debt | $4,502 | - Interest expense decreased for the three and nine months ended September 30, 2021, compared to the same periods in 2020, directly reflecting the full repayment of outstanding debts[234] Note 8. Commitments and Contingencies This note outlines Matterport's future minimum operating lease payments and purchase obligations Future Minimum Operating Lease Payments and Purchase Obligations (in thousands) - As of September 30, 2021 | Year | Operating Leases | Purchase Obligations | Total Lease and Purchase Obligations | | :---------------- | :--------------- | :------------------- | :----------------------------------- | | Remainder of 2021 | $318 | $8,313 | $8,631 | | 2022 | $1,301 | $5,221 | $6,522 | | 2023 | $1,339 | $165 | $1,504 | | 2024 | $1,306 | $153 | $1,459 | | 2025 | $207 | — | $207 | | Total | $4,471 | $13,852 | $18,323 | - The company has total future minimum operating lease payments of $4.47 million through 2025 and purchase obligations of $13.85 million through 2024[103] - As of September 30, 2021, there were no known events or circumstances that resulted in a material indemnification liability, and no amounts accrued for litigation that would be material to the financial position[103][104] Note 9. Convertible Notes This note describes Matterport's convertible note issuances, their conversion into preferred stock, and related accounting impacts - Between January and March 2020, Matterport issued $8.5 million in convertible notes to various investors, carrying a 5.0% annual interest rate and maturing in January 2022[105] - In April 2020, these convertible notes, including $8.6 million in principal and accrued interest, automatically converted into 4,728,975 shares of Series D redeemable convertible preferred stock at $1.8163 per share, following a qualified financing event[105] - The 2020 Notes contained an embedded derivative, initially valued at $1.0 million, which was re-valued to $0.9 million upon conversion and recognized as part of loss on debt extinguishment[106][107] Note 10. Redeemable Convertible Preferred Stock This note details the conversion of Matterport's preferred stock into common stock following the merger - Upon the Closing of the Merger on July 22, 2021, all outstanding Legacy Matterport redeemable convertible preferred stock was converted into 126,460,926 shares of Matterport Class A common stock[108] - A total of $164.5 million in redeemable convertible preferred stock was reclassified into common stock and additional paid-in capital on the condensed consolidated balance sheet[108] Redeemable Convertible Preferred Stock as of December 31, 2020 (in thousands, except per share data) | Convertible Preferred Stock | Shares Outstanding | Carrying Value | Aggregate Liquidation Preference | | :-------------------------- | :----------------- | :--------------- | :------------------------------- | | Series Seed | 24,861 | $7,350 | $8,720 | | Series A-1 | 7,570 | $3,165 | $3,226 | | Series B | 19,527 | $15,905 | $16,000 | | Series C | 30,727 | $52,696 | $52,832 | | Series D | 42,294 | $85,052 | $85,353 | | Total | 124,979 | $164,168 | $166,131 | Note 11. Stockholders' Equity This note outlines changes in Matterport's stockholders' equity, including share issuances and capital structure adjustments - On July 22, 2021, Matterport issued 72.5 million Class A common shares to public stockholders, initial stockholders, and PIPE investors, generating $640.1 million in gross proceeds[110] - Post-Merger, the company authorized 670 million shares ($0.0001 par value), including 640 million common shares and 30 million preferred shares, with 242.0 million common shares outstanding[111] Common Stock Reserved for Future Issuance (in thousands) - As of September 30, 2021 | Category | Shares Reserved | | :---------------------------------------------------------------- | :-------------- | | Common stock reserved for Earn-out | 23,460 | | Public and private warrants to purchase common stock | 11,350 | | Common stock options outstanding and unvested RSUs under the Amended and Restated 2011 Stock Incentive Plan | 46,861 | | Shares available for future grant under 2021 Employee Stock Purchase Plan | 7,259 | | Shares available for future grant under 2021 Incentive Award Plan | 24,196 | | Total shares of common stock reserved | 113,126 | - All previously issued common stock warrants were exercised on July 22, 2021, resulting in the issuance of 1.0 million Class A common shares[114] Note 12. Public and Private Warrants This note describes Matterport's outstanding public and private warrants, their terms, and fair value changes - Prior to the Merger, GHVI issued 6.9 million Public Warrants and 4.45 million Private Warrants, each exercisable for one share of common stock at $11.50, expiring on July 22, 2026[117] - The company may redeem Public Warrants for cash at $0.01 per warrant if the common stock price exceeds $18.00 for 20 trading days within a 30-day period, or for shares if the price exceeds $10.00[118][119] - Private Warrants have similar terms but are exercisable on a cashless basis and are non-redeemable as long as held by initial purchasers or permitted transferees[120] Public and Private Warrants Activity (in thousands) - Nine Months Ended September 30, 2021 | Warrant Type | Warrants Assumed | Warrants Exercised | Outstanding as of Sep 30, 2021 | | :------------- | :--------------- | :----------------- | :----------------------------- | | Public Warrants | 6,900 | — | 6,900 | | Private Warrants | 4,450 | — | 4,450 | | Total Warrants | 11,350 | — | 11,350 | - The fair value of warrants liabilities increased by $24.18 million from the Closing date (July 22, 2021) to September 30, 2021, reflecting an increase in the fair value of the outstanding warrants[122][236] Note 13. Contingent Earn-Out Awards This note explains the terms and fair value measurement of Matterport's contingent earn-out shares issued post-merger - Legacy Matterport stockholders and certain option/RSU holders are entitled to receive up to 23.46 million Class A common shares (Earn-out Shares) across six tranches, contingent on the stock price exceeding specific targets ($13.00 to $25.50) for 10 days within a 30-trading day period during the Earn-out Period (180 days post-Closing to fifth anniversary)[123] - Earn-out Shares for option/RSU holders are subject to forfeiture if service conditions are not met, with forfeited shares reallocated to other eligible holders[124] - The estimated fair value of Earn-out Shares is determined using a Monte Carlo simulation model, with key assumptions including current stock price, expected term, volatility, and risk-free rate[125] Contingent Earn-Out Liability Changes (in thousands) | Metric | Amount | | :---------------------------------------------------------- | :------- | | Balance at December 31, 2020 | $0 | | Contingent earn-out liability recognized upon Reverse Recapitalization | $231,627 | | Reallocation of Earn-out Shares to earn-out liability upon forfeitures | $4,284 | | Change in fair value of earn-out liability | $98,478 | | Balance at September 30, 2021 | $334,389 | - A change in fair value of contingent earn-out liability of $98.48 million was recognized for the three and nine months ended September 30, 2021, primarily due to the increase in the company's common stock fair value since the Merger[127][238] Note 14. Stock Plan This note details Matterport's stock incentive plans, option activities, and stock-based compensation expense - The company adopted the 2021 Incentive Award Plan (2021 Plan) and 2021 Employee Stock Purchase Plan (2021 ESPP) upon the Merger closing, with initial reserves of 24.2 million and 7.3 million Class A common shares, respectively, and annual increases[130] Stock Option Activities (in thousands, except per share data) - Nine Months Ended September 30, 2021 | Metric | Number of Shares | Weighted Average Exercise Price Per Share | | :---------------------------------- | :--------------- | :-------------------------------------- | | Balance—December 31, 2020 | 49,206 | $0.62 | | Expired or canceled | (2,673) | $0.70 | | Exercised | (3,402) | $0.50 | | Balance—September 30, 2021 | 43,131 | $0.63 | - Unrecognized stock-based compensation expense for unvested options was $4.4 million as of September 30, 2021, expected to be amortized over a weighted-average period of 2.1 years[132] Stock-based Compensation Expense (in thousands) | Category | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :------------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Costs of revenue | $978 | $28 | $1,040 | $78 | | Research and development | $6,695 | $164 | $6,929 | $485 | | Selling, general, and administrative | $23,065 | $438 | $24,028 | $1,231 | | Total stock-based compensation, net of amounts capitalized | $30,738 | $630 | $31,997 | $1,794 | - Total stock-based compensation expense, net of capitalized amounts, significantly increased to $30.74 million for the three months and $32.00 million for the nine months ended September 30, 2021, compared to the prior year, largely due to the Merger and related vesting events[141] Note 15. Income Taxes This note explains Matterport's provision for income taxes and the factors influencing its effective tax rate Provision for Income Taxes (in thousands) | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :-------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Provision for income taxes | $34 | $17 | $73 | $51 | - The income tax provision for interim periods is determined using an estimate of the annual effective tax rate, adjusted for discrete items, with the foreign jurisdiction's statutory rate used as an estimate due to a full valuation allowance against domestic net deferred tax assets[142][143] - The effective tax rates for the three and nine months ended September 30, 2021, were (0.02)% and (0.04)%, respectively, primarily reflecting tax benefits offset by a valuation allowance[240] Note 16. Net Income (Loss) Per Share Attributable to Common Stockholders This note presents Matterport's basic and diluted net income or loss per share calculations Net Income (Loss) Per Share Attributable to Common Stockholders (in thousands, except per share data) | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :-------------------------------------------------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net income (loss) attributable to common stockholders, basic and diluted | $(167,989) | $0 | $(177,070) | $(10,892) | | Weighted average shares used in computing net income (loss) per share, basic and diluted | 196,478 | 32,552 | 93,061 | 32,334 | | Net income (loss) per share, basic and diluted | $(0.86) | $0.00 | $(1.90) | $(0.34) | - The weighted-average number of common shares outstanding was retroactively adjusted due to the Reverse Recapitalization, significantly increasing the share count for per share calculations[144][145] Potentially Dilutive Common Stock Equivalents Excluded from Diluted EPS (in thousands) - As of September 30 | Category | 2021 | 2020 | | :------------------------------------ | :--- | :--- | | Public warrants | 6,900 | — | | Private warrants | 4,450 | — | | Earn-out shares | 23,460 | — | | Redeemable convertible preferred stock, all series | — | 126,409 | | Warrants to purchase common stock | — | 1,081 | | Common stock options outstanding | 43,131 | 52,859 | | Unvested RSUs | 3,730 | — | | Total potentially dilutive common stock equivalents | 81,671 | 180,349 | Note 17. Related-Party Transactions This note discloses Matterport's transactions with related parties, including convertible note issuances - From January to March 2020, Matterport issued $8.5 million in convertible promissory notes to investors, including affiliates of board members DCM VI, L.P. ($0.4 million), Lux Co-Invest Opportunities, L.P. ($2.0 million), and QUALCOMM Ventures LLC ($1.0 million)[147] Note 18. Employee Benefits Plans This note describes Matterport's employee benefit plans, including 401(k) and pension contributions - Matterport offers a 401(k) Plan for US employees, but discontinued matching contributions since May 1, 2020. For the nine months ended September 30, 2020, the company made $0.2 million in discretionary matching contributions[148][149] - The company also contributes to a defined-contribution pension plan for eligible employees in the U.K., with matching contributions of $0.2 million for the nine months ended September 30, 2021, and $0.1 million for the same period in 2020[150] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides Matterport's management's perspective on the company's financial condition and results of operations, highlighting its business model, key performance metrics, non-GAAP measures, and factors influencing performance. It details revenue and cost of revenue trends, operating expenses, and the impact of the recent Merger and COVID-19, concluding with an analysis of liquidity and capital resources and critical accounting policies Overview This section introduces Matterport's business, market opportunity, and growth strategy in digitizing the built world - Matterport leads the digitization and datafication of the built world, leveraging its AI-powered platform, spatial data science, and 3D capture technology to bring physical spaces online[153][154] - The company manages approximately 6.2 million spaces as of September 30, 2021, penetrating an estimated $228 trillion global building stock, with a total addressable market projected to exceed $240 billion and potentially grow beyond $1 trillion[155][156] - Matterport's growth is driven by bringing offline buildings online through its Cortex AI engine, utilizing spatial data for insights, and enabling device-agnostic scanning via AI and ML, including smartphone capture[156] Business Impact of COVID-19 This section assesses the COVID-19 pandemic's impact on Matterport's revenue and future business outlook - The COVID-19 pandemic did not adversely affect Matterport's revenue for the three and nine months ended September 30, 2021, and has shown positive long-term effects as businesses increasingly adopt digital asset management[158] - Future impacts remain uncertain, depending on the pandemic's duration, customer spending habits, marketing efforts, and supply chain disruptions, which could materially affect business, results of operations, cash flows, and financial position[159] The Merger This section details the consummation and accounting treatment of Matterport's merger with Gores Holdings VI, Inc - On July 22, 2021, Matterport consummated its previously announced merger, changing its name from Gores Holdings VI, Inc. to Matterport, Inc. and beginning trading on Nasdaq under 'MTTR' and 'MTTRW' on July 23, 2021[160] - The merger was accounted for as a reverse recapitalization, with Gores treated as the acquired company, and Matterport's financial statements continuing, retroactively adjusted for the exchange ratio[161] Our Business Model This section describes Matterport's revenue generation from subscriptions, device sales, and professional services - Matterport generates revenue from subscriptions to its AI-powered spatial data platform, data licensing, sales of capture devices (Pro2 Camera and third-party devices), and professional services (Matterport Capture Services and in-app purchases)[162][163][165][168][169][170][171] - Subscription revenue accounted for 57% and 53% of total revenue for the three and nine months ended September 30, 2021, respectively, showing a growing recurring revenue base[166] - The company focuses on increasing sales efficiency and driving recurring revenue growth from large enterprises, offering flexible subscription plans from free to custom enterprise solutions[164][166] Key Metrics This section presents Matterport's operational performance indicators, including spaces under management and subscriber growth Spaces Under Management (in millions) | Period | Spaces Under Management | | :------------------------ | :---------------------- | | Nine Months Ended Sep 30, 2021 | 6.2 | | Nine Months Ended Sep 30, 2020 | 3.8 | | Year Ended Dec 31, 2020 | 4.3 | | Year Ended Dec 31, 2019 | 2.3 | Total Subscribers (in thousands) | Period | Free Subscribers | Paid Subscribers | Total Subscribers | | :------------------------ | :--------------- | :--------------- | :---------------- | | Nine Months Ended Sep 30, 2021 | 385.2 | 53.8 | 439.0 | | Nine Months Ended Sep 30, 2020 | 163.2 | 39.9 | 203.1 | | Year Ended Dec 31, 2020 | 210.3 | 43.9 | 254.2 | | Year Ended Dec 31, 2019 | 19.1 | 20.5 | 39.6 | Net Dollar Expansion Rate | Period | Net Dollar Expansion Rate | | :------------------------------ | :------------------------ | | Three Months Ended Sep 30, 2021 | 114 % | | Three Months Ended Sep 30, 2020 | 119 % | - Spaces under management grew to 6.2 million as of September 30, 2021, up from 3.8 million in the prior year, indicating strong market penetration[174] - Total subscribers reached 439,000, with paid subscribers increasing to 53,800, demonstrating continued growth in the user base[177] - The net dollar expansion rate was 114% for the three months ended September 30, 2021, indicating strong retention and expansion of subscription revenue from existing customers[179][191] NON-GAAP FINANCIAL MEASURES This section defines and reconciles Matterport's non-GAAP financial measures, such as non-GAAP income from operations and free cash flow - Matterport reports non-GAAP income (loss) from operations by excluding stock-based compensation expenses, aiming to provide consistency and comparability with past financial performance[181] Non-GAAP Income (Loss) from Operations (in thousands) | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :-------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | GAAP income (loss) from operations | $(44,356) | $1,263 | $(52,488) | $(8,757) | | Add back: stock based compensation expense, net | $30,738 | $630 | $31,997 | $1,794 | | Non-GAAP income (loss) from operations | $(13,618) | $1,893 | $(20,491) | $(6,963) | - Free cash flow is calculated as net cash used in operating activities less purchases of property and equipment and capitalized software and development costs, serving as an indicator of the business's ability to generate cash[183] Free Cash Flow (in thousands) | Metric | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :------------------------------------ | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(21,091) | $(7,140) | | Less: purchases of property and equipment | $536 | $20 | | Less: capitalized software and development costs | $5,233 | $3,624 | | Free cash flow | $(26,860) | $(10,784) | FACTORS AFFECTING OUR PERFORMANCE This section discusses key drivers and strategic initiatives influencing Matterport's financial and operational performance - Matterport aims to penetrate a largely undigitized global property market, estimated at over 4 billion buildings and 20 billion spaces, representing a $240 billion to $1 trillion market opportunity[186] - Key performance drivers include the adoption of solutions by enterprise subscribers, retention and expansion of existing subscribers (evidenced by a 114% net dollar expansion rate), and scaling across various industry verticals[188][189][191][192] - International expansion is a significant focus, with subscribers outside the U.S. accounting for over 42% of subscription revenues, and plans for increased investment in global sales and marketing[193][194] - Continued investment in research and innovation (R&D) is crucial for improving Cortex, expanding the solutions portfolio, and supporting third-party software integrations, with a robust pipeline of new product releases like Matterport for iPhone and Android Capture app[195] - Expanding partner integrations and the third-party developer platform through programs like the Matterport Platform Partner Program and Developer Program is expected to drive subscriber growth and loyalty[197][198] COMPONENTS OF RESULTS OF OPERATIONS This section breaks down Matterport's revenue, cost of revenue, and operating expense categories - Revenue streams include subscription (billed monthly/annually, recognized monthly), license (spatial data, recognized point-in-time), services (capture services, add-on features), and product (Pro2 Camera sales, third-party devices, recognized at shipment)[199][200][201][202] - Cost of revenue comprises subscription (hosting, delivery, customer success), license (data curation, delivery), services (third-party technicians, contractors), and product (manufacturing, warranty, shipping, personnel)[203][204][205][206][207] - Operating expenses consist of research and development (personnel, contractor fees, software) and selling, general, and administrative (sales, marketing, finance, legal, IT, HR personnel, professional services, public company costs)[208][209][210] - Other income/expense items include interest income, interest expense (from debt facilities), transaction costs (Merger-related), changes in fair value of warrants liabilities, and changes in fair value of contingent earn-out liability[211][212][213][214] - Provision for income taxes is determined using the asset and liability method, with a valuation allowance recorded against deferred tax assets based on realization probability[215][216] RESULTS OF OPERATIONS This section provides a detailed analysis of Matterport's financial performance for the reported periods Consolidated Results of Operations (in thousands, except percentages) | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :------------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Total revenue | $27,655 | $25,074 | $84,087 | $62,297 | | Total costs of revenue | $13,474 | $10,008 | $35,364 | $27,836 | | Gross profit | $14,181 | $15,066 | $48,723 | $34,461 | | Gross margin | 51% | 60% | 58% | 55% | | Research and development | $14,484 | $3,861 | $27,599 | $13,003 | | Selling, general, and administrative | $44,053 | $9,942 | $73,612 | $30,215 | | Income (loss) from operations | $(44,356) | $1,263 | $(52,488) | $(8,757) | | Net income (loss) | $(167,989) | $906 | $(177,070) | $(10,892) | - Total revenue increased by 10% for the three months and 35% for the nine months ended September 30, 2021, driven by growth across all revenue streams, particularly subscription (36% and 54% increase respectively)[219][220] - Gross margin decreased to 51% for the three months ended September 30, 2021 (from 60%), but increased to 58% for the nine months (from 55%), influenced by revenue composition and increased stock-based compensation[228] - Operating expenses surged, with R&D increasing by 275% and SG&A by 343% for the three months ended September 30, 2021, primarily due to headcount growth, increased stock-based compensation, and consulting/marketing expenses[229][230] - Net loss significantly widened to $(167.99) million for the three months and $(177.07) million for the nine months ended September 30, 2021, largely due to the increase in operating expenses and non-cash charges from warrants and earn-out liabilities[218][236][238] LIQUIDITY AND CAPITAL RESOURCES This section analyzes Matterport's cash position, investments, and ability to fund operations and growth Cash, Cash Equivalents, and Investments (in thousands) | Metric | September 30, 2021 | December 31, 2020 | | :------------------------------------ | :------------------- | :------------------ | | Cash and cash equivalents | $148,853 | $51,850 | | Restricted cash | $468 | $400 | | Investments | $465,068 | — | | Total cash, cash equivalents, and investments | $614,389 | $52,250 | - As of September 30, 2021, Matterport had approximately $614.4 million in cash, cash equivalents, restricted cash, and investments, a significant increase from $52.25 million at December 31, 2020, primarily due to $612.9 million net proceeds from the Merger and PIPE financing[241][242][243] - The company believes its current financial resources are sufficient for planned operations for at least the next 12 months, despite expecting continued operating losses due to investments in business growth[243][244] - All outstanding debt obligations, including the 2019 Term Loan, Line of Credit, 2018 Term Loan, and 2020 Term Loan, were fully repaid during the three months ended September 30, 2021, resulting in no outstanding debt[245] Summary of Cash Flows (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :------------------------ | :----------------------------- | :----------------------------- | | Operating activities | $(21,091) | $(7,140) | | Investing activities | $(473,235) | $(3,644) | | Financing activities | $591,670 | $49,590 | Off-Balance Sheet Arrangements This section confirms Matterport's lack of material off-balance sheet arrangements - As of September 30, 2021, Matterport has not engaged in any off-balance sheet arrangements as defined by SEC rules and regulations[258] Emerging Growth Company Status This section explains Matterport's status as an emerging growth company and its implications for financial reporting - Matterport is an 'emerging growth company' and has elected to take advantage of the extended transition period for new or revised financial accounting standards, which may affect comparability with other public companies[259][260] - The company will remain an emerging growth company until the earliest of specific conditions, including market value exceeding $700 million, annual gross revenue of $1.07 billion, issuing over $1 billion in non-convertible debt, or December 31, 2025[260] CRITICAL ACCOUNTING POLICIES AND ESTIMATES This section highlights Matterport's most significant accounting policies and the judgments involved in their application - Critical accounting policies include revenue recognition (ASC 606), stock-based compensation (fair value using Black-Scholes model), common stock valuation (hybrid method of OPM and PWERM), warrants liability (fair value remeasurement), and earn-out arrangement (contingent liability using Monte Carlo simulation)[261][262][266][271][275][279][281][285] - Revenue recognition involves identifying contracts and performance obligations, determining and allocating transaction prices, and recognizing revenue upon satisfaction of obligations, with variable consideration estimates[262][263] - Stock-based compensation expense is recorded based on fair value at grant date, recognized over the vesting period, with Black-Scholes model assumptions including expected volatility, term, risk-free rate, and zero dividend yield[266][267][268][269] - Common stock valuation prior to the Merger used a hybrid method combining the option pricing model (OPM) and probability weighted expected return method (PWERM), considering various outcomes and applying a discount for lack of marketability[275][276][277] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Matterport, Inc. is exempt from providing quantitative and qualitative disclosures about market risk under SEC rules - Matterport is a smaller reporting company and is not required to provide quantitative and qualitative disclosures about market risk[289] Item 4. Controls and Procedures Matterport's management concluded that its disclosure controls and procedures were not effective as of September 30, 2021, due to material weaknesses in internal control over financial reporting. These weaknesses include an insufficient complement of personnel with appropriate accounting knowledge, ineffective controls over the period-end financial reporting process, and ineffective information technology (IT) general controls. The company is actively implementing a remediation plan to address these deficiencies - Matterport's disclosure controls and procedures were not effective as of September 30, 2021, due to identified material weaknesses in internal control over financial reporting[291] - Material weaknesses identified: - Lack of sufficient personnel with appropriate internal controls and accounting knowledge[293] - Ineffective design and maintenance of controls over the period-end financial reporting process, impacting journal entries, account reconciliations, and significant transactions[293] - Ineffective IT general controls for information systems relevant to financial statements, specifically in program change management, user access, computer operations, and program development testing[293] - Despite the material weaknesses, management concluded that the financial statements fairly present the company's financial condition, results of operations, and cash flows due to additional analysis and post-closing procedures[291] - Remediation efforts are ongoing and include: - Hiring additional accounting and finance resources with public company experience[297] - Designing and implementing controls to formalize roles, review responsibilities, and ensure segregation of duties[297] - Engaging a third-party IT consulting firm to assist with IT general controls[297] - Implementing comprehensive access control protocols for the ERP environment and establishing additional controls over journal entries and transaction classification[297] PART II. OTHER INFORMATION This part includes disclosures on legal proceedings, risk factors, use of proceeds, and other miscellaneous information Item 1. Legal Proceedings Matterport is involved in various lawsuits and legal proceedings in the ordinary course of business but does not currently believe any pending or threatened actions will have a material adverse effect on its business, financial condition, or operating results - Matterport is subject to various lawsuits and legal proceedings in the normal course of business[298] - The company does not believe any pending or threatened legal proceedings will have a material adverse effect on its business, financial condition, or operating results[299] Item 1A. Risk Factors Following the Merger on July 22, 2021, the risk factors previously disclosed in the Annual Report on Form 10-K/A are superseded. For current risks and uncertainties, readers are directed to the 'Risk Factors' section in the Registration Statement on Form S-1 filed on August 19, 2021, as there have been no material changes since then - Risk factors from the previous Annual Report on Form 10-K/A are no longer applicable after the Merger on July 22, 2021[300] - For current risks and uncertainties, refer to the 'Risk Factors' section in the Registration Statement on Form S-1 filed with the SEC on August 19, 2021, as no material changes have occurred since that filing[300] Item 2. Use of Proceeds During the three months ended September 30, 2021, Matterport issued 632,500 shares of Class A common stock from stock option exercises, generating approximately $0.4 million. The company's IPO in December 2020 generated $345 million gross proceeds, with $345 million placed in a trust account. Post-Merger, the trust account balance was distributed, leaving approximately $613.9 million in unrestricted cash and cash equivalents for general corporate purposes - During the three months ended September 30, 2021, Matterport issued 632,500 shares of Class A common stock from stock option exercises, raising approximately $0.4 million[301] - The IPO on December 15, 2020, generated $345 million in gross proceeds, with $345 million placed in a trust account[302][304] - After the Merger, the trust account balance was distributed to the company, resulting in approximately $613.9 million of unrestricted cash and cash equivalents available for general corporate purposes as of September 30, 2021[306][307] Item 3. Defaults Upon Senior Securities Matterport, Inc. reported no defaults upon senior securities for the period - There were no defaults upon senior securities reported[308] Item 4. Mine Safety Disclosures This item is not applicable to Matterport, Inc - This item is not applicable[308] Item 5. Other Information Matterport, Inc. reported no other information for the period - No other information was reported[309] Item 6. Exhibits and Financial Statement Schedules. This section lists all exhibits and financial statement schedules filed as part of the registration statement, including the Agreement and Plan of Merger, organizational documents, warrant agreements, registration rights agreement, and various stock incentive and purchase plans, along with certifications - The report includes various exhibits such as the Agreement and Plan of Merger, Second Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws, Warrant Agreement, and Amendment to Warrant Agreement[311] - Key compensatory plans listed are the Matterport, Inc. 2021 Incentive Award Plan, 2021 Employee Stock Purchase Plan, and the Amended and Restated 2011 Stock Incentive Plan, along with their respective option and restricted stock unit agreements[311][314] - Certifications from the Principal Executive Officer and Principal Financial Officer pursuant to the Sarbanes-Oxley Act of 2002 are also included[314] Signatures This section formally attests to the accuracy of the report by the company's principal executive officer - The report was duly signed on November 10, 2021, by R.J. Pittman, Chief Executive Officer and Principal Executive Officer of Matterport, Inc[316][317][318]