Filed Pursuant to Rule 424(b)(3)
Registration No. 333-258936
PROSPECTUS SUPPLEMENT NO. 7
(To Prospectus dated April 13, 2022)
MATTERPORT, INC.
89,156,827 Shares of Class A Common Stock
and
1,707,886 Warrants to Purchase Shares of Class A Common Stock
This prospectus supplement further supplements and updates the prospectus dated April 13, 2022, relating to (i) the resale of 89,157,827 shares of Class A common stock, par value $0.0001 per share (the “common stock” or “Matterport common stock”), by the selling securityholders named in the prospectus and the resale of up to 1,707,886 of our outstanding warrants originally issued in a private placement concurrent with the initial public offering of Matterport, Inc., a Delaware corporation (f/k/a Gores Holdings VI, Inc.).
This prospectus supplement incorporates into such prospectus the information (other than information that is furnished and not deemed filed) contained in our attached Quarterly Report on Form 10-Q, which was filed with the Securities and Exchange Commission on November 10, 2022 (the “Current Report”).
Our common stock trades on The Nasdaq Global Market (the “Nasdaq”) under the ticker symbol “MTTR”. On November 10, 2022, the closing sale price of our common stock as reported by Nasdaq was $3.03 per share.
Investing in shares of our common stock or warrants involves risks that are described in the “Risk Factors” section of the prospectus.
Neither the Securities and Exchange Commission (the “SEC”) nor any state securities commission has approved or disapproved of the securities to be issued under this prospectus or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus supplement is November 10, 2022
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________
FORM 10-Q
____________________________
(Mark One)
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the quarterly period ended September 30, 2022 | |||||
OR
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
| For the transition period from ____________ to ____________ | |||||
Commission file number 001-39790
____________________________
MATTERPORT, INC.
(Exact name of registrant as specified in its charter)
____________________________
Delaware | 85-1695048 | ||||||||||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||||||||
| 352 East Java Drive | |||||||||||
Sunnyvale, California 94089 | |||||||||||
| (Address of Principal Executive Offices, including zip code) | |||||||||||
(650) 641-2241
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||||||||
| Class A Common Stock, par value of $0.0001 per share | MTTR | Nasdaq Global Market | ||||||||||||
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ | ||||||||
Non-accelerated filer | ☒ | Smaller reporting company | ☒ | ||||||||
Emerging growth company | ☒ | ||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The registrant had 287,443,518 shares of Class A common stock outstanding as of November 3, 2022.
Table of Contents
| Page | ||||||||
Item 2. | ||||||||
3
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (this “Report”) contains forward-looking statements. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical facts contained in this Report, including statements concerning possible or assumed future actions, business strategies, events or results of operations, and any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.
In some cases, you can identify forward-looking statements by terms such as “may,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions. Forward-looking statements in this Report are predictions, projections and other statements about future events that are based on current expectations and assumptions and, as a result, are subject to risks and uncertainties. Many factors could cause actual future events to differ materially from the forward-looking statements in this document, including our ability to grow market share in our existing markets or any new markets we may enter; our ability to respond to general economic conditions; our ability to manage our growth effectively; our success in retaining or recruiting our officers, key employees or directors, or changes required in the retention or recruitment of our officers, key employees or directors; the impact of the regulatory environment and complexities with compliance related to such environment; our ability to remediate our material weaknesses; factors relating to our business, operations and financial performance, including: the impact of the ongoing COVID-19 public health emergency or other infectious diseases, health epidemics and pandemics; our ability to maintain an effective system of internal controls over financial reporting; our ability to achieve and maintain profitability in the future; our ability to access sources of capital; our ability to maintain and enhance our products and brand, and to attract customers; our ability to manage, develop and refine our technology platform; the success of our strategic relationships with third parties; our history of losses and whether we will continue to incur continuing losses for the foreseeable future; our ability to protect and enforce our intellectual property rights; our ability to implement business plans, forecasts, and other expectations and identify and realize additional opportunities; our ability to attract and retain new subscribers; the size of the total addressable market for our products and services; the continued adoption of spatial data; any inability to complete acquisitions and integrate acquired businesses; general economic uncertainty and the effect of general economic conditions in our industry; environmental uncertainties and risks related to adverse weather conditions and natural disasters; the volatility of the market price and liquidity of our Class A common stock, and other securities; the increasingly competitive environment in which we operate; and other factors detailed under the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”) filed with the Securities and Exchange Commission (the “SEC”) on March 18, 2022, and subsequently filed Quarterly Reports on Form 10-Q.
Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur, and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. As a result of these factors, we cannot assure you that the forward-looking statements in this Report will prove to be accurate. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.
You should read this Report completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
4
Part I- Financial Information
Item 1. Financial statements
MATTERPORT INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(In thousands, except per share data)
| September 30, 2022 | December 31, 2021 | ||||||||||
ASSETS | |||||||||||
Current assets: | |||||||||||
Cash and cash equivalents | $ | 81,852 | $ | 139,519 | |||||||
Restricted cash | — | 468 | |||||||||
| Short-term investments | 405,599 | 264,931 | |||||||||
Accounts receivable, net of allowance of $569 and $291, as of September 30, 2022 and December 31, 2021, respectively | 19,515 | 10,879 | |||||||||
Inventories | 11,677 | 5,593 | |||||||||
Prepaid expenses and other current assets | 17,136 | 16,313 | |||||||||
Total current assets | 535,779 | 437,703 | |||||||||
Property and equipment, net | 28,555 | 14,118 | |||||||||
| Operating lease right-of-use assets | 2,802 | — | |||||||||
| Long-term investments | 7,737 | 263,659 | |||||||||
| Goodwill | 69,593 | — | |||||||||
| Intangible assets, net | 11,332 | — | |||||||||
Other assets | 4,615 | 3,696 | |||||||||
Total assets | $ | 660,413 | $ | 719,176 | |||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
Current liabilities | |||||||||||
Accounts payable | $ | 9,456 | $ | 12,227 | |||||||
Deferred revenue | 14,553 | 11,074 | |||||||||
Accrued expenses and other current liabilities | 22,500 | 10,026 | |||||||||
Total current liabilities | 46,509 | 33,327 | |||||||||
| Warrants liability | 1,691 | 38,974 | |||||||||
Contingent earn-out liability | — | 377,576 | |||||||||
Deferred revenue, non-current | 562 | 874 | |||||||||
Other long-term liabilities | 5,824 | 262 | |||||||||
Total liabilities | 54,586 | 451,013 | |||||||||
Commitments and contingencies (Note 10) | |||||||||||
Redeemable convertible preferred stock, $0.0001 par value; 30,000 shares authorized as of September 30, 2022 and December 31, 2021, respectively; nil shares issued and outstanding as of September 30, 2022 and December 31, 2021 | — | — | |||||||||
Stockholders’ equity: | |||||||||||
Common stock, $0.0001 par value; 640,000 shares authorized as of September 30, 2022 and December 31, 2021, respectively; and 287,408 shares and 250,173 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively | 29 | 25 | |||||||||
Additional paid-in capital | 1,132,423 | 737,735 | |||||||||
Accumulated other comprehensive loss | (7,578) | (1,539) | |||||||||
Accumulated deficit | (519,047) | (468,058) | |||||||||
Total stockholders’ equity | 605,827 | 268,163 | |||||||||
Total liabilities and stockholders’ equity | $ | 660,413 | $ | 719,176 | |||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
MATTERPORT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
Revenue: | |||||||||||||||||||||||
Subscription | $ | 18,981 | $ | 15,677 | $ | 54,508 | $ | 44,758 | |||||||||||||||
License | 21 | 118 | 70 | 4,477 | |||||||||||||||||||
Services | 10,015 | 3,292 | 19,001 | 8,860 | |||||||||||||||||||
Product | 8,976 | 8,568 | 21,405 | 25,992 | |||||||||||||||||||
Total revenue | 37,993 | 27,655 | 94,984 | 84,087 | |||||||||||||||||||
Costs of revenue: | |||||||||||||||||||||||
Subscription | 6,592 | 3,908 | 17,963 | 10,543 | |||||||||||||||||||
License | — | — | — | — | |||||||||||||||||||
Services | 6,553 | 2,460 | 12,705 | 6,785 | |||||||||||||||||||
Product | 8,457 | 7,106 | 24,303 | 18,036 | |||||||||||||||||||
Total costs of revenue | 21,602 | 13,474 | 54,971 | 35,364 | |||||||||||||||||||
Gross profit | 16,391 | 14,181 | 40,013 | 48,723 | |||||||||||||||||||
Operating expenses: | |||||||||||||||||||||||
Research and development | 19,084 | 14,484 | 66,604 | 27,599 | |||||||||||||||||||
Selling, general, and administrative | 56,293 | 44,053 | 186,527 | 73,612 | |||||||||||||||||||
Total operating expenses | 75,377 | 58,537 | 253,131 | 101,211 | |||||||||||||||||||
Loss from operations | (58,986) | (44,356) | (213,118) | (52,488) | |||||||||||||||||||
Other income (expense): | |||||||||||||||||||||||
Interest income | 1,691 | 550 | 4,470 | 572 | |||||||||||||||||||
Interest expense | — | (91) | — | (676) | |||||||||||||||||||
Transaction costs | — | (565) | — | (565) | |||||||||||||||||||
| Change in fair value of warrants liabilities | — | (24,176) | 26,147 | (24,176) | |||||||||||||||||||
Change in fair value of contingent earn-out liability | — | (98,478) | 136,043 | (98,478) | |||||||||||||||||||
Other expense, net | (981) | (839) | (3,655) | (1,186) | |||||||||||||||||||
Total other income (expense) | 710 | (123,599) | 163,005 | (124,509) | |||||||||||||||||||
Loss before provision for income taxes | (58,276) | (167,955) | (50,113) | (176,997) | |||||||||||||||||||
Provision for (benefit from) income taxes | (17) | 34 | 876 | 73 | |||||||||||||||||||
Net loss | $ | (58,259) | $ | (167,989) | $ | (50,989) | $ | (177,070) | |||||||||||||||
| Net loss per share, basic and diluted | (0.20) | (0.86) | (0.18) | (1.90) | |||||||||||||||||||
| Weighted-average shares used in per share calculation, basic and diluted | 286,458 | 196,478 | 281,729 | 93,061 | |||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
MATTERPORT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands, unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||
| Net loss | $ | (58,259) | $ | (167,989) | $ | (50,989) | $ | (177,070) | ||||||||||||||||||
Other comprehensive income (loss), net of taxes: | ||||||||||||||||||||||||||
Foreign currency translation gain (loss) | — | (16) | — | (79) | ||||||||||||||||||||||
Unrealized gain (loss) on available-for-sale securities, net of tax | 72 | (182) | (6,039) | (94) | ||||||||||||||||||||||
| Other comprehensive income (loss) | $ | 72 | $ | (198) | $ | (6,039) | $ | (173) | ||||||||||||||||||
Comprehensive loss | $ | (58,187) | $ | (168,187) | $ | (57,028) | $ | (177,243) | ||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7
MATTERPORT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)
(In thousands, unaudited)
Redeemable Convertible Preferred Stock | Common Stock | |||||||||||||||||||||||||||||||||||||||||||||||||
Shares (1) | Amount | Shares (1) | Amount | Additional Paid-In Capital | Accumulated Other Comprehensive Income (loss) | Accumulated Deficit | Total Stockholders’ Equity (Deficit) | |||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2020 | 124,979 | $ | 164,168 | 38,981 | $ | 4 | $ | 9,159 | $ | 135 | $ | (129,998) | $ | (120,700) | ||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | (2,872) | (2,872) | ||||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | — | (27) | — | (27) | ||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock upon exercise of stock options | — | — | 1,585 | — | 789 | — | — | 789 | ||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | 740 | — | — | 740 | ||||||||||||||||||||||||||||||||||||||||||
Balance as of March 31, 2021 | 124,979 | $ | 164,168 | 40,566 | $ | 4 | $ | 10,688 | $ | 108 | $ | (132,870) | $ | (122,070) | ||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | (6,209) | (6,209) | ||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income | — | — | — | — | — | 52 | — | 52 | ||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock upon exercise of stock options | — | — | 1,184 | — | 553 | — | — | 553 | ||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | 713 | — | — | 713 | ||||||||||||||||||||||||||||||||||||||||||
Balance as of June 30, 2021 | 124,979 | $ | 164,168 | 41,750 | $ | 4 | $ | 11,954 | $ | 160 | $ | (139,079) | $ | (126,961) | ||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | (167,989) | (167,989) | ||||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | — | (198) | — | (198) | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of redeemable convertible preferred stock | 52 | 293 | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Conversion of redeemable convertible preferred stock into common stock in connection with the reverse recapitalization | (125,031) | (164,461) | 126,461 | 13 | 164,448 | — | — | 164,461 | ||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock upon exercise of stock options | — | — | 633 | — | 357 | — | — | 357 | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock upon exercise of legacy Matterport common stock warrants | — | — | 1,038 | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock upon the reverse recapitalization, net of transaction costs | — | — | 72,531 | 7 | 539,890 | — | — | 539,897 | ||||||||||||||||||||||||||||||||||||||||||
Contingent earn-out liability | — | — | — | — | (235,911) | — | — | (235,911) | ||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | 32,070 | — | — | 32,070 | ||||||||||||||||||||||||||||||||||||||||||
| Balance as of September 30, 2021 | — | $ | — | 242,413 | $ | 24 | $ | 512,808 | $ | (38) | $ | (307,068) | $ | 205,726 | ||||||||||||||||||||||||||||||||||||
(1) The shares of the Company’s common and redeemable convertible preferred stock, prior to the Merger (as defined in Note 1) have been retroactively restated to reflect the exchange ratio of approximately 4.1193 established in the Merger as described in Note 3.
8
Redeemable Convertible Preferred Stock | Common Stock | |||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||||||
Balance as of December 31, 2021 | — | $ | — | 250,173 | $ | 25 | $ | 737,735 | $ | (1,539) | $ | (468,058) | $ | 268,163 | ||||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | — | 71,904 | 71,904 | ||||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | — | (4,635) | — | (4,635) | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock in connection with employee equity incentive plans, net of tax withholding | — | — | 6,295 | 1 | (14,498) | — | — | (14,497) | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock upon the reverse recapitalization, net of transaction costs | — | — | — | — | 76 | — | — | 76 | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock to a customer | — | — | 100 | — | 559 | — | — | 559 | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock upon exercise of public warrants | — | — | 1,994 | — | 34,055 | — | — | 34,055 | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock in connection with acquisitions | — | — | 1,215 | — | 19,118 | — | — | 19,118 | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of earn-out shares upon triggering events, net of tax withholding | — | — | 21,494 | 2 | (17,738) | — | — | (17,736) | ||||||||||||||||||||||||||||||||||||||||||
| Earn-out liability recognized upon the re-allocation | — | — | — | — | (896) | — | — | (896) | ||||||||||||||||||||||||||||||||||||||||||
| Reclassification of remaining contingent earn-out liability upon triggering events | — | — | — | — | 242,430 | — | — | 242,430 | ||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | 61,097 | — | — | 61,097 | ||||||||||||||||||||||||||||||||||||||||||
Balance as of March 31, 2022 | — | $ | — | 281,271 | $ | 28 | $ | 1,061,938 | $ | (6,174) | $ | (396,154) | $ | 659,638 | ||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | (64,634) | (64,634) | ||||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | — | (1,476) | — | (1,476) | ||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with employee equity incentive plans, net of tax withholding | — | 2,340 | — | 2,701 | — | — | 2,701 | |||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock to a customer | — | 32 | — | 179 | 179 | |||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | 34,799 | — | — | 34,799 | ||||||||||||||||||||||||||||||||||||||||||
Balance as of June 30, 2022 | — | $ | — | 283,643 | $ | 28 | $ | 1,099,617 | $ | (7,650) | $ | (460,788) | $ | 631,207 | ||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | (58,259) | (58,259) | ||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income | — | — | — | — | — | 72 | — | 72 | ||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with employee equity incentive plans, net of tax withholding | — | — | 3,757 | 1 | 399 | — | — | 400 | ||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with acquisitions | — | — | 8 | — | 101 | — | — | 101 | ||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | 32,306 | — | — | 32,306 | ||||||||||||||||||||||||||||||||||||||||||
Balance as of September 30, 2022 | — | $ | — | 287,408 | $ | 29 | $ | 1,132,423 | $ | (7,578) | $ | (519,047) | $ | 605,827 | ||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
9
MATTERPORT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(In thousands, unaudited)
| Nine Months Ended September 30, | |||||||||||
| 2022 | 2021 | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | |||||||||||
Net loss | $ | (50,989) | $ | (177,070) | |||||||
Adjustments to reconcile net loss to net cash used in operating activities: | |||||||||||
Depreciation and amortization | 9,237 | 4,121 | |||||||||
Amortization of debt discount | — | 135 | |||||||||
| Amortization of investment premiums, net of accretion of discounts | 2,517 | 413 | |||||||||
Stock-based compensation, net of amounts capitalized | 116,738 | 31,997 | |||||||||
| Change in fair value of warrants liabilities | (26,147) | 24,176 | |||||||||
Change in fair value of contingent earn-out liability | (136,043) | 98,478 | |||||||||
| Deferred income taxes | (27) | — | |||||||||
| Transaction costs | — | 565 | |||||||||
Loss on extinguishment of debt and convertible notes | — | 210 | |||||||||
Allowance for doubtful accounts | 343 | 460 | |||||||||
Other | 681 | 193 | |||||||||
Changes in operating assets and liabilities, net of effects of businesses acquired: | |||||||||||
Accounts receivable | (7,379) | (6,100) | |||||||||
Inventories | (6,135) | (342) | |||||||||
Prepaid expenses and other assets | (5,348) | (7,699) | |||||||||
Accounts payable | (4,154) | 3,427 | |||||||||
Deferred revenue | 3,167 | 4,503 | |||||||||
Accrued expenses and other liabilities | 4,181 | 1,442 | |||||||||
Net cash used in operating activities | (99,358) | (21,091) | |||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||
Purchases of property and equipment | (1,417) | (536) | |||||||||
Capitalized software and development costs | (9,890) | (5,233) | |||||||||
| Purchase of investments | (87,997) | (466,466) | |||||||||
| Maturities of investments | 194,241 | — | |||||||||
Investment in convertible notes | — | (1,000) | |||||||||
| Business acquisitions, net of cash acquired | (51,874) | — | |||||||||
Net cash provided by (used in) investing activities | 43,063 | (473,235) | |||||||||
CASH FLOW FROM FINANCING ACTIVITIES: | |||||||||||
| Proceeds from reverse recapitalization and PIPE financing, net | — | 612,854 | |||||||||
Payment of transaction costs related to reverse recapitalization | — | (9,813) | |||||||||
Proceeds from sales of shares through employee equity incentive plans | 5,292 | 1,696 | |||||||||
| Payments for taxes related to net settlement of equity awards | (34,424) | — | |||||||||
| Proceeds from exercise of warrants | 27,844 | — | |||||||||
Repayment of debt | — | (13,067) | |||||||||
| Other | 76 | — | |||||||||
Net cash provided by (used in) financing activities | (1,212) | 591,670 | |||||||||
Net change in cash, cash equivalents, and restricted cash | (57,507) | 97,344 | |||||||||
Effect of exchange rate changes on cash | (628) | (273) | |||||||||
Cash, cash equivalents, and restricted cash at beginning of year | 139,987 | 52,250 | |||||||||
Cash, cash equivalents, and restricted cash at end of period | $ | 81,852 | $ | 149,321 | |||||||
Supplemental disclosures of cash flow information | |||||||||||
Cash paid for interest | $ | — | $ | 753 | |||||||
Supplemental disclosures of non-cash investing and financing information | |||||||||||
| Earn-out liability recognized upon the re-allocation | $ | 896 | $ | 231,627 | |||||||
| Reclassification of remaining contingent Earn-out liability upon triggering events | $ | 242,430 | $ | 164,461 | |||||||
| Unpaid transaction costs | $ | — | $ | 200 | |||||||
| Common stock issued in connection with acquisition | $ | 19,219 | $ | — | |||||||
| Unpaid cash consideration in connection with acquisition | $ | 4,348 | $ | — | |||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
10
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Matterport, Inc., together with its subsidiaries (“Matterport” or the “Company”), is leading the digitization and datafication of the built world. Matterport’s pioneering technology has set the standard for digitizing, accessing and managing buildings, spaces and places online. Matterport’s platform comprising innovative software, spatial data-driven data science, and 3D capture technology has broken down the barriers that have kept the largest asset class in the world, buildings and physical spaces, offline and underutilized for so long. The Company was incorporated in the state of Delaware in 2011 and is headquartered in Sunnyvale, California.
On July 22, 2021 (the “Closing Date”), the Company consummated the merger (collectively with the other transactions described in the Merger Agreement, the “Merger”, “Closing”, or “Transactions”) pursuant to an Agreement and Plan of Merger, dated February 7, 2021 (the “Merger Agreement”), by and among the Company (formerly known as Gores Holdings VI, Inc.), the pre-Merger Matterport, Inc. (now known as Matterport Operating, LLC) (“Legacy Matterport”), Maker Merger Sub, Inc. (“First Merger Sub”), a direct, wholly owned subsidiary of the Company, and Maker Merger Sub II, LLC (“Second Merger Sub”), a direct, wholly owned subsidiary of the Company, pursuant to which First Merger Sub merged with and into Legacy Matterport, with Legacy Matterport continuing as the surviving corporation (the “First Merger”), and immediately following the First Merger and as part of the same overall transaction as the First Merger, Legacy Matterport merged with and into Second Merger Sub, with Second Merger Sub continuing as the surviving entity as a wholly owned subsidiary of the Company, under the new name “Matterport Operating, LLC.” Upon the closing of the Merger, we changed our name to Matterport, Inc. See Note 3 “Reverse Recapitalization” for additional information.
Unless the context otherwise requires, the “Company” refers to the combined company and its subsidiaries following the Merger, “Gores” refers to the Company prior to the Merger and “Legacy Matterport” refers to Matterport, Inc. prior to the Merger.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Other than the policies noted below, no material changes have been made to the significant accounting policies described in the Company’s 2021 Form 10-K for the fiscal year ended December 31, 2021.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the SEC, regarding interim financial reporting. Certain information and disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes in the Company’s 2021 Form 10-K for the fiscal year ended December 31, 2021, which provides a more complete discussion of the Company’s accounting policies and certain other information.
In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of its financial position as of September 30, 2022, and its results of operations for the three and nine months ended September 30, 2022 and 2021, and cash flows for the nine months ended September 30, 2022 and 2021. The condensed consolidated balance sheet as of December 31, 2021, was derived from audited annual financial statements but does not contain all of the footnote disclosures from the annual financial statements.
Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
11
Use of Estimates
The preparation of the accompanying condensed consolidated financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts and disclosures in the condensed consolidated financial statements and accompanying notes. Significant estimates include assumptions related to the fair value of common stock before the Merger and other assumptions used to measure stock-based compensation, fair value of assets acquired and liabilities assumed in business combinations, identified intangibles and goodwill, valuation of deferred tax assets, the estimate of net realizable value of inventory, allowance for doubtful accounts, the fair value of common stock warrants, public and private warrants liability, and earn-out shares, and the determination of stand-alone selling price of various performance obligations. As of September 30, 2022, future impact of the COVID-19 pandemic on the Company’s operational and financial performance will depend on certain developments, including the duration and spread of the pandemic, impact on the Company’s subscribers and their spending habits, impact on the Company’s marketing efforts, and effect on the Company’s suppliers, all of which are uncertain and cannot be predicted with certainty. As a result, many of the Company’s estimates and assumptions required increased judgment and these estimates may change materially in future periods.
Management evaluates its estimates and assumptions on an ongoing basis using historical experience and various other factors, including the current economic environment and the impact of COVID-19, which management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. The Company adjusts such estimates and assumptions when dictated by facts and circumstances. Changes in those estimates resulting from continuing changes in the economic environment will be reflected in the condensed consolidated financial statements in future periods. Actual results may differ materially from those estimates.
Segment information
The Company has a single operating segment and reportable segment. The Company’s chief operating decision-maker is its Chief Executive Officer, who reviews financial information presented on a consolidated basis for purposes of making operating decisions, assessing financial performance, and allocating resources. Refer to Note 4, for information regarding the Company’s revenue by geography. Substantially all of the Company’s long-lived assets are located in the United States.
Concentration of Credit Risk and Other Risks and Uncertainties
Financial instruments that subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, investments, and accounts receivable. The Company maintains its cash balances in accounts held by major banks and financial institutions located in the United States. Such bank deposits from time to time may be exposed to credit risk in excess of the Federal Deposit Insurance Corporation insurance limit, and the Company considers such risk to be minimal.
We invest only in high-quality credit instruments and maintain our cash and cash equivalents and available-for-sale investments in fixed income securities. Management believes that the financial institutions that hold our investments are financially sound and, accordingly, are subject to minimal credit risk. Deposits held with banks may exceed the amount of insurance provided on such deposits.
The Company’s accounts receivable is derived from customers located both inside and outside the United States. The Company mitigates its credit risks by performing ongoing credit evaluations of the financial condition of its customers and requires advance payment from customers in certain circumstances. The Company generally does not require collateral from its customers.
No customer accounted for more than 10% of the Company’s total accounts receivable at September 30, 2022 and December 31, 2021. No customer accounted for more than 10% of the Company’s total revenue for the three and nine months ended September 30, 2022 and 2021.
12
Cash, Cash Equivalents, and Restricted Cash
The Company considers all highly liquid investments purchased with an original maturity of 90 days or less to be cash equivalents. Cash and cash equivalents include cash on hand and amounts on deposit with financial institutions. Amounts receivable from credit card processors of approximately $1.5 million and $0.7 million as of September 30, 2022 and December 31, 2021, respectively, are also considered cash equivalents because they are both short-term and highly-liquid in nature and are typically converted to cash approximately three to five business days from the date of the underlying transaction.
The Company had restricted cash of nil and $0.5 million as of September 30, 2022 and December 31, 2021. The restricted cash was cash deposits restricted under the 2020 term loan. Refer to Note 9 “Debt” for additional information.
Accounts Receivable, Net
Accounts receivable consists of current trade receivables due from customers recorded at the invoiced amount, net of allowances for doubtful accounts.
The Company’s accounts receivable represent amounts due from customers arising from revenue and are stated at the amount the Company expects to collect from outstanding balances. On a periodic basis, the Company evaluates accounts receivable estimated to be uncollectible and provides allowances, as necessary, for doubtful accounts. As of September 30, 2022 and December 31, 2021, the allowance for doubtful accounts was $0.6 million and $0.3 million, respectively.
Fair Value Measurement
The Company accounts for certain of its financial assets and liabilities at fair value. The Company uses a three-level hierarchy, which prioritizes, within the measurement of fair value, the use of market-based information over entity-specific information for fair value measurements based on the nature of inputs used in the valuation of an asset or liability as of the measurement date. Fair value focuses on an exit price and is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities which are required to be recorded at fair value, the Company considers the principal or most advantageous market in which the Company would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as risks inherent in valuation techniques, transfer restrictions and credit risks. The inputs or methodology used for valuing financial instruments are not necessarily an indication of the risk associated with investing in those financial instruments.
Accounts receivable and accounts payable are carried at cost, which approximates fair value due to the short maturity of these instruments.
Transaction Costs
Transaction costs consist of direct legal, accounting and other fees relating to the consummation of the Merger. These costs were initially capitalized as incurred in other assets on the condensed consolidated balance sheets. Upon the Closing, transaction costs related to the issuance of shares were recognized in stockholders’ equity (deficit) while costs associated with the public and private warrants liabilities were expensed in the condensed consolidated statements of operations. The Company and Gores incurred $10.0 million and $26.3 million transaction costs, respectively. The total transaction cost was $36.3 million, consisting of underwriting, legal, and other professional fees, of which $35.7 million was recorded to additional paid-in capital as a reduction of proceeds and the remaining $0.6 million was expensed immediately upon the Closing.
13
Business Combination
Business acquisitions are accounted for using the acquisition method under Accounting Standards Codifications (“ASC”) 805, Business Combinations (“ASC 805”), which requires recording assets acquired and liabilities assumed at fair value as of the acquisition date. Under the acquisition method of accounting, each tangible and separately identifiable intangible assets acquired and liabilities assumed is recorded based on their preliminary estimated fair values on the acquisition date. The initial valuations are derived from estimated fair value assessments and assumptions used by management. The excess of the purchase price over the fair values of these identifiable assets and liabilities is recorded as goodwill. Additional information existing as of the acquisition date but unknown to the Company may become known during the remainder of the measurement period, not to exceed 12 months from the acquisition date, which may result in changes to the amounts and allocations recorded.
Acquisition related transaction costs are expensed as incurred and are recorded in selling, general, and administrative expenses in the Condensed Consolidated Statements of Operations. The Company incurred $0.2 million and $1.6 million of acquisition-related costs for the three and nine months ended September 30, 2022, respectively.
Intangible Assets
Acquisition-related intangible assets with finite lives are accounted for at fair value as of the date of acquisition, less accumulated amortization. Amortization is computed over the estimated useful lives of the respective assets.
Impairment of Goodwill, Intangible Assets, and Other Long-Lived Assets
Goodwill represents the excess of the purchase price over the fair value of identifiable assets and liabilities acquired in each business combination. Goodwill will be evaluated for impairment on an annual basis in the fourth quarter of the Company’s fiscal year, and whenever events or changes in circumstances indicate the carrying amount of goodwill may not be recoverable. The Company has elected to first assess qualitative factors to determine whether it is more likely than not that the fair value of the Company’s single reporting unit is less than its carrying amount, including goodwill. If the Company determines that it is more likely than not that the fair value of the Company’s single reporting unit is less than its carrying amount, then the quantitative impairment test will be performed. Under the quantitative impairment test, if the carrying amount of the single reporting unit exceeds its fair value, the Company will recognize an impairment loss in an amount equal to that excess but limited to the total amount of goodwill.
The Company evaluates events and changes in circumstances that could indicate carrying amounts of purchased intangible assets and other long-lived assets may not be recoverable. When such events or changes in circumstances occur, the Company assesses the recoverability of these assets by determining whether or not the carrying amount will be recovered through undiscounted expected future cash flows. If the total of the future undiscounted cash flows is less than the carrying amount of an asset group, the Company will record an impairment loss for the amount by which the carrying amount of the assets exceeds the fair value of the assets.
The Company did not recognize any impairment losses on goodwill, intangible assets, or other long-lived assets during the three and nine months ended September 30, 2022 and 2021, respectively.
Earn-out Arrangement
In connection with the reverse recapitalization and pursuant to the Merger Agreement, eligible Legacy Matterport stockholders and Legacy Matterport stock option and restricted stock unit (“RSU”) holders were entitled to receive an aggregate of approximately 23.5 million shares (“Earn-out Shares”) of the Company’s Class A common stock, par value $0.0001 per share (“Class A common stock”) upon the Company achieving certain Earn-out Triggering Events during the Earn-out Period (as described in Note 14 “Contingent Earn-Out Awards”).
In accordance with ASC 815-40, Earn-out Shares issuable to Legacy Matterport common stockholders in respect of such common stock are not solely indexed to the common stock and therefore are accounted for as contingent earn-out liability on the consolidated balance sheet at the reverse recapitalization date and subsequently remeasured at each reporting date with changes in fair value recorded as a component of other income (expense), net in the consolidated statements of operations. If the applicable triggering event is achieved for a tranche, the Company will reclassify the
14
outstanding earn-out liability to additional paid-in capital upon the triggering event and account for the Earn-out Shares for such tranche as issued and outstanding common stock upon the share release.
Earn-out Shares issuable to certain holders of Legacy Matterport stock options and RSUs in respect of such stock options and RSUs (the “Earn-out Awards”) are subject to forfeiture and are accounted for in accordance with ASC 718. The Company measures and recognizes stock-compensation expense based on the fair value of the Earn-out Awards over the derived service period for each tranche. Forfeitures are accounted for as they occur.
Upon the forfeiture of Earn-out Shares issuable to any eligible holder of Legacy Matterport stock options and RSUs, the forfeited Earn-out awards are subject to reallocation and grant on a pro rata basis to the remaining eligible Legacy Matterport stockholders and stock options and RSUs holders. The reallocated issuable shares to Legacy Matterport common stockholders are recognized as contingent earn-out liability, and the reallocated issuable shares to Legacy Matterport stock options and RSUs holders are recognized as stock-based compensation over the remaining derived service period based on the fair value on the date of the reallocation.
The estimated fair value of the Earn-out Shares is allocated proportionally to contingent earn-out liability and the grant date fair value of the Earn-out Awards. The estimated fair value of the Earn-out Shares is determined using a Monte Carlo simulation prioritizing the most reliable information available. The assumptions utilized in the calculation are based on the achievement of certain stock price milestones, including the current price of shares of Class A common stock, expected volatility, risk-free rate, expected term and dividend rate. The contingent earn-out liability is categorized as a Level 3 fair value measurement because the Company estimates projections during the Earn-out Period utilizing unobservable inputs. See Note 8 “Fair Value Measurement” and Note 14 “Contingent Earn-Out Awards” for additional information.
All six Earn-out Triggering Events occurred as of January 18, 2022, which resulted in the Company issuing an aggregate of 21.5 million Earn-out Shares to the eligible Legacy Matterport stockholders and Legacy Matterport RSU and stock option holders, which reflects the withholding of approximately 2.0 million Earn-out Shares to cover tax obligations. Refer to Note 14 “Contingent Earn-out Awards” and Note 15 “Stock Plan” for additional information.
Advertising Costs
Advertising costs are expensed as incurred and included in selling, general, and administrative in the condensed consolidated statements of operations. Advertising expense was $4.7 million and $2.3 million for the three months ended September 30, 2022 and 2021, respectively, and $13.6 million and $5.8 million for the nine months ended September 30, 2022 and 2021, respectively.
Accounting Pronouncements
The Company is provided the option to adopt new or revised accounting guidance as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 either (1) within the same periods as those otherwise applicable to public business entities or (2) within the same time periods as nonpublic business entities, including early adoption when permissible. With the exception of standards the Company elected to early adopt, when permissible, the Company has elected to adopt new or revised accounting guidance within the same time period as non-public business entities, as indicated below. As a result, the Company’s financial statements may not be comparable to companies that comply with public company effective dates because of this election. Based on the closing price of our common stock and the market value of our common stock held by non-affiliates as of June 30, 2022, the Company has determined that we will no longer be an emerging growth company as of December 31, 2022. As a result, we will no longer be able to take advantage of reduced disclosure and other obligations that are available to emerging growth companies after that date.
Recently Adopted Accounting Standards
In February 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842) (“ASU 2016-02” or “Topic 842”), which requires a lessee to recognize right-of-use (ROU) assets and lease liabilities arising from operating and financing leases with terms longer than 12 months on the condensed consolidated balance sheets and to disclose key information about leasing arrangements.
15
The Company adopted the new standard, along with all subsequent ASU clarifications and improvements that are applicable to the Company, effective January 1, 2022 and recorded an ROU asset and lease liability related to its operating leases. The Company used the modified retrospective approach with the effective date as the date of initial application. Accordingly, the Company applied the new lease standard prospectively to leases existing or commencing on or after January 1, 2022. Prior period balances and disclosures have not been restated. The Company elected the package of transitional practical expedients, which among other provisions, allows the Company to not reassess under the new standard the Company's prior conclusions about lease identification, lease classification and initial direct cost, for any existing leases on the adoption date. In addition, for operating leases, the Company elected to account for lease and non-lease components as a single lease component. The Company also made an accounting policy election to not recognize lease liabilities and ROU assets on its condensed consolidated balance sheet for leases that, at the lease commencement date, have a lease term of 12 months or less.
Adoption of the standard resulted in the recognition of $3.6 million of ROU assets and $3.8 million of lease liabilities related to the Company's leases on its condensed consolidated balance sheet on January 1, 2022. The difference of $0.2 million represented deferred rent for leases that existed as of the date of adoption, which decreased the opening balance of ROU assets. In addition, the prepaid rent balance as of the date of adoption increased the opening balance of ROU assets. The deferred rent and prepaid rent balances were derecognized as of the date of adoption and no adjustment was made to retained earnings. The adoption of the standard did not have a material impact on our condensed consolidated statement of operations, comprehensive income (loss), changes in shareholders' equity or cash flows.
In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment (Topic 350) (“ASU 2017-04” or “Topic 350”), which removes Step 2 from the goodwill impairment test. ASU 2017-04 is effective for public business entities for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. For all other entities, including emerging growth companies, this ASU is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2021. Early adoption is permitted. The Company adopted this standard effective January 1, 2022, which has not had a material impact on our condensed consolidated financial statements.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU No. 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. ASU No. 2019-12 is effective for public entities for interim and annual periods beginning after December 15, 2020, with early adoption permitted. ASU No. 2019-12 is effective for all other entities, including emerging growth companies, for annual periods beginning after December 15, 2021, and interim periods beginning after December 15, 2022, with early adoption permitted. The Company adopted this standard effective January 1, 2022, which did not have a material impact on the Company’s condensed consolidated financial statements.
Recently Issued Accounting Standards Not Yet Adopted
In June 2016, the FASB issued ASU No. 2016-13, Financial instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and subsequent related ASUs, which amends the guidance on the impairment of financial instruments by requiring measurement and recognition of expected credit losses for financial assets held. This ASU is effective for public business entities that meet the definition of a Securities and Exchange Commission filer, excluding eligible smaller reporting companies for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For all other entities, including emerging growth companies, it is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. This will be effective for the Company for its fiscal year ending December 31, 2022. Early adoption is permitted. The Company is currently evaluating the impact on the Company’s condensed consolidated financial statements.
In October 2021, the FASB issues ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. ASU 2021-08 requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606, Revenue from Contract with Customers, as if it had originated the contracts. This ASU is effective for public entities for interim and annual periods beginning after December 15, 2022. ASU No. 2021-08 will be effective for all other entities, including emerging growth companies, for annual periods beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted. The Company expects to adopt ASU
16
2021-08 beginning January 1, 2023, and is currently assessing the impact the guidance will have on the Company’s condensed consolidated financial statements.
3. REVERSE RECAPITALIZATION
On July 22, 2021, in connection with the Merger, the Company raised gross proceeds of $640.1 million, including the contribution of $345.1 million of cash held in Gores’ trust account from its initial public offering and an aggregate purchase price of $295.0 million in a private placement pursuant to the subscription agreements (“Private Investment in Public Equity” or “PIPE”) at $10.00 per share of Gores Class A common stock. The Company paid $0.9 million to Gores’ stockholders who redeemed Gores’ Class A common stock immediately prior to the Closing. The Company and Gores incurred $10.0 million and $26.3 million transaction costs, respectively. The total transaction cost was $36.3 million, consisting of underwriting, legal, and other professional fees, of which $35.7 million was recorded to additional paid-in capital as a reduction of proceeds and the remaining $0.6 million was expensed immediately upon the Closing. The aggregate consideration paid to Legacy Matterport stockholders in connection with the Merger (excluding any potential Earn-Out Shares), was 218,875,000 shares of the Company Class A common stock, par value $0.0001 per share. The per share Matterport stock consideration was equal to approximately 4.1193 (the “Exchange Ratio”).
The following transactions were completed concurrently upon the Closing:
•immediately prior to the Closing, 52,236 shares of Series D redeemable convertible preferred stock of Legacy Matterport were issued to a customer of Legacy Matterport.
•each issued and outstanding share of Legacy Matterport preferred stock was canceled and converted into the right to receive a total of 126,460,926 shares of the Matterport Class A common stock;
•each Legacy Matterport warrant was exercised in full in exchange for the issuance of 1,038,444 shares of Matterport Class A common stock to the holder of such Matterport warrant;
•each issued and outstanding share of Legacy Matterport common stock (including the items mentioned in above points) was canceled and converted into the right to receive an aggregate number of shares of Matterport Class A common stock equal to the per share Matterport stock consideration;
•each outstanding vested and unvested Legacy Matterport common stock option was converted into a rollover option, exercisable for shares of Matterport Class A common stock with the same terms except for the number of shares exercisable and the exercise price, each of which was adjusted using the Per Share Matterport stock consideration; and
•each outstanding and unvested Legacy Matterport RSU was converted into a rollover RSU for shares of Matterport Class A common stock with the same terms except for the number of shares, which were adjusted using the per share Matterport stock consideration
The Merger was accounted for as a reverse recapitalization in accordance with U.S. GAAP. Under this method of accounting, Gores was treated as the “acquired” company for financial reporting purposes. This determination was primarily based on holders of Matterport capital stock comprising a relative majority of the voting power of the combined entity upon consummation of the Merger and having the ability to nominate the majority of the governing body of the combined entity, Matterport’s senior management comprising the senior management of the combined entity, and Matterport’s operations comprising the ongoing operations of the combined entity. Accordingly, for accounting purposes, the financial statements of the combined entity upon consummation of the Merger represented a continuation of the financial statements of Matterport with the Merger being treated as the equivalent of Matterport issuing stock for the net assets of Gores, accompanied by a recapitalization. The net assets of Gores are stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Merger are presented as those of Matterport in future reports of the combined entity. All periods prior to the Merger have been retroactively adjusted using the Exchange Ratio for the equivalent number of shares outstanding immediately after the Merger to effect the reverse recapitalization.
17
The number of shares of Class A common stock issued immediately following the consummation of the Merger was as follows (shares are in thousands):
| Shares | |||||
Legacy Matterport Stockholders(1) | 169,425 | ||||
| Public Stockholders of Gores | 34,406 | ||||
Initial Stockholders (defined below) of Class F Common Stock(2) | 8,625 | ||||
PIPE Investors(3) | 29,500 | ||||
| Total | 241,956 | ||||
(1) Excludes 23,460,000 shares of Class A common stock issuable in earn-out arrangement as they are not issuable until 180 days after the Closing and are contingently issuable based upon the triggering events that have not yet been achieved.
(2) Represents shares of Class A common stock issued into which shares of Class F common stock, par value of $0.0001 per share, of the Company were converted upon the consummation of the Merger. Excludes 4,079,000 shares of Class A common stock purchased under the Sponsor Subscription Agreement and excludes 15,000 shares of Class A common stock purchased by the Initial Stockholders (excluding the Sponsor) in the PIPE. Gores Holdings VI Sponsor, LLC, a Delaware limited liability company, Mr. Randall Bort, Ms. Elizabeth Marcellino and Ms. Nancy Tellem, Gores’ independent directors, are collectively noted as “Initial Stockholders”.
(3) Includes the Initial Stockholders’ ownership of 4,079,000 shares of Class A common stock purchased under the Sponsor Subscription Agreement and includes 15,000 shares of Class A common stock purchased by the Initial Stockholders (excluding the Sponsor) in the PIPE.
4. REVENUE
Disaggregated Revenue—The following table shows the revenue by geography for the three and nine months ended September 30, 2022 and 2021, respectively (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||
United States | $ | 25,310 | $ | 16,383 | $ | 58,187 | $ | 51,518 | |||||||||||||||
International | 12,683 | 11,272 | 36,797 | 32,569 | |||||||||||||||||||
Total revenue | $ | 37,993 | $ | 27,655 | $ | 94,984 | $ | 84,087 | |||||||||||||||
No country other than the United States accounted for more than 10% of the Company’s revenue for the three and nine months ended September 30, 2022 and 2021, respectively. The geographical revenue information is determined by the ship-to address of the products and the billing address of the customers of the services.
The following table shows over time versus point-in-time revenue for the three and nine months ended September 30, 2022 and 2021, respectively (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
Over time revenue | $ | 28,996 | $ | 18,969 | $ | 73,509 | $ | 53,618 | |||||||||||||||
Point-in-time revenue | 8,997 | 8,686 | 21,475 | 30,469 | |||||||||||||||||||
Total | $ | 37,993 | $ | 27,655 | $ | 94,984 | $ | 84,087 | |||||||||||||||
18
Contract Balances—The timing of revenue recognition differs from the timing of invoicing to customers and this timing difference results in contract liabilities (deferred revenue) on the Company’s condensed consolidated balance sheets. The contract balances as of September 30, 2022 and December 31, 2021 were as follows (in thousands):
| September 30, 2022 | December 31, 2021 | ||||||||||
Accounts receivable, net | $ | 17,135 | $ | 8,898 | |||||||
Unbilled accounts receivable | $ | 2,380 | $ | 1,981 | |||||||
Deferred revenue | $ | 15,115 | $ | 11,948 | |||||||
During the nine months ended September 30, 2022 and 2021, the Company recognized revenue of $8.6 million and $4.1 million that was included in the deferred revenue balance at the beginning of the fiscal year, respectively. Contracted but unsatisfied performance obligations were $40.5 million at the end of September 30, 2022 and consisted of deferred revenue and backlog. The contracted but unsatisfied or partially unsatisfied performance obligations expected to be recognized over the next 12 months at the end of September 30, 2022 were $29.2 million, and the remaining thereafter.
19
5. ACQUISITIONS
VHT, Inc. Acquisition
On June 10, 2022, the Company entered into an Agreement and Plan of Merger (the “Purchase Agreement”) with VHT, Inc. (“VHT”), known as VHT Studios, a U.S.-based real estate marketing company that offers brokerages and agents digital solutions to promote and sell properties. On July 7, 2022 (the “VHT Acquisition Date”), pursuant to the Purchase Agreement, the Company completed the acquisition of VHT (the “VHT Acquisition”), which expands Matterport Capture Services by bringing together Matterport digital twins with professional photography, drone capture and marketing services. With this acquisition, the Company aims to increase adoption of digital twin technology and expand further into the residential real estate industry while adding marketing services for other key markets such as commercial real estate, travel and hospitality, and the retail sector.
Under the terms of the Purchase Agreement, the consideration consisted of an all-cash purchase price of $23.0 million subject to certain adjustments based on a determination of closing net working capital, transaction expenses, cash and investments and closing indebtedness. The total preliminary purchase consideration for the VHT Acquisition was $22.7 million.
The Company has accounted for the VHT Acquisition as a business combination and allocated the purchase consideration to assets acquired and liabilities assumed based on preliminary estimated fair values at the VHT Acquisition Date, as presented in the following table (in thousands):
| Amount | |||||
| Goodwill | $ | 15,603 | |||
| Identified intangible assets | 6,900 | ||||
| Net assets acquired | 215 | ||||
| Total | $ | 22,718 | |||
Goodwill generated from this business combination is primarily attributable to the assembled workforce and expected post-acquisition synergies from leveraging VHT’s customer relationships. The goodwill is not deductible for income tax purposes.
The following table summarizes the preliminary estimated fair values and estimated useful lives of the components of identifiable intangible assets acquired as of the VHT Acquisition Date (in thousands, except years):
| Fair Value | Estimated Useful Life | ||||||||||
| Customer Relationships | $ | 6,900 | 10 years | ||||||||
The Company included VHT’s estimated fair value of assets acquired and liabilities assumed in its condensed consolidated balance sheet beginning on the VHT Acquisition Date. The results of operations for VHT subsequent to the VHT Acquisition Date have been included in the Company’s condensed consolidated statement of operations for the three and nine months ended September 30, 2022. VHT contributed $4.5 million to total revenue for the three and nine months ended September 30, 2022. The net income (loss) for VHT was not material to the Company’s condensed consolidated statement of operations for the three and nine months ended September 30, 2022.
Unaudited Pro Forma Financial Information
The following table summarizes the pro forma consolidated information for the Company assuming the acquisition of VHT had occurred as of January 1, 2021. The unaudited pro forma information for all periods presented includes the business combination accounting effects resulting from the acquisition, including amortization for intangible assets acquired and acquisition-related charges. The unaudited pro forma financial information as presented below is for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of fiscal year 2021.
20
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| (in thousands, except per share data) | |||||||||||||||||||||||
| Total revenue | $ | 38,345 | $ | 32,819 | $ | 105,432 | $ | 99,458 | |||||||||||||||
| Net loss | $ | (58,118) | $ | (167,882) | $ | (50,103) | $ | (177,122) | |||||||||||||||
| Basic earnings per share | $ | (0.20) | $ | (0.85) | $ | (0.18) | $ | (1.90) | |||||||||||||||
| Diluted earnings per share | $ | (0.20) | $ | (0.85) | $ | (0.18) | $ | (1.90) | |||||||||||||||
Enview Inc. Acquisition
On January 5, 2022 (the “Enview Acquisition Date”), the Company completed the acquisition (the “Enview Acquisition”) of Enview, Inc. (“Enview”), a privately-held company engaged in the development of artificial intelligence algorithms to identify natural and man-made features in geospatial data using various techniques. The total purchase consideration for the Enview Acquisition was $64.3 million, which includes a working capital adjustment finalized in the third quarter of fiscal year 2022, which reduced the purchase price for Enview. The total purchase consideration consisted of the following (in thousands):
| Amount | |||||
| Cash | $ | 34,957 | |||
Common stock (1.2 million shares)(1) | 19,240 | ||||
Unpaid Consideration (2) | 10,127 | ||||
| Total | $ | 64,324 | |||
(1) On the Enview Acquisition Date, the Company's closing stock price was $15.73 per share.
(2) The Company recorded a liability for unpaid cash of $4.3 million and stock consideration of $5.8 million that will be paid at a future date due to the passage of time in accordance with the merger agreement, not to exceed two years from the Enview Acquisition Date. The liabilities are included in accrued expenses and other current liabilities and other long-term liabilities in the condensed consolidated balance sheet.
The Company has accounted for the Enview Acquisition as a business combination and allocated the purchase consideration to assets acquired and liabilities assumed based on preliminary estimated fair values at the Enview Acquisition Date. During the three months ended September 30, 2022, the Company identified and recorded an insignificant measurement period adjustment to the preliminary value assigned to goodwill. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the Enview Acquisition Date, and the value of goodwill resulting from the measurement period adjustments in the three months ended September 30, 2022 (in thousands):
| Amount | |||||
| Goodwill | $ | 53,990 | |||
| Identified intangible assets | 5,400 | ||||
| Net assets acquired | 4,934 | ||||
| Total | $ | 64,324 | |||
Goodwill generated from this business combination is primarily attributable to the assembled workforce and expected post-acquisition synergies from integrating Enview technology with Matterport’s products and services. The goodwill is not deductible for income tax purposes.
The following table summarizes the preliminary estimated fair values and estimated useful lives of the components of identifiable intangible assets acquired as of the Enview Acquisition Date (in thousands, except years):
21
| Fair Value | Estimated Useful Life | ||||||||||
| Developed technology | $ | 5,400 | 5 years | ||||||||
Pro forma results of operations have not been presented because the effects of the Enview Acquisition were not material to the Company’s condensed consolidated statements of operations.
22
6. GOODWILL AND INTANGIBLE ASSETS
Goodwill—The following table presents details of the Company’s goodwill during the nine months ended September 30, 2022 (in thousands):
| Amount | |||||
Balance as of December 31, 2021 | $ | — | |||
| Goodwill acquired | 69,593 | ||||
Balance as of September 30, 2022 | $ | 69,593 | |||
Purchased Intangible Assets—The following table presents details of the Company’s purchased intangible assets as of September 30, 2022 (in thousands). There were no intangibles as of December 31, 2021.
| September 30, 2022 | |||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||||||
| Intangible assets subject to amortization: | |||||||||||||||||
| Developed technology | $ | 5,400 | $ | (795) | $ | 4,605 | |||||||||||
| Customer Relationships | 6,900 | (173) | 6,727 | ||||||||||||||
| Total | $ | 12,300 | $ | (968) | $ | 11,332 | |||||||||||
The Company recognized amortization expense of $0.4 million and nil for the three months ended September 30, 2022 and 2021, respectively, and $1.0 million and nil for the nine months ended September 30, 2022 and 2021, respectively.
The following table summarizes estimated future amortization expense for the Company’s intangible assets as of September 30, 2022 (in thousands):
| Amount | |||||
| Remaining 2022 | $ | 441 | |||
| 2023 | 1,770 | ||||
| 2024 | 1,770 | ||||
| 2025 | 1,770 | ||||
| 2026 | 1,770 | ||||
| 2027 and thereafter | 3,811 | ||||
| Total future amortization expense | $ | 11,332 | |||
23
7. BALANCE SHEET COMPONENTS
Allowance for Doubtful Accounts—Allowance for doubtful accounts as of September 30, 2022 and 2021 and the rollforward for three and nine months ended September 30, 2022 and 2021 were as follows (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
Balance—beginning of period | $ | (421) | $ | (32) | $ | (291) | $ | (799) | |||||||||||||||
Increase in reserves | (148) | (309) | (343) | (460) | |||||||||||||||||||
Write-offs | — | 159 | 65 | 1,077 | |||||||||||||||||||
Balance—end of period | $ | (569) | $ | (182) | $ | (569) | $ | (182) | |||||||||||||||
Inventories—Inventories as of September 30, 2022 and December 31, 2021, consisted of the following (in thousands):
| September 30, 2022 | December 31, 2021 | ||||||||||
Finished Goods | $ | 1,865 | $ | 295 | |||||||
Work in process | 5,720 | 2,043 | |||||||||
Purchased parts and raw materials | 4,092 | 3,255 | |||||||||
Total inventories | $ | 11,677 | $ | 5,593 | |||||||
Property and Equipment, Net—Property and equipment as of September 30, 2022 and December 31, 2021, consisted of the following (in thousands):
| September 30, 2022 | December 31, 2021 | ||||||||||
Machinery and equipment | $ | 3,676 | $ | 2,324 | |||||||
Furniture and fixtures | 355 | 355 | |||||||||
Leasehold improvements | 734 | 728 | |||||||||
Capitalized software and development costs | 50,312 | 28,964 | |||||||||
Total property and equipment | 55,077 | 32,371 | |||||||||
Accumulated depreciation and amortization | (26,522) | (18,253) | |||||||||
Total property and equipment, net | $ | 28,555 | $ | 14,118 | |||||||
Depreciation and amortization expenses of property and equipment were $3.3 million and $1.5 million for the three months ended September 30, 2022 and 2021, respectively, and $8.3 million and $4.1 million for the nine months ended September 30, 2022 and 2021, respectively.
Additions to capitalized software and development costs, inclusive of stock-based compensation in the three months ended September 30, 2022 and 2021 were $5.7 million and $3.3 million, respectively. Additions to capitalized software and development costs, inclusive of stock-based compensation in the nine months ended September 30, 2022 and 2021 were $21.4 million and $6.7 million, respectively. These are recorded as part of property and equipment, net on the condensed consolidated balance sheets.
Amortization expense was $3.0 million and $1.4 million for three months ended September 30, 2022 and 2021, respectively, of which $2.8 million and $1.2 million was recorded to costs of revenue related to subscription and $0.2 million and $0.2 million to selling, general and administrative in the condensed consolidated statements of operations, respectively. Amortization expense was $7.8 million and $3.8 million for the nine months ended September 30, 2022 and 2021, respectively, of which $7.0 million and $3.3 million was recorded to costs of revenue related to subscription and $0.8 million and $0.5 million to selling, general and administrative in the condensed consolidated statements of operations, respectively.
24
Accrued Expenses and Other Current Liabilities—Accrued expenses and other current liabilities as of September 30, 2022 and December 31, 2021, consisted of the following (in thousands):
| September 30, 2022 | December 31, 2021 | ||||||||||
Accrued compensation | $ | 6,729 | $ | 2,754 | |||||||
Tax payable | 1,302 | 1,063 | |||||||||
| ESPP Contribution | 1,378 | 693 | |||||||||
| Short-term unpaid acquisition consideration | 6,109 | — | |||||||||
| Short-term operating lease liabilities | 1,247 | — | |||||||||
Other current liabilities | 5,735 | 5,516 | |||||||||
Total accrued expenses and other current liabilities | $ | 22,500 | $ | 10,026 | |||||||
Other long-term Liabilities—Other long-term liabilities as of September 30, 2022 and December 31, 2021, consisted of the following (in thousands):
| September 30, 2022 | December 31, 2021 | ||||||||||
| Long-term operating lease liabilities | $ | 1,805 | $ | — | |||||||
| Long-term unpaid acquisition consideration | 4,019 | — | |||||||||
| Other non-current liabilities | — | 262 | |||||||||
Total other long-term liabilities | $ | 5,824 | $ | 262 | |||||||
8. FAIR VALUE MEASUREMENTS
We categorize assets and liabilities recorded or disclosed at fair value on our condensed consolidated balance sheets based upon the level of judgment associated with inputs used to measure their fair value. The categories are as follows:
Level 1—Inputs are unadjusted quoted prices for identical assets or liabilities in active markets.
Level 2—Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.
Level 3—Inputs to the valuation methodology are unobservable and significant to the fair value measurement. The inputs require significant management judgment or estimation.
The Company’s financial assets and liabilities that were measured at fair value on a recurring basis were as follows (in thousands):
25
| September 30, 2022 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Financial Assets: | |||||||||||||||||||||||
Cash equivalents: | |||||||||||||||||||||||
| Money market funds | $ | 44,548 | $ | — | $ | — | $ | 44,548 | |||||||||||||||
| Total cash equivalents | $ | 44,548 | $ | — | $ | — | $ | 44,548 | |||||||||||||||
| Short-term investments: | |||||||||||||||||||||||
| U.S. government and agency securities | $ | 180,534 | $ | — | $ | — | $ | 180,534 | |||||||||||||||
| Non-U.S. government and agency securities | — | 48,739 | — | 48,739 | |||||||||||||||||||
| Corporate debt securities | — | 148,500 | — | 148,500 | |||||||||||||||||||
| Commercial paper | — | 27,826 | — | 27,826 | |||||||||||||||||||
| Total short-term investments | $ | 180,534 | $ | 225,065 | $ | — | $ | 405,599 | |||||||||||||||
| Long-term investments: | |||||||||||||||||||||||
| Corporate debt securities | — | 7,737 | — | 7,737 | |||||||||||||||||||
| Total long-term investments | $ | — | $ | 7,737 | $ | — | $ | 7,737 | |||||||||||||||
| Other current assets: | |||||||||||||||||||||||
| Convertible notes receivable | $ | — | $ | — | $ | 1,227 | $ | 1,227 | |||||||||||||||
| Total other current assets: | $ | — | $ | — | $ | 1,227 | $ | 1,227 | |||||||||||||||
| Total assets measured at fair value | $ | 225,082 | $ | 232,802 | $ | 1,227 | $ | 459,111 | |||||||||||||||
| Financial Liabilities: | |||||||||||||||||||||||
| Private warrants liability | $ | — | $ | — | $ | 1,691 | $ | 1,691 | |||||||||||||||
| Total liabilities measured at fair value | $ | — | $ | — | $ | 1,691 | $ | 1,691 | |||||||||||||||
26
| December 31, 2021 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Financial Assets: | |||||||||||||||||||||||
Cash equivalents: | |||||||||||||||||||||||
| Money market funds | $ | 44,142 | $ | — | $ | — | $ | 44,142 | |||||||||||||||
| Total cash equivalents | $ | 44,142 | $ | — | $ | — | $ | 44,142 | |||||||||||||||
| Short-term investments: | |||||||||||||||||||||||
| Non-U.S. government and agency securities | $ | — | $ | 24,317 | $ | — | $ | 24,317 | |||||||||||||||
| Corporate debt securities | — | 92,737 | — | 92,737 | |||||||||||||||||||
| Commercial paper | — | 147,877 | — | 147,877 | |||||||||||||||||||
| Total short-term investments | $ | — | $ | 264,931 | $ | — | $ | 264,931 | |||||||||||||||
| Long-term investments: | |||||||||||||||||||||||
| U.S. government and agency securities | $ | 185,075 | $ | — | $ | — | $ | 185,075 | |||||||||||||||
| Corporate debt securities | — | 78,584 | — | 78,584 | |||||||||||||||||||
| Total long-term investments | $ | 185,075 | $ | 78,584 | $ | — | $ | 263,659 | |||||||||||||||
| Other assets: | |||||||||||||||||||||||
| Convertible notes receivable | $ | — | $ | — | $ | 1,107 | $ | 1,107 | |||||||||||||||
| Total other assets: | $ | — | $ | — | $ | 1,107 | $ | 1,107 | |||||||||||||||
| Total assets measured at fair value | $ | 229,217 | $ | 343,515 | $ | 1,107 | $ | 573,839 | |||||||||||||||
| Financial Liabilities: | |||||||||||||||||||||||
| Public warrants liability | $ | 15,645 | $ | — | $ | — | $ | 15,645 | |||||||||||||||
| Private warrants liability | — | 23,329 | — | 23,329 | |||||||||||||||||||
Contingent earn-out liability | — | 377,576 | 377,576 | ||||||||||||||||||||
| Total liabilities measured at fair value | $ | 15,645 | $ | 23,329 | $ | 377,576 | $ | 416,550 | |||||||||||||||
Our Private Warrants transferred from Level 2 to Level 3 upon the ceasing of trading activity of our Public Warrants in an active market in January 2022, see Note 13. There was no transfer during the three months ended September 30, 2022. The following table provides a reconciliation of changes in fair value of the beginning and ending balances for our assets and liabilities classified as Level 3 (in thousands):
| Amount | |||||
| Beginning balance | $ | — | |||
| Transfer of Private Warrants to Level 3 | 3,416 | ||||
| Change in fair value | 2,989 | ||||
| Ending Balance as of March 31, 2022 | $ | 6,405 | |||
| Change in fair value | (4,714) | ||||
| Ending Balance as of June 30, 2022 | 1,691 | ||||
| Change in fair value | — | ||||
| Ending Balance as of September 30, 2022 | $ | 1,691 | |||
27
Available-for-sale Debt Securities
The following tables summarize the amortized cost, unrealized gains and losses, and fair value of our available-for-sale debt securities as of September 30, 2022 and December 31, 2021 (in thousands):
| September 30, 2022 | |||||||||||||||||||||||
| Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value | ||||||||||||||||||||
| Investments: | |||||||||||||||||||||||
| U.S. government and agency securities | $ | 185,556 | $ | — | $ | (5,022) | $ | 180,534 | |||||||||||||||
| Non-U.S. government and agency securities | 49,030 | — | (291) | 48,739 | |||||||||||||||||||
| Corporate debt securities | 158,605 | — | (2,368) | 156,237 | |||||||||||||||||||
| Commercial paper | 27,898 | — | (72) | 27,826 | |||||||||||||||||||
| Convertible notes receivable | 1,000 | 227 | — | 1,227 | |||||||||||||||||||
| Total available-for-sale investments | $ | 422,089 | $ | 227 | $ | (7,753) | $ | 414,563 | |||||||||||||||
| December 31, 2021 | |||||||||||||||||||||||
| Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value | ||||||||||||||||||||
| Investments: | |||||||||||||||||||||||
| U.S. government and agency securities | $ | 186,113 | $ | — | $ | (1,038) | $ | 185,075 | |||||||||||||||
| Non-U.S. government and agency securities | 24,385 | — | (68) | 24,317 | |||||||||||||||||||
| Corporate debt securities | 171,772 | — | (451) | 171,321 | |||||||||||||||||||
| Commercial paper | 147,914 | — | (37) | 147,877 | |||||||||||||||||||
| Convertible notes receivable | 1,000 | 107 | — | 1,107 | |||||||||||||||||||
| Total available-for-sale investments | $ | 531,184 | $ | 107 | $ | (1,594) | $ | 529,697 | |||||||||||||||
Unrealized losses related to these securities are due to interest rate fluctuations as opposed to credit quality. In addition, we do not intend to sell and it is not likely that we would be required to sell these securities before recovery of their amortized cost basis, which may be at maturity. As a result, there were no other-than-temporary impairments recorded for these securities at September 30, 2022 and December 31, 2021.
In January 2021, Legacy Matterport entered a convertible note agreement with a privately held company as a strategic investment for a principal of $1.0 million. The note bears an interest rate of 5.0% per annum and matures in January 2023. The convertible note receivable is accounted for as available-for-sale debt securities in other assets based on “Level 3” inputs, which consist of unobservable inputs and reflect management’s estimates of assumptions that market participants would use in pricing the asset, with unrealized holding gains and losses excluded from earnings and reported in the condensed consolidated statements of comprehensive income (loss). The fair value of the convertible note receivable was determined using a probability-weighted assessment of redemption and conversion scenarios upon the investee closing additional financing. The key inputs to determining fair values under that approach included probability of repayment and conversion scenarios, and discount rates. As of September 30, 2022, the Company applied a probability of 75% and 25% to the conversion and repayment scenario, respectively and an average discount rate of 25.2% in the valuation.
The following table summarizes the amortized cost and fair value of our available-for-sale debt securities as of September 30, 2022 and December 31, 2021, by contractual years-to-maturity (in thousands):
| September 30, 2022 | |||||||||||
| Amortized Cost | Fair Value | ||||||||||
Due within one year | $ | 414,129 | $ | 406,826 | |||||||
Due between one and three years | 7,960 | 7,737 | |||||||||
Total | $ | 422,089 | $ | 414,563 | |||||||
28
| December 31, 2021 | |||||||||||
| Amortized Cost | Fair Value | ||||||||||
Due within one year | $ | 265,216 | $ | 264,931 | |||||||
Due between one and three years | 265,968 | 264,766 | |||||||||
Total | $ | 531,184 | $ | 529,697 | |||||||
9. DEBT
The Company’s short-term and long-term debt is secured by substantially all the assets of the Company and subject the Company to certain affirmative and negative covenants. Failure to comply with these covenants could result in an event of default, which may lead to an acceleration of the amounts owed and other remedies.
2015 Term Loan and Line of Credit—On May 20, 2015, the Company entered into a Loan and Security Agreement with a lender (the “2015 Agreement”) to borrow a term loan up to $4.0 million (“2015 Term Loan”). The Company borrowed the full $4.0 million term loan on September 23, 2016. The term loan matured on September 30, 2019. The Company was required to make 36 equal installment payments of principal starting October 2016 through September 2019. The term loan bore interest at a floating per annum rate equal to 1.0% above the prime rate published by The Wall Street Journal (the “Prime Rate”). Interest was payable monthly. The Company repaid the 2015 Term Loan by September 2019. The agreement also allowed the Company to borrow under financing of eligible accounts, for up to $1.0 million (“2015 Account Financing”). The Company did not borrow any amount under the 2015 Account Financing.
On May 22, 2017, the Company amended and restated the 2015 Agreement with the lender (the “2015 Amended and Restated Agreement”) for an additional revolving line of credit up to $2.0 million. The line of credit bore interest at a floating per annum rate equal to 0.5% above the Prime Rate. The line of credit matured on May 22, 2019.
On October 26, 2017, the Company amended the 2015 Amended and Restated Agreement with the lender (the “2017 Amendment”) for an additional term loan up to $1.5 million (“2017 Term Loan”). The Company borrowed the full $1.5 million on November 3, 2017. The Company was required to make monthly interest-only payments starting December 2017 and 36 equal installment payments of principal starting October 2018 through September 2021. The term loan bore interest at a floating per annum rate equal to the greater of (a) 1.0% above the Prime Rate; and (b) 5.25%. Interest was payable monthly.
On September 16, 2019, the Company amended and restated the 2015 Amended and Restated Agreement and the 2017 Amendment with the lender (the “2017 Second Amended and Restated Agreement”). The agreement provided the Company with a term loan up to $3.0 million (“2019 Term Loan”). The loan must be first used to repay the prior term loan and accrued interest. The Company borrowed the full $3.0 million on September 16, 2019, and $1.0 million of the amount was used to repay in full the outstanding principal and interest under the 2017 Term Loan. The term loan matures on May 1, 2023. The Company was required to make 36 equal installments payments of principal, plus monthly payment of accrued interest starting in June 2020 through May 2023. The term loan bears interest at a floating per annum rate equal to the greater of (a) 1.0% above the Prime Rate and (b) 5.25%. The amendment also provided the Company with a revolving line of credit up to $3.0 million due in September 2020. The Company borrowed $3.0 million under the line of credit on September 27, 2019. The principal amount outstanding under the revolving line of credit bears interest at a floating per annum rate equal to the greater of (a) 0.5% above the Prime Rate and (b) 5.25%. Interest is payable monthly. The restructuring of the term loan was accounted for as an extinguishment. The loss on extinguishment was not material.
On April 28, 2020, the Company amended the 2017 Second Amended and Restated Agreement with the lender (the “2020 Amendment”) to increase the limit of the revolving line of credit from $3.0 million to $5.0 million and extend the maturity date of the revolving line to December 15, 2020. On December 22, 2020, the Company amended and extended the line of credit maturity date from December 15, 2020, through December 14, 2021. The interest rates for the term loan and the revolving line of credit were 5.25%. In July 2021, the Company repaid in full the line of credit of $3.0 million.
For the three and nine months ended September 30, 2022, the Company recorded no interest expense under the 2019 Term Loan and line of credit. For the three and nine months ended September 30, 2021, the Company recorded less than
29
$0.1 million and $0.2 million interest expense under the 2019 Term Loan, respectively. The Company repaid $1.9 million and $2.4 million of principal outstanding under the 2019 Term Loan during the three and nine months ended September 30, 2021. The 2015 Term Loan was fully repaid as of September 30, 2021.
2018 Term Loan—On April 20, 2018, the Company entered into a $10.0 million term loan agreement (the “2018 Agreement”) with a lender maturing on May 1, 2022. The loan was repayable in 48 monthly scheduled installments commencing on May 1, 2018. The Company was required to make interest-only payments for the first 12 months starting May 2018 and thereafter to make 36 equal installment payments through the maturity date of the loan. The interest rate was fixed at 11.5% per annum.
In connection with the execution of the 2018 Agreement, an additional final payment of $0.5 million is due at the earlier of the maturity date and prepayment of the team loan. The Company accreted the final payment liability up to the redemption amount as part of the 2018 Agreement term loan balance and recognized interest expense over the term of the loan.
The Company incurred certain debt issuance costs in connection with the above loan agreements. Such cost was capitalized against the loan proceeds. The Company also issued warrants to purchase common stock in conjunction with the above loan agreements. The Company determined the fair value of the warrants using the Black-Scholes option-pricing model, which was recorded to additional paid-in capital and an adjustment against the loan proceeds. The debt issuance cost was capitalized and amortized as interest expense over the initial term of the agreement.
For the three and nine months ended September 30, 2022, the Company recorded no interest expense under the 2018 Agreement. The 2018 Agreement was fully repaid as of July 2021. For the three months ended September 30, 2021, the Company recorded $0.1 million of interest expense and repaid $3.9 million of principal outstanding under the 2018 Agreement. For the nine months ended September 30, 2021, the Company recorded $0.3 million of interest expense and repaid $5.6 million of principal outstanding under the 2018 Agreement. The amount repaid in the three and nine months ended September 30, 2021 included a $0.5 million required final payment fee pursuant to the 2018 Agreement and a $0.1 million prepayment fee as the Company fully repaid the 2018 Term Loan in July 2021. The Company recorded a $0.1 million loss on the extinguishment for the three months ended September 30, 2021.
2020 Term Loan—On February 20, 2020, the Company entered into a $2.0 million term loan agreement (“2020 Term Loan”) with a lender. The loan was provided under two facilities: facility A was comprised of $1.0 million maturing in 36 months, and facility B was comprised of $1.0 million maturing in 30 months. On April 17, 2020, the Company borrowed $1.0 million from facility A, and on October 12, 2020 the Company borrowed the full $1.0 million from facility B. In addition to the principal payment, both loan facilities require a fixed monthly coupon payment. The aggregated annual coupon payment was $0.1 million. The principal was payable in 24 equal installments commencing on May 31, 2021 through April 30, 2023. The interest rate was fixed at 4.75% per annum.
The Company incurred certain debt issuance costs in connection with the above loan agreements. Such cost was capitalized against the loan proceeds. The Company also issued warrants to purchase common stock in conjunction with the above loan agreements. The Company determined the fair value of the warrants using the Black-Scholes option-pricing model, which is recorded to additional paid-in capital and an adjustment against the loan proceeds. The debt issuance costs were amortized as additional interest expense over the term of the agreement.
For the three and nine months ended September 30, 2022, the Company recorded no interest expense under the 2020 Term Loan. For the three months ended September 30, 2021, the Company recorded less than $0.1 million of interest expense and repaid $1.8 million of principal outstanding under the 2020 Term Loan. For the nine months ended September 30, 2021, the Company recorded $0.2 million of interest expense and repaid $2.0 million of principal outstanding under the 2020 Term Loan. The Company fully repaid the 2020 Term Loan as of September 2021.
30
10. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company is a lessee in several noncancellable operating leases, primarily real estate facilities for office space. The Company accounts for leases in accordance with Topic 842 (see Note 2) and determines if an arrangement is a lease or contains a lease at contract inception. Leases with an initial term of 12 months or less are not recorded on the balance sheet. For the Company's operating leases, the Company accounts for the lease and non-lease components as a single lease component. Lease expense is recognized on a straight-line basis over the lease term.
For operating leases, the lease liability is initially and subsequently measured at the present value of the unpaid lease payments at lease commencement date. Topic 842 requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if the rate cannot be readily determined, its incremental borrowing rate. As the rate implicit in the lease is generally not readily determinable for the Company's operating leases, the Company uses an incremental borrowing rate as the discount rate for the lease. The Company's incremental borrowing rate is the rate of interest it would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. Because the Company does not generally borrow in a collateralized basis, it uses its understanding of what its collateralized credit rating would be as an input to deriving an appropriate incremental borrowing rate. The operating lease right-of-use asset includes any lease payments made and excludes lease incentives.
The Company's lease arrangements comprise of operating leases with various expiration dates through the first quarter of 2025. The lease term for all of the Company’s leases includes the noncancellable period of the lease. Certain lease agreements include options to renew or terminate the lease, which are not reasonably certain to be exercised and therefore are not factored into our determination of the duration of the lease arrangement.
The Company's leases do not contain any material residual value guarantees.
For the three and nine months ended September 30, 2022, the total operating lease costs were $0.5 million and $1.5 million, respectively, which included immaterial short-term lease costs. Total variable lease costs were immaterial during the three and nine months ended September 30, 2022. The total operating and variable lease costs were included in cost of goods sold, research and development, and selling, general and administrative expenses in the Company's unaudited condensed consolidated statement of operations.
Rent expenses for the three and nine months ended September 30, 2021, were $0.4 million and $1.3 million, respectively.
As of September 30, 2022, the weighted-average remaining lease term was 2.4 years and the weighted-average discount rate was 3.3%.
For the three and nine months ended September 30, 2022, cash paid for amounts included in the measurement of operating lease liabilities was $0.4 million and $0.9 million, respectively. There were no right-of-use assets obtained in exchange for new operating lease liabilities for the three and nine months ended September 30, 2022, respectively, as there were no new leases.
31
The following table presents maturities of operating lease liabilities as of September 30, 2022 (in thousands):
| Amount | |||||
| Fiscal years ending December 31, | |||||
| Remaining 2022 | $ | 327 | |||
| 2023 | 1,339 | ||||
| 2024 | 1,306 | ||||
| 2025 | 207 | ||||
| Thereafter | — | ||||
| Total operating lease payments | 3,179 | ||||
| Less: imputed interest | (127) | ||||
| Present value of operating lease liabilities | $ | 3,052 | |||
Current portion of operating lease liabilities (1) | $ | 1,247 | |||
Long-term operating lease liabilities (2) | $ | 1,805 | |||
(1) Current portion of operating lease liabilities is included in accrued expenses and other current liabilities in the condensed consolidated balance sheet.
(2) Long-term portion of operating lease liabilities is included in other long-term liabilities in the condensed consolidated balance sheet.
Future minimum lease payments, as defined under the previous lease accounting guidance of ASC Topic 840, for our non-cancelable operating leases as of December 31, 2021 were as follows (in thousands):
| Amount | |||||
| 2022 | $ | 1,312 | |||
| 2023 | 1,339 | ||||
| 2024 | 1,306 | ||||
| 2025 | 207 | ||||
| Thereafter | — | ||||
| Total | $ | 4,164 | |||
Purchase Obligation—The Company has purchase obligations, which includes agreements and issued purchase orders containing non-cancelable payment terms to purchase goods and services.
As of September 30, 2022, future minimum purchase obligations are as follows (in thousands):
| Purchase Obligations | ||||||||
Remainder of 2022 | $ | 18,529 | ||||||
| 2023 | 4,206 | |||||||
| 2024 | 97 | |||||||
Thereafter | — | |||||||
Total | $ | 22,832 | ||||||
Litigation—The Company is named from time to time as a party to lawsuits and other types of legal proceedings and claims in the normal course of business. The Company accrues for contingencies when it believes that a loss is probable and that it can reasonably estimate the amount of any such loss and the Company has made an assessment of the probability of incurring any such losses and whether or not those losses are estimable.
32
On July 23, 2021, plaintiff William J. Brown, a former employee and a shareholder of Matterport, Inc. (now known as Matterport Operating, LLC) (“Legacy Matterport”), sued Legacy Matterport, Gores Holdings VI, Inc. (now known as Matterport, Inc.), Maker Merger Sub Inc., Maker Merger Sub II, LLC, and Legacy Matterport directors R.J. Pittman, David Gausebeck, Matt Bell, Peter Hebert, Jason Krikorian, Carlos Kokron and Michael Gustafson (collectively, the “Defendants”) in the Court of Chancery of the State of Delaware. The plaintiff’s complaint claims that Defendants imposed invalid transfer restrictions on his shares of Matterport stock in connection with the merger transactions between Matterport, Inc. and Legacy Matterport (the “Transfer Restrictions”), and that Legacy Matterport’s board of directors violated their fiduciary duties in connection with a purportedly misleading letter of transmittal. The plaintiff is seeking damages and costs, as well as a declaration from the court that he may freely transfer his shares of Class A common stock of Matterport received in connection with the merger transactions. An expedited trial regarding the facial validity of the Transfer Restrictions took place in December 2021. On January 11, 2022, the court issued a ruling that the Transfer Restrictions did not apply to the plaintiff. The opinion did not address the validity of the Transfer Restrictions more broadly. Matterport filed a notice of appeal of the court’s ruling on February 8, 2022, and a hearing was held in front of the Delaware Supreme Court on July 13, 2022 where the appellate court affirmed the lower court’s ruling. Separate proceedings regarding the plaintiff’s remaining claims are pending. The plaintiff filed a Third Amended Complaint on September 16, 2022, which omits as defendants Maker Merger Sub Inc., Maker Merger Sub II, LLC, and Legacy Matterport directors David Gausebeck, Matt Bell, and Carlos Kokron, and adds an additional cause of action alleging that Matterport, Inc. violated the Delaware Uniform Commercial Code by failing to timely register Brown’s requested transfer of Matterport, Inc. shares. The remaining defendants’ answer to the Third Amended Complaint was due on November 9, 2022.
On May 11, 2020, Redfin Corporation (“Redfin”) was served with a complaint by Appliance Computing, Inc. III, d/b/a Surefield (“Surefield”), filed in the United States District Court for the Western District of Texas, Waco Division. In the complaint, Surefield asserted that Redfin’s use of Matterport’s 3D-Walkthrough technology infringes four of Surefield’s patents. Redfin has asserted defenses in the litigation that the patents in question are invalid and have not been infringed upon. We have agreed to indemnify Redfin for this matter pursuant to our existing agreements with Redfin. The parties have vigorously defended against this litigation. The matter went to jury trial in May 2022 and resulted in a jury verdict finding that Redfin had not infringed upon any of the asserted patent claims and that all asserted patent claims were invalid. Final judgment was entered on August 15, 2022. On September 12, 2022, Surefield filed post trial motions seeking to reverse the jury verdict. Redfin has filed oppositions to the motions. In addition, on May 16, 2022, the Company filed a declaratory judgment action against Appliance Computing III, Inc., d/b/a Surefield, seeking a declaratory judgment that the Company had not infringed upon the four patents asserted against Redfin and one additional, related patent. The matter is pending in the Western District of Washington and captioned Matterport, Inc. v. Appliance Computing III, Inc. d/b/a Surefield, Case No. 2:22-cv-00669 (W.D. Wash.). The complaint has been served and Surefield’s response to the complaint was filed on November 1, 2022.
On January 29, 2021, Legacy Matterport received a voluntary request for information from the Division of Enforcement of the SEC relating to certain sales and repurchases of its securities in the secondary market. We believe we have complied fully with the request. We have not received any updates from the SEC as to the scope, duration or ultimate resolution of the investigation.
As of September 30, 2022 and December 31, 2021, there were no amounts accrued that the Company believes would be material to its financial position.
Indemnification—In the ordinary course of business, the Company enters into certain agreements that provide for indemnification by the Company of varying scope and terms to customers, vendors, directors, officers, employees and other parties with respect to certain matters. Indemnification includes losses from breach of such agreements, services provided by the Company, or third-party intellectual property infringement claims. These indemnities may survive termination of the underlying agreement and the maximum potential amount of future indemnification payments, in some circumstances, are not subject to a cap. As of September 30, 2022, there were no known events or circumstances that have resulted in a material indemnification liability.
33
11. REDEEMABLE CONVERTIBLE PREFERRED STOCK
Upon the Closing on July 22, 2021, all issued and outstanding shares of Legacy Matterport redeemable convertible preferred stock was cancelled and converted into the right to receive an aggregate 126,460,926 shares of Matterport Class A common stock. A total of $164.5 million redeemable convertible preferred stock was reclassified into common stock and additional paid-in capital on the condensed consolidated balance sheet.
12. STOCKHOLDERS’ EQUITY
On July 22, 2021, the Company issued 72.5 million shares of Class A common stock to public stockholders of Gores, Initial Stockholders of Class F Stock, and PIPE investors for an aggregate gross proceeds of $640.1 million. The Company paid $0.9 million to Gores’ stockholders who redeemed Gores’ Class A common stock immediately prior to the Closing. The Company and Gores incurred $10.0 million and $26.3 million transaction costs, respectively. The total transaction cost was $36.3 million, consisting of underwriting, legal and other professional fees, of which $35.7 million was recorded to additional paid-in capital as a reduction of proceeds and the remaining $0.6 million was expensed immediately.
The Company has retroactively adjusted the shares issued and outstanding prior to July 22, 2021 to give effect to the exchange ratio established in the Merger Agreement to determine the number of shares of common stock into which shares of Legacy Matterport common stock were converted. Immediately prior to the Closing, 232.7 million shares were authorized for issuance at $0.001 par value. Immediately following the Closing, 670.0 million shares were authorized for issuance at $0.0001 par value, including 640.0 million shares of common stock and 30.0 million shares of preferred stock. There were 242.0 million shares of common stock outstanding with a par value of $0.0001 upon the Closing. The holder of each share of common stock is entitled to one vote.
The Company had reserved shares of common stock for future issuance as of September 30, 2022 as follows (in thousands):
| September 30, 2022 | |||||
| Private warrants to purchase common stock | 1,708 | ||||
Common stock options outstanding and unvested RSUs under the Amended and Restated 2011 Stock Incentive Plan | 70,689 | ||||
Shares available for future grant under 2021 Employee Stock Purchase Plan | 9,330 | ||||
Shares available for future grant under 2021 Incentive Award Plan | 1,720 | ||||
Total shares of common stock reserved | 83,447 | ||||
Common Stock Warrants— The Company issued warrants to purchase common stock in connection with loan agreements entered from three lenders as disclosed below and in Note 9 “Debt”. Those warrants were considered equity at inception and were recorded to additional paid-in capital. The warrants had a contractual 10-year life from the issuance date.
All previously issued common stock warrants were fully vested and exercisable as of December 31, 2020.
In February 2021, the holders of all of the Company’s outstanding warrants entered into an agreement with the Company to exercise their warrants contingent upon, and effective immediately prior to, the consummation of the First Merger. On July 22, 2021, all the common stock warrants were exercised. The Company issued 1.0 million shares of the Class A common stock to the holders of the common stock warrants upon the Closing.
During the three months ended September 30, 2021, the Company fully amortized the remaining debt discount associated with the above warrants of $0.2 million upon the full repayment of the debt as discussed Note 9 “Debt”.
34
Accumulated Other Comprehensive Income (Loss)
The following table summarizes the changes in accumulated other comprehensive income (loss) by component, net of tax (in thousands):
| Foreign Currency Translation, Net of Tax | Unrealized Losses on Available-for-Sale Debt Securities, Net of Tax | Total | |||||||||||||||
Balance at December 31, 2021 | $ | (52) | $ | (1,487) | $ | (1,539) | |||||||||||
| Net unrealized loss | — | (6,039) | (6,039) | ||||||||||||||
Balance at September 30, 2022 | $ | (52) | $ | (7,526) | $ | (7,578) | |||||||||||
| Foreign Currency Translation, Net of Tax | Unrealized Losses on Available-for-Sale Debt Securities, Net of Tax | Total | |||||||||||||||
Balance at December 31, 2020 | $ | 135 | $ | — | $ | 135 | |||||||||||
| Net unrealized loss | (79) | (94) | (173) | ||||||||||||||
Balance at September 30, 2021 | $ | 56 | $ | (94) | $ | (38) | |||||||||||
13. PUBLIC AND PRIVATE WARRANTS
Prior to the Closing, Gores issued 6,900,000 Public Warrants and 4,450,000 Private Warrants. Each whole warrant entitles the holder to purchase one share of the Company’s Class A common stock at a price of $11.50 per share, subject to adjustments. The Warrants became exercisable on December 15, 2021 and will expire on July 22, 2026, which is five years after the Closing.
Redemption of Public Warrants
Once the Public Warrants become exercisable, the Company may redeem the outstanding warrants for cash, in whole and not in part, upon not less than of 30 days’ prior written notice of redemption (“Redemption Period”) at a price of $0.01 per warrant, if, and only if, the reported last sale price of the common stock equals or exceeds $18.00 per share for any 20 trading days within a 30-trading day period ending three business day before we send the notice of redemption to the Public Warrant holders. If the Company calls the Public Warrants for redemption, the Company will have the option to require all holders that wish to exercise the Public Warrants to do so on a “cashless basis”, as described in the warrant agreement. The warrants holders have the right to exercise their outstanding warrants prior to the scheduled redemption date during the Redemption Period at $11.50 per share.
Commencing 90 days after the Public Warrants become exercisable, we may redeem the outstanding Public Warrants, in whole and not in part, for a price equal to a number of shares of the Company’s Class A common stock to be determined based on a predefined rate based on the redemption date and the “fair market value” of the Company’s Class A common stock. The “fair market value” of our Class A common stock shall mean the average last reported sale price of our common stock for the 10 trading days ending on the third trading day prior to the date on which the notice of redemption is sent to the holders of Public Warrants upon a minimum of 30 days’ prior written notice of redemption to each warrant holder, if, and only if, the last reported sale price of our Class A common stock equals or exceeds $10.00 per share on the trading day prior to the date on which we send the notice of redemption to the warrant holders.
The Private Warrants have terms and provisions that are identical to those of the Warrants sold as part of the Units in the Public Offering, except that the Sponsor has agreed not to transfer, assign or sell any of the Private Warrants (except to certain permitted transferees) until 30 days after the completion of the Merger. Additionally, the Private Warrants are exercisable on a cashless basis and are non-redeemable so long as they are held by the initial purchasers or their permitted
35
transferees. The Private Placement Warrants are non-redeemable for cash so long as they are held by the initial purchasers or their permitted transferees.
The Company filed a Registration Statement on Form S-1 on August 19, 2021 related to the issuance of an aggregate of up to 11,350,000 shares of Class A common stock issuable upon the exercise of the Warrants, which was declared effective by the SEC on August 26, 2021. On December 15, 2021, the Company announced that it would redeem all of Matterport’s Public Warrants that remained outstanding as of 5:00 p.m. New York City time on January 14, 2022 (the “Redemption Date”) for a redemption price of $0.01 per warrant. The Public Warrants may be exercised by the holders thereof until 5:00 p.m. New York City time on the Redemption Date to purchase fully paid and non-assessable shares of Common Stock underlying such warrants, at the exercise price of $11.50 per share. Any Public Warrants that remained unexercised at 5:00 p.m. New York City time on the Redemption Date would be void and no longer exercisable, and the holders of those Public Warrants would be entitled to receive only the redemption price of $0.01 per warrant.
On January 14, 2022, the Public Warrants ceased trading on the Nasdaq Global Market. As of the Redemption Date of January 14, 2022, a total of 9.1 million shares of Common Stock were issued upon the exercise of 6.4 million Public Warrants and 2.7 million Private Warrants by the holders thereof at an exercise price of $11.50 per share, resulting in aggregate proceeds to Matterport of $104.4 million, including 7.1 million shares issued upon the exercise of Public Warrants and Private Warrants by the holders with a total proceeds of $76.6 million received during the year ended December 31, 2021 and 2.0 million shares issued upon the exercise of 2.0 million Public Warrants with a total proceeds of $27.8 million received during the three months ended March 31, 2022. The remaining 0.6 million unexercised and outstanding Public Warrants as of 5:00 p.m. January 14, 2022 New York City time were redeemed at a price of $0.01 per Public Warrant and, as a result, no Public Warrants remained outstanding thereafter. Warrants to purchase Common Stock that were issued under the Warrant Agreement in a private placement simultaneously with the Company’s initial public offering and that are still held by the initial holders thereof or their permitted transferees were not subject to this redemption and remain outstanding as of September 30, 2022.
The following table summarizes the Public and Private Warrants activities during the nine months ended September 30, 2022 (in thousands):
| Public Warrants | Private Warrants | Total Warrants | |||||||||||||||
Outstanding as of December 31, 2021 | 2,552 | 1,708 | 4,260 | ||||||||||||||
| Warrants Exercised | (1,993) | — | (1,993) | ||||||||||||||
| Warrants Redeemed | (559) | — | (559) | ||||||||||||||
Outstanding as of September 30, 2022 | — | 1,708 | 1,708 | ||||||||||||||
The Public Warrants were classified as Level 1 because there was adequate trading volume to provide a reliable indication of value from the Closing Date to the Redemption Date. The Private Warrants were classified as Level 2, from the Closing Date until the Redemption Date, because the Private Warrants had similar terms and were subject to substantially the same redemption features as the Public Warrants. The fair value of the Private Warrants was deemed to be substantially the same as the fair value of the Public Warrants. Both the Public Warrants and the Private Warrants were valued at $2.00 per unit as of the Redemption Date.
Upon the ceasing of trading of the Public Warrants on the Redemption Date, the fair value measurement of Private Warrants transferred from Level 2 to Level 3 and the Company used a Black Scholes model to determine the fair value of the Private Warrants. The primary significant unobservable input used to evaluate the fair value measurement of the Company’s Private Warrants is the expected volatility of the ordinary shares. Significant increases (decreases) in the expected volatility in isolation would result in a significantly higher (lower) fair value measurement. The Private Warrants were valued at $0.99 as of September 30, 2022.
36
The following table provides the assumptions used to estimate the fair value of the Private Warrants as of September 30, 2022:
| September 30, 2022 | |||||
| Current stock price | $ | 3.79 | |||
| Strike price | $ | 11.50 | |||
| Expected term (in years) | 3.81 | ||||
| Expected volatility | 68.0% | ||||
| Risk-free interest rate | 4.2% | ||||
| Expected dividend yield | —% | ||||
The Warrants are measured for fair value at the end of each quarter. The following table presents the changes in the warrant liabilities (in thousands):
| Public Warrants | Private Warrants | Total Warrant Liabilities | |||||||||||||||
Fair value at December 31, 2021 | $ | 23,329 | $ | 15,645 | $ | 38,974 | |||||||||||
| Change in fair value | (12,193) | (13,954) | (26,147) | ||||||||||||||
| Warrants Exercised | (10,018) | — | (10,018) | ||||||||||||||
| Warrants Redemption | (1,118) | — | (1,118) | ||||||||||||||
Fair value at September 30, 2022 | $ | — | $ | 1,691 | $ | 1,691 | |||||||||||
14. CONTINGENT EARN-OUT AWARDS
Legacy Matterport stockholders and certain holders of Legacy Matterport stock options and RSUs are entitled to receive a number of Earn-out Shares comprising up to 23.5 million shares of Class A common stock in the aggregate. There are six distinct tranches, and each tranche has 3,910,000 Earn-out shares. Pursuant to the Merger Agreement, Common Share Price means the share price equal to the volume weighted average price of the Matterport Class A common stock for a period of at least 10 days out of 30 consecutive trading days ending on the trading day immediately prior to the date of determination. If the Common Share Price exceeds $13.00, $15.50, $18.00, $20.50, $23.00, and $25.50, the Earn-out shares are issuable during the period beginning on the 180th day following the Closing and ending on the fifth anniversary of such date (the “Earn-out Period”). The Earn-out shares are subject to early release if a change of control that will result in the holders of the Company common stock receiving a per share price equal to or in excess of the price target as above (collectively, the “Earn-Out Triggering Events”).
Any Earn-out Shares issuable to any holder of Matterport stock options and Matterport RSUs in respect of such Matterport Stock Options and Matterport RSUs shall be issued to such holder only if such holder continues to provide services to the Post-Combination Company through the date of the occurrence of the corresponding triggering event that causes such Earn-out Shares to become issuable. Any Earn-out Shares that are forfeited pursuant to the preceding sentence shall be reallocated to the other Legacy Matterport stockholders and Legacy Matterport stock options and RSUs holders who remain entitled to receive Earn-out Shares in accordance with their respective Earn-out pro rata shares.
At the Closing, the estimated fair value of the total Earn-out Shares was $294.8 million. The contingent obligation to issue Earn-out Shares to Legacy Matterport stockholders was accounted for as a liability because the Earn-out Triggering Events that determine the number of Earn-out Shares required to be issued include events that are not solely indexed to the Common Stock of Matterport, Inc. The Earn-out pro rata Shares issuable to holders of Legacy Matterport’s RSUs and holders of Legacy Matterport’s Stock Options are accounted for as a stock-based compensation expense as they are subject to forfeiture based on the satisfaction of certain employment conditions, see Note 15 of the Stock Plan for more information. The Company recognized $231.6 million of contingent earn-out liability attributable to the Earn-out Shares to Matterport legacy Stockholders upon the Closing on July 22, 2021.
37
On January 18, 2022, all six Earn-out Triggering Events for issuing up to 23.5 million Earn-out Shares occurred. A total of 18.8 million shares of common stock became issuable to the eligible Matterport legacy Stockholders. Another total of 4.7 million pro rata Earn-out Shares became issuable to holders of Matterport's eligible legacy RSU and options holders were immediately vested. See Note 15 “Stock Plan” for more information.
Contingent earn-out liability was accounted for as a liability as of the date of the Merger and remeasured to fair value until the Earn-out Triggering Events were met. The estimated fair value of the total Earn-out Shares was determined based on a Monte Carlo simulation valuation model using a distribution of potential outcomes on a monthly basis over the Earn-out Period using the most reliable information available to be issued including events that are not solely indexed to the common stock of the Company. Upon the occurrence of the triggering events, the Company's common stock price of $12.89 per share represented the fair value of the Earn-out Awards. The Company reclassified the $242.4 million outstanding Earn-out liability to additional paid-in capital as the Earn-out shares become issuable as a fixed number of share of common shares. Assumptions used in the valuation as of December 31, 2021 are described below:
| As of | |||||
| December 31, 2021 | |||||
Current stock price | $ | 20.64 | |||
Expected term (in years) | 5.1 | ||||
Expected volatility | 67.0 | % | |||
Risk-free interest rate | 1.3 | % | |||
Expected dividend yield | 0 | % | |||
The following table sets forth a summary of the changes in the earn-out liabilities during the nine months ended September 30, 2022 (in thousands):
| Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | |||||
Balance at December 31, 2021 | $ | 377,576 | |||
Reallocation of Earn-out Shares to earn-out liability upon forfeitures | 896 | ||||
Change in fair value of earn-out liability | (136,043) | ||||
| Issuance of Earn-out Shares upon triggering events | (242,429) | ||||
Balance at September 30, 2022 | $ | — | |||
38
15. STOCK PLAN
Amended and Restated 2011 Stock Incentive Plan—On June 17, 2011, the Company’s Board and stockholders approved the Matterport, Inc. 2011 Stock Incentive Plan, (the “2011 Stock Plan”), which allows for the issuance of incentive stock options (“ISOs”), non-qualified stock options (“NSOs”), the issuance of restricted stock awards (“RSAs”), and the sale of stock to its employees, the Board, and consultants. On February 12, 2021, the Company amended and restated the 2011 Stock Plan to allow the Company to grant restricted stock units (“RSUs”) and extended the terms of the plan until February 12, 2022, unless terminated earlier. No shares are available for future grant under the 2011 Plan due to the termination of the 2011 Plan in connection with the Closing. There were 67.8 million shares authorized under the 2011 Stock Plan prior to its termination, and 2.1 million shares were assumed under the 2021 Incentive Award Plan upon the termination of the 2011 Plan.
2021 Incentive Award Plan
In connection with the Closing on July 22, 2021, the Company approved the 2021 Incentive Award Plan (“2021 Plan”), an incentive compensation plan for the benefit of eligible employees, consultants, and directors of the Company and its subsidiaries. The Company concurrently assumed the 2011 Plan and all outstanding awards thereunder, effective as of the Closing, and no further awards shall be granted under the 2011 Plan. The 2021 Plan provides that the initial aggregate number of shares of Class A common stock, available for issuance pursuant to awards thereunder shall be the sum of (a) 10% of the outstanding shares of Class A common stock as of the Closing, which is equivalent to 24.2 million shares of Class A common stock (the “Initial Plan Reserve”), (b) any shares of Class A common stock subject to outstanding equity awards under the amended and restated 2011 Stock Plan which, following the effective date of the 2021 Plan, become available for issuance under the 2021 Plan and (c) an annual increase on the first day of each calendar year beginning on January 1, 2022 and ending on and including January 1, 2031 equal to a number of shares equal to 5% of the aggregate number of shares of Class A common stock outstanding on the final day of the immediately preceding calendar year. The maximum aggregate number of shares of common stock that may be issued under the 2021 Plan upon the exercise of ISOs is 181.5 million shares of Class A common stock. As of September 30, 2022, a total of 1.7 million shares of our common stock are available for issuance under our 2021 Plan.
Shares forfeited due to employee termination or expiration are returned to the share pool. Similarly, shares withheld upon exercise to provide for the exercise price and/or taxes due and shares repurchased by the Company are also returned to the pool.
2021 Employee Stock Purchase Plan
In connection with the Closing on July 22, 2021, the Company approved the 2021 Employee Stock Purchase Plan (“2021 ESPP”). The 2021 ESPP provides that the aggregate number of shares of Class A common stock available for issuance pursuant to awards under the 2021 ESPP shall be the sum of (a) 3% of the number of outstanding shares of Class A common stock as of the Closing, which is equivalent to 7.3 million shares of Class A common stock (the “Initial ESPP Reserve”), and (b) an annual increase on the first day of each calendar year beginning on January 1, 2022 and ending on and including January 1, 2031 equal to the lesser of (i) 1% of the aggregate number of shares of Class A common stock outstanding on the last day of the immediately preceding fiscal year and (ii) such smaller number of shares of common stock as may be determined by the Company’s board of directors; provided, however, that the number of shares of common stock that may be issued or transferred pursuant to the rights granted under the 2021 ESPP shall not exceed 36.9 million shares.
Our 2021 ESPP permits eligible employees to acquire shares of our common stock at 85% of the lower of the fair market value of our common stock on the first trading day of each offering period or on the purchase date. If the fair market value of our common stock on the purchase date is lower than the first trading day of the offering period, the current offering period will be cancelled after purchase and a new 24-month offering period will begin. Participants may purchase shares of common stock through payroll deductions of up to 15% of their eligible compensation, subject to purchase limits of 3,000 shares per purchase period, 12,000 per offering period, and $25,000 worth of stock for each calendar year.
39