KORE(KORE) - 2022 Q3 - Quarterly Report

FORM 10-Q Filing Information This section details KORE Group Holdings, Inc.'s Form 10-Q filing for Q3 2022, including registrant identification and securities status Registrant Information Provides KORE Group Holdings, Inc.'s identification details for its Q3 2022 Form 10-Q, including incorporation, address, and contact - KORE Group Holdings, Inc. filed its Quarterly Report on Form 10-Q for the period ended September 30, 2022[2] - The registrant is incorporated in Delaware with IRS Employer Identification No. 86-3078783[2] - The principal executive offices are located at 3 Ravinia Drive NE, Suite 500, Atlanta, Georgia 30346[3] Securities and Filer Status KORE Group Holdings, Inc.'s common stock and warrants are listed on NYSE, classified as a non-accelerated and emerging growth company Title of each class | Title of each class | Trading Symbol(s) | Name of each exchange on which registered | | :------------------------------ | :---------------- | :---------------------------------------- | | Common stock, $0.0001 par value | KORE | The New York Stock Exchange | | Warrants to purchase common stock | KORE WS | The New York Stock Exchange | - The registrant has filed all required reports under Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and has been subject to such filing requirements for the past 90 days[4] - The registrant is classified as a Non-accelerated filer and an Emerging growth company[7] - As of November 11, 2022, there were 76,289,741 shares of common stock, par value $0.0001 per share, issued and outstanding[7] Table of Contents This section provides an organized list of all major sections and their corresponding page numbers within the Form 10-Q report Forward-Looking Statements This section outlines the nature and cautionary aspects of forward-looking statements contained within the Form 10-Q report Scope and Nature of Forward-Looking Statements Clarifies that the Form 10-Q includes forward-looking statements covered by safe harbor provisions, based on current expectations and projections - Forward-looking statements in this report are covered by safe harbor provisions of the Securities Act and Exchange Act[10] - These statements include future results of operations, financial position, industry and business trends, equity compensation, business strategy, plans, market growth, and objectives[10] - Forward-looking statements are current expectations and predictions, based on current projections about future events and financial trends, but involve known and unknown risks and uncertainties that may cause actual results to differ materially[11] Cautionary Note Warns investors against undue reliance on forward-looking statements, as actual results may differ, and the company does not commit to updates - Investors are cautioned not to unduly rely upon these statements as actual future results, levels of activity, performance, and achievements may be materially different from expectations[12] - The company does not plan to publicly update or revise any forward-looking statements, except as required by applicable law[12] PART I — FINANCIAL INFORMATION This part presents the unaudited condensed consolidated financial statements and management's discussion and analysis for the reporting period Item 1. Financial Statements (Unaudited) Presents KORE Group Holdings, Inc.'s unaudited condensed consolidated financial statements for the periods ended September 30, 2022 Condensed Consolidated Balance Sheets Provides a snapshot of KORE Group Holdings, Inc.'s financial position, detailing assets, liabilities, and equity as of September 30, 2022 | Assets (in thousands USD) | Sep 30, 2022 | Dec 31, 2021 | | :------------------------ | :----------- | :----------- | | Cash | $42,925 | $85,976 | | Total current assets | $106,461 | $161,152 | | Goodwill | $425,604 | $381,962 | | Total assets | $757,473 | $759,602 | | Total current liabilities | $47,075 | $48,188 | | Total liabilities | $506,012 | $487,459 | | Total stockholders' equity| $251,461 | $272,143 | - Cash decreased by $43,051 thousand from December 31, 2021, to September 30, 2022[14] - Goodwill increased by $43,642 thousand, primarily due to acquisitions[14] Consolidated Statements of Operations Details KORE Group Holdings, Inc.'s revenues, expenses, and net loss for the three and nine months ended September 30, 2022 | (in thousands USD) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :----------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Total revenue | $66,640 | $67,878 | $205,934 | $183,919 | | Operating loss | $(7,479) | $(5,527) | $(21,043) | $(9,228) | | Net loss | $(13,025) | $(4,508) | $(35,073) | $(12,474) | | Basic Loss per share | $(0.17) | $(0.26) | $(0.46) | $(0.98) | - Total revenue decreased by 2% for the three months ended September 30, 2022, but increased by 12% for the nine months ended September 30, 2022, compared to the prior year periods[16] - Net loss increased significantly for both the three-month and nine-month periods ended September 30, 2022, compared to the prior year[16] Consolidated Statements of Comprehensive Loss Presents KORE Group Holdings, Inc.'s net loss and other comprehensive income/loss components for the periods ended September 30, 2022 | (in thousands USD) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :----------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net loss | $(13,025) | $(4,508) | $(35,073) | $(12,474) | | Foreign currency translation adjustment | $(2,417) | $(1,322) | $(5,160) | $(1,479) | | Comprehensive loss | $(15,442) | $(5,830) | $(40,233) | $(13,953) | - Comprehensive loss for the nine months ended September 30, 2022, was $40,233 thousand, a substantial increase from $13,953 thousand in the prior year, primarily driven by increased net loss and foreign currency translation adjustments[18] Consolidated Statements of Stockholders' Equity Outlines changes in KORE Group Holdings, Inc.'s stockholders' equity, including net loss and stock-based compensation, for the reporting period | (in thousands USD) | Dec 31, 2021 | Sep 30, 2022 | | :----------------- | :----------- | :----------- | | Total Stockholders' Equity | $272,143 | $251,461 | | Accumulated Deficit| $(138,179) | $(172,953) | | Additional Paid-in Capital | $413,646 | $432,897 | - Total stockholders' equity decreased from $272,143 thousand at December 31, 2021, to $251,461 thousand at September 30, 2022, mainly due to net losses and foreign currency translation adjustments, partially offset by stock-based compensation and common stock issued pursuant to acquisition[20] Consolidated Statements of Cash Flows Summarizes KORE Group Holdings, Inc.'s cash inflows and outflows from operating, investing, and financing activities for the nine months ended September 30, 2022 | (in thousands USD) | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :----------------- | :----------------------------- | :----------------------------- | | Net cash provided by (used in) operating activities | $20,527 | $(9,439) | | Net cash used in investing activities | $(57,974) | $(9,782) | | Net cash (used in) provided by financing activities | $(3,599) | $81,772 | | Cash and restricted cash, end of period | $43,283 | $73,056 | - Net cash provided by operating activities significantly improved to $20,527 thousand for the nine months ended September 30, 2022, compared to cash used of $9,439 thousand in the prior year[24] - Cash used in investing activities increased substantially to $57,974 thousand, primarily due to payments for acquisitions[24] Notes to the Condensed Consolidated Financial Statements (Unaudited) Provides detailed explanations and disclosures supporting the unaudited condensed consolidated financial statements for KORE Group Holdings, Inc NOTE 1 – Summary of Significant Accounting Policies Outlines the key accounting principles and policies applied in preparing KORE Group Holdings, Inc.'s condensed consolidated financial statements - The financial statements are prepared in accordance with U.S. GAAP and SEC interim financial reporting rules, using the same accounting policies as annual statements[28][29] - The Company adopted new lease accounting standards (ASC 842) on January 1, 2022, recognizing right-of-use assets and lease liabilities on the balance sheet[32][40] - The Company early adopted ASU 2020-06 on January 1, 2022, simplifying accounting for convertible debt by eliminating the separation of beneficial conversion and cash conversion features[44][45] NOTE 2 – Revenue Recognition Details KORE Group Holdings, Inc.'s policies and disaggregated information regarding revenue recognition from various IoT categories - Deferred revenue primarily relates to IoT Connectivity monthly recurring charges and goods in-transit[54] Disaggregated Revenue Information (in thousands USD) | Category | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | IoT Connectivity | $42,911 | $40,738 | $129,714 | $122,444 | | Hardware Sales | $16,807 | $19,221 | $56,747 | $40,602 | | Deployment services, professional services, and other | $3,499 | $7,690 | $11,980 | $17,422 | - One customer represented 6.5% and 28.0% of total revenue for the three months ended September 30, 2022 and 2021, respectively, and 12.0% and 21.0% for the nine months ended September 30, 2022 and 2021, respectively[57] NOTE 3 – Right-of-Use Assets and Lease Liabilities Describes KORE Group Holdings, Inc.'s accounting for lease arrangements, including right-of-use assets and corresponding lease liabilities - The Company leases real estate, computer hardware, and vehicles under operating and finance leases with terms ranging from 1 to 10 years[58] Lease Costs (in thousands USD) | Lease Type | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2022 | | :--------- | :------------------------------ | :----------------------------- | | Operating lease cost | $951 | $2,669 | | Finance lease cost | $97 | $303 | | Total lease cost | $1,048 | $2,972 | Weighted-Average Lease Terms and Discount Rates (as of Sep 30, 2022) | Lease Type | Remaining Lease Term (years) | Discount Rate | | :--------- | :--------------------------- | :------------ | | Operating leases | 7.80 | 7.5 % | | Finance leases | 2.29 | 5.4 % | NOTE 4 – Acquisitions and Divestitures Provides details on KORE Group Holdings, Inc.'s acquisition activities, including the Business Mobility Partners, Inc. acquisition and its financial impact - On February 16, 2022, KORE acquired Business Mobility Partners, Inc. and Simon IoT (BMP Acquisition) for $46.0 million cash and 4,212,246 shares of common stock valued at $23.3 million, totaling $69.3 million in consideration[61][65] - The BMP Acquisition expanded KORE's services in healthcare and life sciences, adding $14.6 million in revenue and $3.9 million in net income for the three months ended September 30, 2022[61][67] - Goodwill of $44,859 thousand was recognized from the BMP Acquisition, representing expected future economic benefits[65][66] NOTE 5 – Goodwill Explains the changes in KORE Group Holdings, Inc.'s goodwill balance, primarily due to acquisitions and currency translation adjustments Goodwill (in thousands USD) | Period | Amount | | :----------------- | :---------- | | At December 31, 2021 | $381,962 | | Acquisitions | $44,859 | | Currency translation | $(1,217) | | At September 30, 2022 | $425,604 | - Goodwill increased by $43,642 thousand from December 31, 2021, to September 30, 2022, primarily due to the BMP Acquisition[73] NOTE 6 – Short-Term and Long-Term Debt Details KORE Group Holdings, Inc.'s debt obligations, including term loans, revolving credit facilities, and unsecured exchangeable notes - The Company's principal outstanding balance on the Senior Secured UBS Term Loan was $303.4 million as of September 30, 2022, down from $305.8 million at December 31, 2021[76] - No amounts were drawn on the $30.0 million senior secured revolving credit facility with UBS or the €250,000 bank overdraft facility with BNP Paribas Fortis as of September 30, 2022[77][79] - KORE Wireless Group Inc. issued $120.0 million in senior unsecured exchangeable notes (Backstop Notes and Additional Notes) to Fortress, with a net carrying amount of $117.4 million as of September 30, 2022, after adopting ASU 2020-06[80][83] - A Premium Finance Agreement for $3.6 million was entered into on August 3, 2022, to purchase a two-year directors and officers insurance policy, with an outstanding balance of $3.3 million as of September 30, 2022[85][86] NOTE 7 – Income Taxes Discusses KORE Group Holdings, Inc.'s income tax provisions, effective tax rates, and factors influencing tax benefits for the periods Effective Income Tax Rate | Period | 2022 | 2021 | | :----------------- | :---- | :---- | | Three Months Ended Sep 30 | 16.3% | 45.1% | | Nine Months Ended Sep 30 | 18.3% | 38.0% | Income Tax Benefit (in thousands USD) | Period | 2022 | 2021 | | :----------------- | :------ | :------ | | Three Months Ended Sep 30 | $(2,540) | $(3,710) | | Nine Months Ended Sep 30 | $(7,844) | $(7,628) | - The effective income tax rate for both periods differed from the federal statutory rate primarily due to the geographical mix of earnings, foreign tax rate differentials, permanent differences, R&D tax credits, and valuation allowances[88] NOTE 8 – Reverse Recapitalization Explains the accounting treatment and financial impact of the business combination between pre-combination KORE and CTAC - The Business Combination between pre-combination KORE and CTAC on September 30, 2021, was accounted for as a reverse recapitalization, with pre-combination KORE as the accounting acquirer[90][91] - The merger resulted in a $63.2 million increase in cash, net of transaction costs, funded by PIPE proceeds, CTAC proceeds, and Backstop Notes, and used to repay preferred shareholders and debt[92] - Transaction costs of $24.2 million related to the Business Combination were incurred, with $24.1 million recorded against additional paid-in capital[93] NOTE 9 – Stock-Based Compensation Details KORE Group Holdings, Inc.'s stock-based compensation plans, RSU activity, and related expenses for the reporting periods - The 2021 Long-Term Stock Incentive Plan allows for grants of share-based payment awards (RSUs) to employees, directors, and consultants, with vesting typically over 2-4 years[96][98][99] RSU Activity (in thousands) | Category | Number of awards outstanding | Aggregate intrinsic value | | :------------------------ | :--------------------------- | :------------------------ | | Unvested RSUs at Dec 31, 2021 | — | — | | Granted | 5,789 | $36,101 | | Vested | (50) | $(342) | | Forfeited and canceled | (158) | $(1,104) | | Unvested RSUs at Sep 30, 2022 | 5,580 | $34,655 | - Total stock compensation expense related to RSUs was $3,019 thousand for the three months and $7,570 thousand for the nine months ended September 30, 2022[105] - The Pre-Combination Kore 2014 Equity Incentive Plan for stock options was terminated on September 30, 2021, with no outstanding options or unrecognized compensation costs as of that date[106][107] NOTE 10 – Warrants on Common Stock Provides information on KORE Group Holdings, Inc.'s outstanding public and private placement warrants and their fair value measurement - As of September 30, 2022, 8,638,966 Public Warrants and 272,779 Private Placement Warrants remained outstanding, each entitling the holder to purchase one share of common stock at $11.50 per share[108][109] - The Private Placement Warrants are measured quarterly at fair value, with an aggregate value of $32.7 thousand as of September 30, 2022, based on a closing price of $0.12 per KORE.WS[110] NOTE 11 – Net Loss Per Share Presents KORE Group Holdings, Inc.'s basic and diluted net loss per share calculations for the three and nine months ended September 30, 2022 Net Loss Per Share (in thousands USD, except share and per share amounts) | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :----------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net loss attributable to common stockholders | $(13,025) | $(8,331) | $(35,073) | $(31,222) | | Basic EPS | $(0.17) | $(0.26) | $(0.46) | $(0.98) | | Diluted EPS | $(0.17) | $(0.26) | $(0.46) | $(0.98) | - Basic and diluted loss per share for the three months ended September 30, 2022, was $(0.17), an improvement from $(0.26) in the prior year, despite an increased net loss attributable to common stockholders[112] - For the nine months ended September 30, 2022, basic and diluted loss per share was $(0.46), an improvement from $(0.98) in the prior year[112] NOTE 12 – Prepaid and Other Current Assets Details the composition and changes in KORE Group Holdings, Inc.'s prepaid expenses and other current assets for the reporting period Prepaid Expenses and Other Current Assets (in thousands USD) | Category | Sep 30, 2022 | Dec 31, 2021 | | :-------------- | :----------- | :----------- | | Prepaid expenses | $11,515 | $6,418 | | Prepaid deposits | $1,801 | $1,030 | | Total | $13,316 | $7,448 | - Total prepaid expenses and other current assets increased by $5,868 thousand from December 31, 2021, to September 30, 2022[114] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's perspective on KORE Group Holdings, Inc.'s financial performance, liquidity, and operational results for the reporting periods Overview Provides a high-level summary of KORE Group Holdings, Inc.'s financial performance, including revenue growth and cash flow improvements - Revenue increased by 12% or $22.0 million for the nine months ended September 30, 2022, due to organic and inorganic growth[121] - Cash flows provided by operating activities were $20.5 million for the nine months ended September 30, 2022, a significant improvement from cash flows used of $9.4 million in the prior year[121] - The phase-out of 2G and 3G networks in the U.S. may lead to lower revenue per unit due to typically lower LTE platform rate plans, despite expected customer retention[117] Operating Segments Confirms that KORE Group Holdings, Inc. operates and reports its financial results as a single operating segment - The Company operates in a single operating and reportable segment[118] Key Metrics Defines and explains the principal performance measures used by KORE Group Holdings, Inc.'s management, including Total Connections and DBNER - Total Connections, including eSIMs, is the principal measure used by management to assess business performance[120][122] - DBNER (Dollar Based Net Expansion Rate) tracks the combined effect of cross-sales, customer retention, and existing business growth, calculated by dividing current period revenue from existing go-forward customers by prior year revenue from the same cohort[123][124] - Non-Core Customers are a subset of non-go-forward customers expected to fully churn by the end of 2022 due to 2G/3G network sunsets[125] Results of Operations for the three and nine months ended September 30, 2022, and 2021 Analyzes KORE Group Holdings, Inc.'s financial performance, including revenue, costs, and expenses, for the specified three and nine-month periods Revenue Details KORE Group Holdings, Inc.'s revenue performance, disaggregated by services, products, and IoT categories, for the reporting periods Total Revenue (in thousands USD) | Category | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Change ($) | Change (%) | | :------- | :------------------------------ | :------------------------------ | :--------- | :--------- | | Services | $46,410 | $48,428 | $(2,018) | (4)% | | Products | $20,230 | $19,450 | $780 | 4% | | Total | $66,640 | $67,878 | $(1,238) | (2)% | Total Revenue (in thousands USD) | Category | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | Change ($) | Change (%) | | :------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Services | $141,694 | $139,866 | $1,828 | 1% | | Products | $64,240 | $44,053 | $20,187 | 46% | | Total | $205,934 | $183,919 | $22,015 | 12% | - Services revenue decreased for the three months ended September 30, 2022, due to foreign exchange effects, Non-Core Customer declines, and LTE migration, partially offset by organic growth and the BMP Acquisition[129] - Products revenue increased for both periods, significantly boosted by $12.1 million (3 months) and $29.7 million (9 months) from the BMP Acquisition, despite declines from existing IoT Solutions customers[130][132][138] Revenue by IoT Category (in thousands USD) | Category | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Change ($) | Change (%) | | :--------------- | :------------------------------ | :------------------------------ | :--------- | :--------- | | IoT Connectivity | $43,377 | $41,542 | $1,835 | 4% | | IoT Solutions | $23,263 | $26,336 | $(3,073) | (12)% | | Total | $66,640 | $67,878 | $(1,238) | (2)% | - Total connections grew from 13.6 million to 15.3 million year-over-year for the nine months ended September 30, 2022, primarily from existing customers[137] - DBNER decreased from 114% to 100% for the twelve months ended September 30, 2022, mainly due to a decline in revenue from the largest customer after their LTE transition project concluded[139] Costs of revenue, exclusive of depreciation and amortization Analyzes KORE Group Holdings, Inc.'s cost of revenue for services and products, and their impact on gross margins, for the reporting periods Total Cost of Revenue (in thousands USD) | Category | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Change ($) | Change (%) | | :------- | :------------------------------ | :------------------------------ | :--------- | :--------- | | Services | $16,609 | $17,379 | $(770) | (4)% | | Products | $14,960 | $17,585 | $(2,625) | (15)% | | Total | $31,569 | $34,964 | $(3,395) | (10)% | Total Cost of Revenue (in thousands USD) | Category | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | Change ($) | Change (%) | | :------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Services | $50,714 | $51,417 | $(703) | (1)% | | Products | $49,701 | $37,258 | $12,443 | 33% | | Total | $100,415 | $88,675 | $11,740 | 13% | Gross Margin Rate | Category | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Services | 64% | 64% | 64% | 63% | | Products | 26% | 10% | 23% | 15% | | Total gross margins | 53% | 48% | 51% | 52% | - Cost of services decreased for both periods, driven by lower deployment revenue and foreign exchange rates, partially offset by increased carrier costs from the BMP Acquisition[140][143] - Cost of products decreased for the three months but increased for the nine months, primarily due to the BMP Acquisition's impact on costs, partially offset by lower sales volume from existing IoT Solutions customers[142][144] Cost of Revenue by IoT Category (in thousands USD) | Category | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Change ($) | Change (%) | | :--------------- | :------------------------------ | :------------------------------ | :--------- | :--------- | | IoT Connectivity | $15,350 | $16,111 | $(761) | (5)% | | IoT Solutions | $16,219 | $18,853 | $(2,634) | (14)% | | Total | $31,569 | $34,964 | $(3,395) | (10)% | Gross Margin Rate by IoT Category | Category | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | IoT Connectivity | 65% | 61% | 64% | 61% | | IoT Solutions | 30% | 28% | 27% | 32% | | Total gross margins | 53% | 48% | 51% | 52% | Selling, general and administrative expenses Examines the changes in KORE Group Holdings, Inc.'s selling, general, and administrative expenses and their contributing factors SG&A Expenses (in thousands USD) | Period | 2022 | 2021 | Change ($) | Change (%) | | :----------------- | :------ | :------ | :--------- | :--------- | | Three Months Ended Sep 30 | $28,841 | $26,001 | $2,840 | 11% | | Nine Months Ended Sep 30 | $85,883 | $66,525 | $19,358 | 29% | - SG&A expenses increased by 11% for the three months and 29% for the nine months ended September 30, 2022, driven by foreign exchange, headcount, channel commissions, travel, professional services, and D&O insurance, partially offset by decreased stock-based compensation in the three-month period[151][152] Depreciation and amortization Discusses the changes in KORE Group Holdings, Inc.'s depreciation and amortization expenses, primarily due to acquired intangibles Depreciation and Amortization (in thousands USD) | Period | 2022 | 2021 | Change ($) | Change (%) | | :----------------- | :------ | :------ | :--------- | :--------- | | Three Months Ended Sep 30 | $13,709 | $12,440 | $1,269 | 10% | | Nine Months Ended Sep 30 | $40,679 | $37,947 | $2,732 | 7% | - Depreciation and amortization expense increased by 10% for the three months and 7% for the nine months ended September 30, 2022, primarily due to amortization of acquired intangibles from the BMP acquisition[153] Other (income) expense Details KORE Group Holdings, Inc.'s other income and expenses, including interest expense and changes in warrant liability fair value Total Other Expense (in thousands USD) | Category | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Change ($) | Change (%) | | :--------------- | :------------------------------ | :------------------------------ | :--------- | :--------- | | Interest expense | $8,206 | $5,589 | $2,617 | 47% | | Change in fair value of warrant liability | $(120) | $(2,898) | $2,778 | (96)% | | Total other expense | $8,086 | $2,691 | $5,395 | 200% | Total Other Expense (in thousands USD) | Category | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | Change ($) | Change (%) | | :--------------- | :----------------------------- | :----------------------------- | :--------- | :--------- | | Interest expense | $22,127 | $16,155 | $5,972 | 37% | | Change in fair value of warrant liability | $(253) | $(5,281) | $5,028 | (95)% | | Total other expense | $21,874 | $10,874 | $11,000 | 101% | - Total other expense increased significantly for both periods, driven by higher interest expenses due to increased rates and the addition of Backstop Notes, and a decrease in the gain on warrant liability[155] Income taxes Analyzes KORE Group Holdings, Inc.'s income tax benefit and effective tax rates, considering jurisdictional earnings mix and non-taxable items Income Tax Benefit (in thousands USD) | Period | 2022 | 2021 | Change ($) | Change (%) | | :----------------- | :------ | :------ | :--------- | :--------- | | Three Months Ended Sep 30 | $(2,540) | $(3,710) | $1,170 | (32)% |\ | Nine Months Ended Sep 30 | $(7,844) | $(7,628) | $(216) | 3% | - The decrease in income tax benefit for the three months ended September 30, 2022, and the increase for the nine months, were primarily due to changes in the jurisdictional mix of earnings and the non-taxable impact of the change in fair value of warrant liability[156][157] Liquidity and Capital Resources Assesses KORE Group Holdings, Inc.'s financial liquidity, capital structure, cash flow activities, and future funding requirements Overview Provides a summary of KORE Group Holdings, Inc.'s current liquidity position, including cash, equity, and available credit facilities - As of September 30, 2022, KORE had total equity of $251.5 million, cash of $42.9 million, and a fully available $30.0 million Revolving Credit Facility[159] - Management believes current liquidity is sufficient to cover working capital, debt service, and capital expenditures for the next twelve months[159] - The Company is evaluating the impact of the LIBOR phase-out on its debt facilities and commercial contracts[160] Cash Flows Details KORE Group Holdings, Inc.'s cash flows from operating, investing, and financing activities for the nine months ended September 30, 2022 - Net cash provided by operating activities for the nine months ended September 30, 2022, was $20.5 million, primarily due to changes in working capital from decreased inventory and accounts receivable[161] - Cash used in investing activities was $58.0 million, mainly for the $46.0 million BMP Acquisition and investments in technology equipment and software[162][163] - Cash used in financing activities was $3.6 million, primarily for term loan principal repayments and deferred financing costs related to the business combination[164] Future Liquidity and Capital Resource Requirements Outlines KORE Group Holdings, Inc.'s future capital commitments, debt obligations, and potential needs for additional financing - As of September 30, 2022, the Company has $19.4 million in purchase commitments for the remainder of fiscal year 2022 and $47.5 million for fiscal years 2023-2026[165][166] - Scheduled principal payments include $0.8 million for the UBS term loan in Q4 2022, $3.2 million for 2023-2024 (with full outstanding principal due December 24, 2024), and semi-annual interest payments on $120.0 million Backstop Notes (principal due September 2028)[165][166] - The Company may seek additional financing for liquidity, acquisitions, or strategic activities, acknowledging potential dilution from equity or restrictions from debt[167] Non-GAAP Financial Measures Explains KORE Group Holdings, Inc.'s non-GAAP financial measures, such as EBITDA and Adjusted EBITDA, and their reconciliation to GAAP net loss - EBITDA is defined as net income (loss) before interest, taxes, depreciation, and amortization. Adjusted EBITDA further adjusts for unusual and significant items like stock-based compensation, acquisition-related charges, and foreign currency gains/losses[169] - These non-GAAP measures are used by management for evaluating operational performance, internal planning, and comparison with comparable companies, but should not substitute GAAP results[168][169][171] Reconciliation of Net Loss to EBITDA and Adjusted EBITDA (in thousands USD) | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :----------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net loss | $(13,025) | $(4,508) | $(35,073) | $(12,474) | | EBITDA | $6,350 | $9,811 | $19,889 | $34,000 | | Adjusted EBITDA | $15,571 | $15,896 | $47,101 | $46,974 | - Adjusted EBITDA for the nine months ended September 30, 2022, was $47.1 million, slightly up from $47.0 million in the prior year[172] Concentration of Credit Risk and Off-Balance Sheet Arrangements Discusses KORE Group Holdings, Inc.'s exposure to credit risk and details its off-balance sheet arrangements and purchase commitments - Cash is subject to credit risk, with amounts potentially exceeding federally insured limits, but the Company believes it is not exposed to significant risk due to the financial strength of depository institutions[175] - As of September 30, 2022, the Company has $66.9 million in purchase commitments not recorded as liabilities and a $0.4 million standby letter of credit and bank guarantees[176] Critical Accounting Policies and Estimates Confirms no material changes to KORE Group Holdings, Inc.'s critical accounting policies and its election as an emerging growth company - No material changes to critical accounting policies and estimates have occurred since the Annual Report on Form 10-K for the year ended December 31, 2021[178] - As an emerging growth company (EGC), KORE has elected to use the extended transition period for new accounting pronouncements applicable to public companies[179] Goodwill Describes KORE Group Holdings, Inc.'s goodwill impairment testing, including the quantitative test performed and its conclusion of no impairment - Goodwill is tested for impairment annually on October 1st and when circumstances indicate potential impairment[181] - A quantitative goodwill impairment test was performed due to a substantial and sustained decline in stock price and market capitalization[181] - The estimated fair value of the reporting unit exceeded its carrying value by 23.8%, concluding that goodwill was not impaired[181] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states that there have been no material changes to the Company's market risk disclosures since its Annual Report on Form 10-K for the year ended December 31, 2021 - No material changes to the Company's market risk occurred during the first nine months of 2022[182] Item 4. Controls and Procedures This section addresses the effectiveness of the Company's disclosure controls and procedures and outlines identified material weaknesses in internal control over financial reporting, along with remediation efforts Evaluation of disclosure controls and procedures Reports that KORE Group Holdings, Inc.'s disclosure controls were ineffective due to material weaknesses in internal control over financial reporting - The Company's disclosure controls and procedures were not effective as of September 30, 2022, due to material weaknesses in internal control over financial reporting previously reported in the 2021 Annual Report on Form 10-K[183] Changes in internal control over financial reporting Details identified material weaknesses in a subsidiary's internal controls and ongoing remediation efforts to integrate ERP systems - Material weaknesses were identified at a subsidiary related to procure-to-pay, inventory and production management, and order-to-cash business processes, which are not fully integrated or automated[184] - Management is in the process of replacing the subsidiary's historical ERP and manufacturing execution systems with KORE's ERP systems to address these weaknesses[186] PART II — OTHER INFORMATION This part includes additional information not covered in the financial statements, such as legal proceedings, risk factors, and exhibits Item 1. Legal Proceedings. Confirms that KORE Group Holdings, Inc. is not involved in any material legal proceedings beyond routine business litigation - The Company is not a party to any material legal proceedings other than ordinary routine litigation incidental to its business[189] Item 1A. Risk Factors. States no material changes to KORE Group Holdings, Inc.'s previously disclosed risk factors, with potential future updates in SEC filings - No material changes to previously disclosed risk factors have occurred as of the date of this Quarterly Report[190] - The Company may disclose changes or additional factors in future SEC filings, as any such factors could significantly impact results or financial condition[190] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. Reports that KORE Group Holdings, Inc. had no unregistered sales of equity securities or use of proceeds to disclose for the period - There were no unregistered sales of equity securities and use of proceeds to report[191] Item 5. Other Information. States that there is no other information to report for KORE Group Holdings, Inc. in this section of the Form 10-Q - There is no other information to report[191] Item 6. Exhibits. Lists all exhibits filed or furnished with KORE Group Holdings, Inc.'s Form 10-Q, including certifications and XBRL documents Exhibits List | Exhibit Number | Exhibit Description | | :------------- | :--------------------------------------------------------------------------------------------------------------------------------------------- | | 31.1* | Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) | | 31.2* | Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) | | 32.1** | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 | | 32.2** | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 | | 101.INS | Inline XBRL Instance Document—the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. | | 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) | Signatures Confirms the official signing of the Form 10-Q report by KORE Group Holdings, Inc.'s principal executive and financial officers Authorized Signatories Identifies the KORE Group Holdings, Inc. executives who officially signed the Form 10-Q report and the date of signing - The report was signed by Romil Bahl, President and Chief Executive Officer (Principal Executive Officer), and Paul Holtz, Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer)[196] - The signing date for the report was November 14, 2022[196]