Notes to Condensed Consolidated Financial Statements
(In thousands, except stock, units and par value data)
(unaudited)
1. NATURE OF OPERATIONS
Mondee Holdings, Inc. is a Delaware corporation. We refer to Mondee Holdings, Inc. and its subsidiaries, collectively as “Mondee,” the “Company,” “us,” “we”, “our” and "New Mondee" in these condensed consolidated financial statements. Mondee is a rapid-growth, travel technology company and marketplace with a portfolio of globally recognized brands in the leisure and corporate travel sectors.
Reverse Recapitalization
On July 18, 2022 (the “Closing Date”), we consummated the business combination pursuant to the Business Combination Agreement, dated December 20, 2021, by and among ITHAX Acquisition Corp. (“ITHAX”), Ithax Merger Sub I, LLC, a Delaware limited liability company and wholly owned subsidiary of ITHAX (“First Merger Sub”), Ithax Merger Sub II, LLC a Delaware limited liability company and wholly owned subsidiary of ITHAX (“Second Merger Sub”) and Mondee Holdings II, Inc., a Delaware corporation (“Legacy Mondee”) (the “Business Combination”).
On the Closing Date, following the domestication, First Merger Sub merged with and into Legacy Mondee, with Legacy Mondee surviving such merger as a wholly owned subsidiary of the Company (the “First Merger”). Immediately following the First Merger, Legacy Mondee merged with and into Second Merger Sub, with Second Merger Sub surviving such merger as a wholly owned subsidiary of the Company.
On the Closing Date, the registrant changed its name from ITHAX Acquisition Corp. to Mondee Holdings, Inc. The transaction was accounted for as a reverse recapitalization, rather than a business combination, for financial accounting and reporting purposes. Accordingly, Legacy Mondee was deemed the accounting acquirer (and legal acquiree) and ITHAX was treated as the accounting acquiree (and legal acquirer). Under this method of accounting, the reverse recapitalization was treated as the equivalent of Legacy Mondee issuing stock for the net assets of ITHAX, accompanied by a recapitalization.
2. IMMATERIAL CORRECTIONS OF PREVIOUSLY ISSUED QUARTERLY FINANCIAL INFORMATION
During the fourth quarter of the year ended December 31, 2022, the Company identified an error related to arrangements with travel agents which requires the recording of travel agent commissions to revenue with a corresponding off-setting entry to sales and marketing expense. As a result, there was an understatement of reported revenues, net and sales and marketing expenses for the unaudited three and nine months ended September 30, 2022. Additionally, the Company identified an error related to the classification of credit card processing fees which should have been recorded in sales and marketing expense rather than revenues, net thereby contributing to the understatement of such financial statement line items. There was no impact to net loss for either period. The Company previously disclosed marketing expenses and sales and other expenses separately through the quarter ended September 30, 2022, and for the year ended December 31, 2022, the Company changed its manner of presentation to its current presentation of sales and marketing expense as one financial statement line item. Management assessed the materiality of these errors and concluded the misstatements were not material to the unaudited financial statements for the period ended September 30, 2022.
The following table summarizes the effect of the revision on the affected financial statement line items, corresponding to the Company’s presentation of the relevant financial statement line item in the period relevant to the error:
| | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2022 |
| As Previously Reported | | Adjustments | | As Corrected |
Condensed Consolidated Statements of Operations | | | | |
| Revenues, net | $ | 39,466 | | | $ | 1,047 | | | $ | 40,513 | |
| Marketing expenses | 24,298 | | | 519 | | | 24,817 | |
| Sales and other expenses | 3,305 | | | 528 | | | 3,833 | |
| Total operating expenses | $ | 96,227 | | | $ | 1,047 | | | $ | 97,274 | |
| | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2022 |
| As Previously Reported | | Adjustments | | As Corrected |
Condensed Consolidated Statements of Operations | | | | |
| Revenues, net | $ | 119,769 | | | $ | 5,467 | | | $ | 125,236 | |
| Marketing expenses | 73,317 | | | 3,464 | | | 76,781 | |
| Sales and other expenses | 9,683 | | | 2,003 | | | 11,686 | |
| Total operating expenses | $ | 175,548 | | | $ | 5,467 | | | $ | 181,015 | |
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Other than policies noted below, there have been no changes to the Company’s significant accounting policies described in the annual consolidated financial statements for the year ended December 31, 2022.
Basis of Presentation
We have prepared the accompanying unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial reporting. We have included all adjustments necessary for a fair presentation of the results of the interim period. These adjustments consist of normal recurring items. Our interim unaudited condensed consolidated financial statements are not necessarily indicative of results that may be expected for any other interim period or for the full year. These interim unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2022, previously filed with the Securities and Exchange Commission (“SEC”).
The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, including acquired businesses from the dates of acquisition. All intercompany accounts and transactions have been eliminated in consolidation. The functional currency of the Company’s subsidiaries is generally the respective local currency. For international operations, assets and liabilities are translated into U.S. dollars at the rate of exchange existing at the balance sheet date. Income statement amounts are translated at monthly average exchange rates applicable for the period. Translation gains and losses are included as a component of accumulated other comprehensive gains (losses) in the accompanying condensed consolidated balance sheets. Foreign currency transaction gains and losses are included in other expense, net in the accompanying condensed consolidated statements of operations.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. We evaluate our estimates on an ongoing basis. We base our estimates on our historical experience and also on assumptions that we believe are reasonable; however, actual results could significantly differ from those estimates.
Accounts Receivable, Contract Assets and Allowance for Doubtful Accounts
Accounts receivable from customers are recorded at the original invoiced amounts net of an allowance for doubtful accounts. We make estimates of expected credit losses for our allowance by considering a number of factors, including the length of time trade accounts receivable are past due, previous loss history continually updated for new collections data, the credit quality of our customers, current economic conditions, reasonable and supportable forecasts of future economic conditions and other factors that may affect our ability to collect from customers. The provision for estimated credit losses is recorded in accounts receivable, net of allowance on our condensed consolidated balance sheets.
Contract assets represent unbilled and accrued incentive revenues from airline companies and our GDS service providers based on the achievement of contractual targets defined at contract inception. The provision for estimated credit losses is recorded in contract assets, net of allowance on our condensed consolidated balance sheets.
During the nine months ended September 30, 2023, the Company recorded a gain of $166 to provision for credit losses, net, due to the revision of estimates of expected credit losses on accounts receivables and contract assets, and $1,914 additional allowance associated with acquisitions during the period, offset by $1,205 of write-offs, net of recoveries.
Foreign Currency Exchange Derivatives
The Company is exposed to foreign currency fluctuations and enters into foreign currency exchange derivative financial instruments to reduce the exposure to variability in certain expected future cash flows. The Company uses foreign currency forward contracts with maturities of up to four months to hedge a portion of anticipated exposures. These contracts are not designated as hedging instruments and changes in fair value are recorded in other expense, net on the condensed consolidated statement of operations. Realized gains and losses from the settlement of the derivative assets and liabilities are classified as operating activities on the condensed consolidated statement of cash flows. The foreign currency exchange derivatives are recognized on the condensed consolidated balance sheet at fair value within accrued expenses and other current liabilities. The Company does not hold or issue derivatives for trading purposes.
Goodwill
The Company tests good for impairment on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The Company has two reporting units and tests goodwill for each respective reporting unit. During the third quarter of 2023, the Company voluntarily changed its annual goodwill impairment test date from December 31 to October 1, as the new date of the assessment better aligns with the Company's long-term business planning process. This change was not material to the Company's condensed consolidated financial statements as it did not delay, accelerate, or avoid any potential goodwill impairment charge.
Revenue Recognition
The majority of our revenues are generated by providing online travel reservation services, which principally allow travelers to book travel reservations with travel suppliers through our technology solutions. These transaction-based revenue sources are reflected within our travel marketplace segment and primarily consist of:
•Commissions revenue, including mark-up fees and commissions on airline ticket sales and to a lesser extent, for hotel accommodations and booking of car rentals, and other travel services;
•Incentive revenues earned from Global Distribution System (“GDS”) service providers and airline companies for airline reservations, as well as from our fintech payment programs based on the aggregate gross booking amounts processed by us; and;
•Other travel products and services.
We have determined the nature of our promise is to arrange for travel services to be provided by travel suppliers, and are therefore an agent in the transaction, whereby we record as revenue the net commission we receive in exchange for our travel reservation services. In these transactions, the travel supplier is determined to be our customer. Travel suppliers consist of GDS service providers and airline companies. Our revenue is earned through mark-up fees and commissions, and is recorded net of estimated cancellation, refunds, and chargebacks. Revenue is recognized when the traveler completes a reservation, as our performance obligation is satisfied upon issuance of the ticket or reservation details to the traveler. From time to time, the Company issues credits or refunds to the traveler in the event of cancellations. Additionally, when travel bookings are made, there is a risk of transaction losses as a result of chargebacks pursued by payment processors in connection with fraudulent charges. We record estimates for chargebacks against our mark-up fees or commission earned
upon travel bookings as variable consideration. We record estimates for losses related to chargebacks of the travel supplier cost as sales and marketing expense. Reserves are recorded based on our assessment of various factors, including the amounts of actual chargeback activity during the current year.
We earn incentives from airline companies based on the volume of airline ticket bookings that have flown. We also receive incentives from our GDS service providers based on the volume of segment bookings mediated by us through the GDS systems. The periods in which the contractual targets are based on a range from months to years. The rate at which the Company earns the incentives from airline companies and GDS service providers, or travel suppliers, is subject to fluctuations as the incentive amount earned on any given day is contingent on the cumulative prior performance under the contract. Additionally, some travel supplier contracts have tiered level pricing where the incentive rate applied depends on several performance targets specified in the contract. At the end of each reporting period, the Company estimates the incentives earned in the period based on the flights taken and the respective incentive rates that would apply to the Company, based on the tier the Company will most likely fall under. Revenue earned and recognized relating to incentives with airline companies and GDS service providers will be estimated to the extent that it is probable that a significant reversal of any incremental revenue will not occur. This revenue is recognized net of variable consideration, including cancellations, refunds, and shortfall penalty fees, as applicable. In addition to travel-related revenue, we also earn incentives from fintech programs held with banks and financial institutions, which we leverage in our payment processing and settlement platform. Our fintech programs include a wide array of payment options, such as credit cards, wallets, alternate payment methods, and next generation fraud protection tools. These incentives received are based on the aggregate transaction amounts processed by us.
In Brazil and Mexico, the Company partners with financing companies to allow travelers the possibility of purchasing the product of their choice through financing plans established, offered and administrated by such financing companies. Participating financing companies bear full risk of fraud, delinquency, or default by travelers. When travelers elect to finance their purchase, we receive payments from financing companies as installments become due regardless of when the traveler makes the scheduled payments. In most cases, we receive payments before travel occurs or during travel, and the period between completion of booking and receipt of scheduled payments is typically less than one year. The Company uses the practical expedient and does not recognize a significant financing component when the difference between payment and revenue recognition is less than a year.
In partnering with the financing companies mentioned above, the Company has the option to collect payments upfront or receive in installments as they become due. Upfront payments are determined to be factoring transactions, and therefore financing fees associated with these payments are recorded within interest expense. Fees for payments received in installments are recorded within sales and marketing expense. Financing fees associated with these upfront payments are recorded within interest expense. During the three and nine months ended September 30, 2023, the Company incurred factoring fees of $345, and $1,420, respectively, which represents 2% and 5%, respectively, of the total other expense, net on the condensed consolidated statements of operations.
To a lesser extent, we also generate revenues by entering into subscription contracts for access to our travel management offerings. These revenues are reflected within our software-as-a-service (“SaaS”) platform segment. Under these contracts, payment is collected upfront when the customer signs up to use the platform. Subscription revenue is recognized on a straight-line basis over the term of the agreement using a time-based measure of progress, as the nature of the Company’s promise to the customer is to stand ready to provide platform access. The Company earns variable consideration in the form of a booking fee for each instance a traveler books a trip on the platform. The Company applies the series guidance variable consideration estimation exception to recognize the variable fees upon the completion of travel bookings as this is when our performance obligation is satisfied.
Certain Risks and Concentrations
Our business is subject to certain risks and concentrations including dependence on relationships with travel suppliers, primarily airlines, dependence on third-party technology providers, exposure to risks associated with online commerce security and payment related fraud. We also rely on GDS service providers and third-party service providers for certain fulfillment services.
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. Significant concentrations are those that represent more than 10% of the Company’s total revenue or total accounts receivable and contract assets. As of September 30, 2023, there were two financing companies that accounted for 34% and 14% of the total accounts receivable balance at period end. As of December 31, 2022, two customers accounted for 23% of total accounts receivable and contract assets. The Company performs credit evaluations of its customers and generally does not require collateral for sales on credit. The Company’s accounts receivable comprises of amounts due from affiliates, airline companies, GDS service providers and financing
companies, which are well established institutions that the Company believes to be of high quality. The Company reviews accounts receivable balances to estimate the expected credit loss and record it within the allowance for doubtful accounts.
The Company’s cash and cash equivalents are on deposit with major financial institutions. Such deposits may be in excess of insured limits. The Company has not experienced any losses due to institutional failure or bankruptcy.
Recently Adopted Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” or ASU No. 2016-13. The amendments in ASU No. 2016-13 introduce an approach based on expected losses to estimated credit losses on certain types of financial instruments, modify the impairment model for available-for-sale debt securities and provide for a simplified accounting model for purchased financial assets with credit deterioration since their origination. The new standard requires financial assets measured at amortized cost be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The Company adopted ASU 2016-13 as of January 1, 2023 with no material impact to its condensed consolidated financial statements.
In October 2021, the FASB issued new guidance related to recognizing and measuring contract assets and contract liabilities from contracts with customers acquired in a business combination. The new guidance will require acquiring entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination as compared to current U.S. GAAP where an acquirer generally recognizes such items at fair value on the acquisition date. The new guidance is effective on a prospective basis for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company adopted this guidance as of January 1, 2023 and applied Topic 606 to recognize and measure contract assets and contract liabilities of business combinations executed beginning January 1, 2023 and onwards.
Recently Issued Accounting Pronouncements Not Yet Adopted
The Company has considered the applicability of recently issued accounting pronouncements by the FASB and have determined that they are either not applicable or are not expected to have a material impact on the Company’s condensed consolidated financial statements.
Change in Financial Statement Presentation
In connection with the preparation of its condensed consolidated financial statements as of and for the three and nine months ended September 30, 2023 and 2022, the Company changed the presentation of “Sales and other Expense” and “Marketing Expense” within the condensed consolidated statement of operations. The Company combined “Sales and other Expense” and “Marketing Expense” into “Sales and Marketing Expense”. The change is a result of an increased overlap between the nature and purpose of expenses that fall within these groups. This change in presentation has been applied retrospectively and does not change any previously reported subtotals or totals on the condensed consolidated statement of operations and comprehensive loss.
4. FAIR VALUE MEASUREMENT
The Company evaluates assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level in which to classify them for each reporting period.
The following table sets forth the Company’s financial assets and liabilities that were measured at fair value, on a recurring basis:
| | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2023 |
| Level 1 | | Level 2 | | Level 3 | | Total |
| Assets | | | | | | | |
Foreign currency exchange derivatives(1) | $ | — | | | $ | 104 | | | $ | — | | | $ | 104 | |
| Total assets | $ | — | | | $ | 104 | | | $ | — | | | $ | 104 | |
| | | | | | | |
| Liabilities | | | | | | | |
Warrant liability - private placement warrants(2) | $ | — | | | $ | — | | | $ | 177 | | | $ | 177 | |
Orinter earn-out consideration(3) | — | | | — | | | 3,990 | | | 3,990 | |
Consolid earn-out consideration(4) | — | | | — | | | 1,120 | | | 1,120 | |
Interep earn-out consideration(5) | — | | | — | | | 1,780 | | | 1,780 | |
Skypass earn-out consideration(6) | — | | | — | | | 232 | | | 232 | |
| Total liabilities | $ | — | | | $ | — | | | $ | 7,299 | | | $ | 7,299 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Level 1 | | Level 2 | | Level 3 | | Total |
| | | | | | | |
| Liabilities | | | | | | | |
Warrant liability - private placement warrants(2) | $ | — | | | $ | — | | | $ | 1,293 | | | $ | 1,293 | |
______________________________
| | | | | |
| (1) | The Company uses foreign currency forwards contracts with maturities of up to 4 months to hedge a portion of anticipated exposures. The foreign currency exchange derivatives are recognized on the condensed consolidated balance sheet at fair value within prepaid expenses and other current assets. |
| (2) | On February 1, 2021, with the closing of its initial public offering, ITHAX consummated the sale of 675,000 private placement units, including the exercise by the underwriters of their over-allotment option. As of September 30, 2023, the Company had 232,500 private placement warrants outstanding. |
| (3) | The Orinter earn-out consideration represents arrangements to pay the former owners of Orinter, which was acquired by the Company in 2023. The undiscounted maximum payment under the arrangement is $10,000 in aggregate at the end of fiscal years 2023 through 2025. As of September 30, 2023, no payments have been made. Earn-out consideration is included in earn-out liability, net, current portion and earn-out liability, net, excluding current portion on the Company’s condensed consolidated balance sheets. |
| (4) | The Consolid earn-out consideration represents arrangements to pay the former owners of Consolid, which was acquired by the Company in 2023. The Company may be required to make earn-out payments up to an aggregate of $1,000 and 400,000 shares of common stock contingent on Consolid meeting certain adjusted EBITDA targets. As of September 30, 2023, no payments have been made. Earn-out consideration is included in earn-out liability, net, current portion and earn-out liability, net, excluding current portion on the Company’s condensed consolidated balance sheets. |
| (5) | The Interep earn-out consideration represents arrangements to pay the former owners and key executives of Interep, which was acquired by the Company in 2023. The Company may be required to make earn-out payments of up to $3,000 contingent upon Interep reaching specified EBITDA targets by the end of fiscal year 2025. As of September 30, 2023, no payments have been made. Earn-out consideration is included in earn-out liability, net, current portion and earn-out liability, net, excluding current portion on the Company’s condensed consolidated balance sheets. |
| (6) | The Skypass earn-out consideration represents arrangements to pay the former owners of Skypass, which was acquired by the Company in 2023. The Company may be required to make earn-out payments of up to an aggregate of 1,800,000 shares of common stock contingent on Skypass meeting certain adjusted EBITDA targets. In the event the EBITDA target is exceeded, the Company is required to pay 2.5% on any excess of the EBITDA target, settled in shares. The number of shares payable will be calculated based on the market value of the Company’s Class A Common Stock at settlement date. As of September 30, 2023, no payments have been made. Earn-out consideration is included in earn-out liability, net, current portion and earn-out liability, net, excluding current portion on the Company’s condensed consolidated balance sheets. |
Short-Term Financial Assets and Liabilities
The fair value of Company’s short-term financial assets and liabilities including cash and cash equivalents, restricted cash and cash equivalents, accounts receivable, accounts payable, deferred underwriting fee, and accrued expenses approximated their carrying values as of September 30, 2023 and December 31, 2022, due to their short-term nature. The Company’s restricted cash and cash equivalents comprise of cash and certificate of deposits held at banks. All of the Company’s outstanding debt are recorded on an amortized cost basis.
Foreign Currency Exchange Derivatives
The notional amount of the foreign currency exchange derivatives outstanding as of September 30, 2023 is $8,241. The notional amount of a foreign currency forward contract is the contracted amount of foreign currency to be exchanged and is not recorded in the balance sheets. The changes in fair value of the foreign currency exchange derivatives are recorded in other expense, net in the condensed consolidated statement of operations. For the three and nine months ended September 30, 2023 the Company recorded gains of $392 and $270, respectively in other expense, net.
Roll-forward of Level 3 Recurring Fair Value Measurements
The following tables summarizes the fair value adjustments for liabilities measured using significant unobservable inputs (Level 3):
Earn-out consideration
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| Balance, beginning of period | $ | 8,330 | | | $ | 2 | | | $ | — | | | $ | 597 | |
| Additions of earn-out consideration with the acquisition of Orinter | — | | | — | | | 3,060 | | | — | |
| Additions of earn-out consideration with the acquisition of Interep | — | | | — | | | 1,700 | | | — | |
| Additions of earn-out consideration with the acquisition of Consolid | — | | | — | | | 1,820 | | | — | |
| Additions of earn-out consideration with the acquisition of Skypass | 434 | | | — | | | 434 | | | — | |
| Change in the estimated fair value of earn-out consideration | (1,642) | | | 19 | | | 108 | | | (576) | |
| Balance, end of the period | $ | 7,122 | | | $ | 21 | | | $ | 7,122 | | | $ | 21 | |
The earn-out consideration consists of the fair values of contingent consideration in connection with the Company’s acquisitions. See Note 6 – Business Combinations and Divestitures for further detail. The earn-out considerations are fair valued using the Monte Carlo Method and is a Level 3 measurement because the Company estimates projections during the earn-out period utilizing various potential pay-out scenarios. The Monte Carlo simulation method repeats a process thousands of times in an attempt to predict all the possible future outcomes. At the end of the simulation, several random trials produce a distribution of outcomes that are then analyzed to determine the average present value of the earn-out liability. The valuation model utilized the following assumptions for the valuation of the earn-out liabilities as of September 30, 2023:
| | | | | | | | | | | | | | | | | | | | |
| Orinter | | Interep | | Consolid | Skypass |
| Cost of equity | 29.0% | | 33.0% | | 29.0% | 26.0% |
| EBITDA volatility | 61.0% | | 61.0% | | 80.0% | 57.0% |
| Equity volatility | 78.0% | | 78.0% | | 98.0% | 75.0% |
| Required metric risk premium | 22.5% | | 26.0% | | 23.5% | 20.0% |
| | | | | | |
| Risk-neutral adjustment factor | 0.70 - 0.97 | | 0.67 - 0.97 | | 0.85 - 0.98 | 0.65 - 0.94 |
| | | | | | |
The earn-out consideration is recorded in earn-out liability, net, current portion and earn-out liability, net, excluding current portion on the Company’s condensed consolidated balance sheets. Changes to the unobservable inputs do not have a material impact on the Company’s condensed consolidated financial statements. The Company recognized a gain of $1,642 and a loss of $108 for the remeasurement of the earn-out liabilities during the three and nine months ended September 30, 2023, respectively, recorded as general and administrative expenses within the condensed consolidated statements of operations.
Private placement warrant liability
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| Balance, beginning of period | $ | 921 | | | $ | — | | | $ | 1,293 | | | $ | — | |
| Warrants recognized upon closing of reverse recapitalization | — | | | 1,721 | | | — | | | 1,721 | |
| Transfer of Private Warrants to Public Warrants | — | | | (536) | | | — | | | (536) | |
| Change in the estimated fair value of warrants | (744) | | | (683) | | | (1,116) | | | (683) | |
| Balance, end of the period | $ | 177 | | | $ | 502 | | | $ | 177 | | | $ | 502 | |
The private placement warrant liability is fair valued using the Black-Scholes option-pricing model. The following table provides quantitative information regarding assumptions used in the Black-Scholes option-pricing model to determine the fair value of the private placement warrants as of September 30, 2023 and December 31, 2022:
| | | | | | | | | | | |
| September 30, 2023 | | December 31, 2022 |
| Stock price | $3.57 | | $10.88 |
| Term (in years) | 3.8 | | 4.6 |
| Expected volatility | 63.0% | | 60.0% |
| Risk-free rate | 4.8% | | 4.1% |
| Dividend yield | —% | | —% |
Changes to the unobservable inputs do not have a material impact on the Company’s condensed consolidated financial statements. The Company recognized a gain of $744 and $1,116 during the three and nine months ended September 30, 2023, respectively, and $683 during the three and nine months ended September 30, 2022, recorded in changes in fair value of warrant liability within the condensed consolidated statements of operations.
There were no transfers between Level 1, Level 2 or Level 3 fair value hierarchy categories of financial instruments for the three and nine months ended September 30, 2023 and September 30, 2022.
Assets Measured at Fair Value on a Nonrecurring Basis
Our non-financial assets, such as goodwill, intangible assets and property and equipment, are not required to be measured at fair value on a recurring basis. However, if certain triggering events occur such that a non-financial asset is required to be evaluated for impairment and an impairment is recorded to reduce the non-financial asset’s carrying value to the fair value as a result of such triggering events, the non-financial assets are measured at fair value for the period such triggering events occur.
For the three and nine months ended September 30, 2023 and 2022, respectively, the Company has not recorded any impairment charges on non-financial assets.
5. REVENUE
Disaggregation of Revenue
The Company believes that the disaggregation based on the reportable segments best depicts how the nature, amount, timing and uncertainty of our revenues and cash flows are affected by industry, market, and other factors. As described in Note 13 – Segment Information, the Company has two reportable segments, travel marketplace and SaaS platform.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| Revenue from travel marketplace | $ | 54,101 | | | $ | 40,094 | | | $ | 160,302 | | | $ | 124,272 | |
| Revenue from SaaS Platform | 431 | | | 419 | | | 930 | | | 964 | |
| $ | 54,532 | | | $ | 40,513 | | | $ | 161,232 | | | $ | 125,236 | |
Contract Balances
The timing of revenue recognition, billing, and cash collection results in the recognition of accounts receivable, contract assets and contract liabilities on the condensed consolidated balance sheets.
Contract assets represent unbilled and accrued incentive revenues from airline companies and our GDS service providers based on the achievement of contractual targets defined at contract inception.
Contract liabilities, discussed below, are recorded as deferred revenue on the condensed consolidated balance sheets and disclosures. Cash received that are contingent upon the satisfaction of performance obligations are accounted for as deferred revenue. Deferred revenue primarily relates to cash advances received from GDS service providers for future bookings of airline tickets.
The opening and closing balances of accounts receivable and deferred revenue are as follows:
| | | | | | | | | | | | | | | | | |
| Accounts
Receivable | | Contract
Asset | | Deferred
Revenue |
| Ending Balance as of December 31, 2022 | $ | 21,733 | | | $ | 5,794 | | | $ | 20,484 | |
| Increase/(decrease), net | 86,545 | | | 6,429 | | | (1,692) | |
| Ending Balance as of September 30, 2023 | $ | 108,278 | | | $ | 12,223 | | | $ | 18,792 | |
During the nine months ended September 30, 2023, the Company recognized revenue of $3,174 from the deferred revenue balance as of December 31, 2022.
As of September 30, 2023, the Company expects approximately 32% of total deferred revenue to be realized within one year, approximately 36% within two to three years and the remaining 32% within four to six years.
6. BUSINESS COMBINATIONS AND DIVESTITURES
Orinter Acquisition
On January 31, 2023 (the “Orinter Closing Date”), the Company executed the Share Purchase and Sale Agreement (the “Orinter Purchase Agreement”) to acquire all of the outstanding equity interests in Orinter Tour & Travel, S.A. (“Orinter”) from OTT Holding Ltd (the “Sellers”) (such transactions contemplated by the Orinter Purchase Agreement, the “Orinter Acquisition”). Orinter is a high-growth and leading travel provider that currently serves a multitude of travel companies, with a strong presence in Brazil and Latin America. Through this acquisition, the Company has expanded its geographic footprint to include Brazil’s domestic and outbound travel market. Additionally, Orinter’s direct relationships with Latin American hotels will provide valuable cross-sell opportunities for the Company.
The acquisition date fair value of consideration transferred for Orinter is as follows:
| | | | | |
Cash consideration (i) | $ | 21,556 | |
Issuance of Class A Common Stock (ii) | 16,037 | |
Fair value of earn-out consideration (iii) | 3,060 | |
| Total purchase price consideration | $ | 40,653 | |
i.Cash consideration of $20,020 paid and $1,536 holdback consideration transferred to an escrow account as a guarantee in case of necessity of reimbursement, payment and/or use by Orinter for fulfillment of obligations of Orinter deriving from customers credits and customers prepayment.
ii.Issuance of 1,726,405 shares of common stock to be maintained in an escrow account. The release of the shares are as follows: (a) 903,202 after a period of 12 months from the Orinter Closing Date, and (b) 823,203 shares after a period of 24 months from the Orinter Closing Date.
iii.The purchase price consideration includes an earn-out obligation of $10,000 (paid in equal installments over 3 years) contingent on Orinter meeting EBITDA targets of $10,500, $11,500, and $12,500, for the years ended December 31, 2024, 2025 and 2026, respectively.
The Company estimated the preliminary fair value of acquired assets and liabilities as of the effective time of the business combination based on information currently available and continues to adjust those estimates upon refinement of
market participant assumptions for integrating businesses. The Company is continuing to obtain information to finalize acquired tax liabilities and assets with respect to the Orinter Acquisition. As the Company finalizes the fair value of assets acquired and liabilities assumed, additional purchase price adjustments may be recorded during the measurement period, but no later than one year from the date of the Orinter Closing Date. The Company will reflect measurement period adjustments, if any, in the period in which the adjustments are recognized.
Final determination of the fair values may result in further adjustments to the values presented in the following table.
| | | | | |
| Assets acquired: | Estimated Fair Value |
| Cash | $ | 624 | |
| Accounts receivable | 40,431 | |
| Prepaid expenses and other current assets | 1,447 | |
| Property and equipment | 336 | |
| Goodwill | 6,146 | |
| Operating lease right-of-use-assets | 172 | |
| Intangible assets | 29,280 | |
| Fair value of assets acquired | 78,436 | |
| Liabilities assumed: | |
| Accounts payable | 31,243 | |
| Accrued expenses and other current liabilities | 6,437 | |
| Operating lease liabilities | 103 | |
| Fair value of liabilities assumed | 37,783 | |
| Total purchase consideration | $ | 40,653 | |
During the measurement period, not to exceed one year from the date of acquisition, the Company may record adjustments to the assets acquired and liabilities assumed, with a corresponding offset to goodwill.
Goodwill
The excess of the purchase price consideration over the fair values assigned to the assets acquired and liabilities assumed was recorded as goodwill. The resulting goodwill is primarily attributable to expected post-acquisition synergies from integrating Orinter’s technology with Mondee’s platform and technology. Goodwill recorded in connection with the acquisition was allocated to the travel marketplace segment and is amortizable for income tax purposes. The goodwill attributable to the acquisition was recorded as a non-current asset and is not amortized but is subject to an annual review for impairment.
Identifiable Intangible Assets
The following table sets forth the components of identifiable intangible assets acquired and their estimated useful lives as of the date of acquisition:
| | | | | | | | | | | |
| Useful life (years) | | Fair value |
| Customer relationships | 11 | | $ | 21,600 | |
| Trade names | 15 | | 7,680 | |
| Total acquired intangibles | | | $ | 29,280 | |
Since the acquisition, Orinter was included in the Company’s travel marketplace segment.
Acquisition costs related to the Orinter Acquisition were not material. The amounts of revenue and pretax net income of Orinter included in the Company’s condensed consolidated statement of operations from the Orinter Closing Date to September 30, 2023 were $40,936 and $7,852, respectively.
Interep Acquisition
On May 12, 2023 (the “Interep Closing Date”), the Company acquired all of the outstanding stock of Interep Representações Viagens E Turismo S.A. (“Interep”, such transaction referred to as the “Interep Acquisition”). Interep is a
Brazilian travel operator that focuses on the upscale segment of the travel market. This acquisition further expands the Company’s geographical footprint in Latin America, enhance its product offerings and provide a complementary distribution network to that of Orinter, given Interep’s focus on the luxury market.
The acquisition date fair value of consideration transferred for Interep is as follows:
| | | | | |
Cash consideration (i) (ii) | $ | 4,633 | |
Issuance of Class A Common Stock (iii) | 3,097 | |
Other consideration - travel credit (iv) | 50 | |
Fair value of earn-out consideration (v) | 1,700 | |
| Total purchase consideration | $ | 9,480 | |
In connection with the acquisition, the Company agreed to pay total consideration of (i) $4,000 on the Interep Closing Date, (ii) a deferred payment of $720 paid in 36 installments, (iii) 411,000 shares of Company Class A Common Stock, (iv) $50 in travel credits, and (v) an earn-out component up to an aggregate of $3,000 contingent on Interep meeting certain adjusted EBITDA targets. The 411,000 shares of Company Class A Common Stock were legally issued on July 12, 2023.
The following table summarizes the fair values of the assets acquired and liabilities assumed at the acquisition date:
| | | | | |
| Assets acquired: | Estimated Fair Value |
| Cash | $ | 2,925 | |
| Accounts receivable | 21,697 | |
| Prepaid expenses and other current assets | 683 | |
| Property and equipment | 61 | |
| Operating lease right-of-use-assets | 63 |
| Other non-current assets | 9 |
| Deferred income tax asset | 265 |
| Goodwill | 808 | |
| Intangible assets | 7,120 | |
| Fair value of assets acquired | 33,631 | |
| Liabilities assumed: | |
| Accounts payable | 22,962 | |
| Accrued expenses and other current liabilities | 1,112 | |
| Operating lease liabilities | 63 | |
| Other long-term liabilities | 14 | |
| Fair value of liabilities assumed | 24,151 | |
| Total purchase consideration | $ | 9,480 | |
The Company recorded $4,910 for customer relationships with an estimated useful life of 7.5 years, and $2,210 for trade names with an estimated useful life of 15 years. The resulting goodwill is primarily attributable to the assembled workforce and expanded market opportunities from the Interep Acquisition. Goodwill recorded in connection with the acquisition was allocated to the travel marketplace segment and is amortizable for income tax purposes. Acquisition costs related to the Interep Acquisition were not material.
The amounts of revenue and pretax net income of Interep included in the Company’s condensed consolidated statement of operations from the Interep Closing Date to September 30, 2023 were $9,943 and $2,809, respectively.
Consolid Acquisition
On May 12, 2023 (the “Consolid Closing Date”), the Company acquired all of the outstanding stock in Consolid Mexico Holding, S.A. P.I. de C.V. (“Consolid”) (such transaction referred to as the “Consolid Acquisition”). Consolid is a high-growth, leading travel provider based in Mexico with the main objective of generating higher income for travel agencies in Mexico and around the world through first-class technological tools with products and services. Through this
acquisition, the Company expands its geographic footprint in Mexico’s domestic and outbound travel market, as well as in other areas of Latin America.
The acquisition date fair value of consideration transferred for Consolid is as follows:
| | | | | |
| Amount |
| Cash consideration | $ | 3,406 | |
| Fair value of earn-out consideration | 1,820 | |
| Total purchase consideration | $ | 5,226 | |
In connection with the Consolid Acquisition, the Company agreed to pay cash consideration of $3,406 and an earn-out component up to an aggregate of $1,000 cash and 400,000 shares of Company Class A Common Stock, contingent on Consolid meeting certain adjusted EBITDA targets. The Company intends to claw back the net working capital adjustment of $556 net of future earn-out payments, and therefore, the $556 is recorded net against the fair value of the earn-out liability on the condensed consolidated balance sheet since these amounts have the right to offset.
The Company estimated the preliminary fair value of acquired assets and liabilities as of the effective time of the Consolid Acquisition based on information currently available and continues to adjust those estimates upon refinement of market participant assumptions for integrating businesses. The Company is continuing to obtain information to finalize acquired tax liabilities and assets with respect to the Consolid Acquisition, as well as the clawback amount impacting the purchase consideration. As the Company finalizes the fair value of assets acquired and liabilities assumed, additional purchase price adjustments may be recorded during the measurement period, but no later than one year from the date of the Consolid Acquisition. The Company will reflect measurement period adjustments, if any, in the period in which the adjustments are recognized, to the assets acquired and liabilities assumed, with a corresponding offset to goodwill. Final determination of the fair values may result in further adjustments to the values presented in the following table.
| | | | | |
| Assets acquired: | Estimated Fair Value |
| Cash | $ | 4,050 | |
| Accounts receivable | 3,569 | |
| Prepaid expenses and other current assets | 1,236 | |
| Deferred income tax assets | 704 | |
| Property and equipment | 90 | |
| Goodwill | 1,354 | |
| Operating lease right-of-use-assets | 143 | |
| Intangible assets | 1,195 | |
| Other non-current assets | 41 | |
| Fair value of assets acquired | 12,382 | |
| Liabilities assumed: | |
| Accounts payable | 5,441 | |
| Accrued expenses and other current liabilities | 1,261 | |
| Operating lease liability | 143 | |
| |
| Other long-term liabilities | 311 | |
| Fair value of liabilities assumed | 7,156 | |
| Total purchase consideration | $ | 5,226 | |
The intangible assets acquired include customer relationships with a fair value of $674 and an estimated useful life of 8.5 years, as well as trade names with a fair value of $521 and an estimated useful life of 15 years. The Company recorded approximately $1,354 of goodwill, which is primarily attributed to the assembled workforce and expanded market opportunities obtained through the Consolid Acquisition. Goodwill recorded in connection with the acquisition was allocated to the travel marketplace segment and is not deductible for income tax purposes. Acquisition costs related to the Consolid Acquisition were not material.
The Company has included the financial results of Consolid in its condensed consolidated financial statements from the Consolid Closing Date, which have not been material to date.
Skypass Acquisition
On August 12, 2023 (the “Skypass Closing Date”), the Company executed the Share Purchase Agreement to purchase all of the outstanding shares of Skypass Travel Inc., Skypass Travel de Mexico Sa de CV, Skypass Travel Private Limited and Skypass Holidays, LLC (collectively, “Skypass”) (such transaction referred to as the “Skypass Acquisition”). Skypass is an international travel operator specializing in national and international air travel and hotel bookings primarily for travelers and employees associated with international corporations. The Skypass Acquisition allows the Company to expand its reach in the cruise and holiday packages travel sectors.
The acquisition date fair value of consideration transferred for Skypass is as follows:
| | | | | |
| Amount |
Cash consideration(i) | $ | 3,908 | |
Issuance of Class A Common Stock at Closing(ii) | 5,320 | |
Deferred stock consideration(iii) | 1,584 | |
Fair value of earn-out consideration(iv) | 434 | |
| Total purchase price consideration | $ | 11,246 | |
In connection with the acquisition, the Company agreed to pay total consideration of (i) $3,000 on the Skypass Closing Date, with an adjustment for working capital, (ii) 900,000 shares of Company Class A Common Stock on the Skypass Closing Date, (iii) 100,000 shares of Company Class A Common Stock within 60 days after each of the first, second and third anniversaries of the Skypass Closing Date, and (iv) an earn-out component up to an aggregate of 1,800,000 shares of Company Class A Common Stock over a four year period contingent on Skypass meeting certain adjusted EBITDA growth targets. In the event the EBITDA target is exceeded, the Company is required to pay additional shares of 2.5% on excess of the EBITDA target. The number of shares payable will be calculated based on the market value of the Company’s Class A Common Stock at settlement date.
The Company estimated the preliminary fair value of acquired assets and liabilities as of the effective time of the Skypass Acquisition based on information currently available and continues to adjust those estimates upon refinement of market participant assumptions for integrating businesses. The Company is continuing to obtain information to determine the acquired assets and liabilities, including tax assets, liabilities and other attributes. As the Company finalizes the fair value of assets acquired and liabilities assumed, additional purchase price adjustments may be recorded during the measurement period, but no later than one year from the date of the Skypass Closing Date. The Company will reflect measurement period adjustments, if any, in the period in which the adjustments are recognized, to the assets acquired and liabilities assumed, with a corresponding offset to goodwill. Final determination of the fair values may result in further adjustments to the values presented in the following table.
| | | | | |
| Assets acquired: | Estimated Fair Value |
| Cash | $ | 1,746 | |
| Accounts receivable | 3,491 | |
| Prepaid expenses and other current assets | 25 | |
| |
| |
| Goodwill | 4,054 | |
| Operating lease right-of-use-assets | 1,006 | |
| Intangible assets | 4,135 | |
| |
| Fair value of assets acquired | 14,457 | |
| Liabilities assumed: | |
| Accounts payable | 668 | |
| Accrued expenses and other current liabilities | 684 | |
| Operating lease liabilities | 714 | |
| |
| Deferred income tax | 1,145 | |
| |
| Fair value of liabilities assumed | 3,211 | |
| Total purchase consideration | $ | 11,246 | |
The intangible assets acquired include customer relationships with a fair value of $3,370 and an estimated useful life of 8.4 years, as well as trade names with a fair value of $765 and an estimated useful life of 15 years. The Company recorded approximately $4,054 of goodwill, which is primarily attributed to the assembled workforce and expanded market opportunities obtained through the Skypass Acquisition. Goodwill recorded in connection with the acquisition was allocated to the travel marketplace segment and is not deductible for income tax purposes. Acquisition costs related to the Skypass Acquisition were not material.
The Company has included the financial results of Skypass in its condensed consolidated financial statements from the Skypass Closing Date, which have not been material to date. Pro forma results of operations have not been presented because the effect of the acquisition was not material to the condensed consolidated statements of operations.
LBF US Divestiture
In July 2023, the Company entered into a letter of intent with a former employee to sell LBF Travel Inc, LBF Travel Holdings LLC, Avia Travel and Tours Inc, and Star Advantage Limited (collectively, "LBF US") for net proceeds of 200,000 shares of the Company’s Class A Common Stock, which was valued at $1.7 million as of the disposal date. The Company allocated $0.5 million of the value of the shares to post-sales support provided to LBF US subsequent to the sale and recognized the remaining $1.2 million as purchase consideration. The divestiture of LBF US closed in September 2023. LBF US was initially acquired by the Company on December 20, 2019 ("2019 Acquisition") and operated within the travel marketplace segment. The buyer was a previous owner of LBF Travel Inc, who then became a Mondee employee along with the 2019 Acquisition until Mondee’s divestiture of LBF US.
In connection with the sale, the Company recognized a gain of $532, which was recorded in other expense, net. The gain on the transaction is comprised of a non-cash gain of $697, offset by the derecognition of $165 of cash. Additionally, the Company provided certain short term transition services to support the divested business through the third quarter of 2023. The Company incurred $9,859 of transition service costs for the three months ended September 30, 2023, which was recorded in other expense, net. As of September 30, 2023, the Company has paid $7,386 towards the LBF US transition services, and have a remaining amount of $2,473 unpaid. The results of the divested business through date of sale and the transition services provided to LBF US post the sale were reflected within the travel marketplace segment.
Unaudited Pro Forma Operating Results
The following unaudited pro forma combined financial information presented the results of operations as if (i) the acquisitions of Orinter, Interep and Consolid and (ii) the divestiture of LBF US were consummated on January 1, 2022 (the beginning of the comparable prior reporting period), including certain pro forma adjustments that were directly attributable to the Orinter, Interep and Consolid Acquisitions, including additional amortization adjustments for the fair value of the assets acquired. These unaudited pro forma results do not reflect any synergies from operating efficiencies post their acquisition dates. Accordingly, these unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of what the actual results of operations of the combined company would have been if the acquisition had occurred at the beginning of the period presented, nor are they indicative of future results of operations. The unaudited pro forma financial information did not include the effect of Skypass Acquisition due to its insignificant impact to the Company's consolidated operation results.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| Revenues, net | $ | 53,840 | | | $ | 51,075 | | | $ | 172,624 | | | $ | 145,992 | |
| Net loss | (19,699) | | | (58,610) | | | (38,382) | | | (64,295) | |
7. GOODWILL AND INTANGIBLE ASSETS, NET
The following table presents the changes in goodwill by reportable segments:
| | | | | | | | | | | | | | | | | |
| Travel Marketplace | | SaaS Platform | | Total |
| Balance as of December 31, 2022 | $ | 58,999 | | | $ | 7,421 | | | $ | 66,420 | |
| Additions, including measurement period adjustments (Note 6 – Business Combinations and Divestitures) | 12,362 | | | — | | | 12,362 | |
Divestiture of LBF US (Note 6 – Business Combinations and Divestitures) | (1,679) | | | — | | | $ | (1,679) | |
| Foreign currency translation impact | 64 | | | — | | | 64 | |
| Balance as of September 30, 2023 | $ | 69,746 | | | $ | 7,421 | | | $ | 77,167 | |
Indefinite-lived Intangible Assets. Our indefinite-lived intangible assets relate to trade names acquired in various acquisitions in past periods. Intangible assets, net includes indefinite-life intangible assets of $10,653 as of September 30, 2023 and $12,028 as of December 31, 2022, respectively.
Definite-life intangible assets, net consisted of the following as of September 30, 2023:
| | | | | | | | | | | | | | | | | | | | |
| | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
| Customer relationships | | $ | 91,481 | | | $ | (34,383) | | | $ | 57,098 | |
| Trade name | | 20,803 | | | (6,076) | | | 14,727 | |
| Supplier relationships | | 5,767 | | | (1,443) | | | 4,324 | |
| Developed technology | | 7,220 | | | (2,867) | | | 4,353 | |
| Balances as of September 30, 2023 | | $ | 125,271 | | | $ | (44,769) | | | $ | 80,502 | |
Definite-life intangible assets, net consisted of the following as of December 31, 2022:
| | | | | | | | | | | | | | | | | |
| Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
| Customer relationships | $ | 60,778 | | | $ | (29,288) | | | $ | 31,490 | |
| Trade name | 9,580 | | | (5,295) | | | 4,285 | |
| Supplier relationships | 5,767 | | | (1,153) | | | 4,614 | |
| Developed technology | 7,220 | | | (2,267) | | | 4,953 | |
| Balances as of December 31, 2022 | $ | 83,345 | | | $ | (38,003) | | | $ | 45,342 | |
Amortization expense for intangible assets was $2,458 and $1,584 for the three months ended September 30, 2023 and 2022, respectively, and $6,747 and $4,753 for the nine months ended September 30, 2023 and 2022, respectively.
The estimated future amortization expense related to intangible assets with definite lives is as follows:
| | | | | |
| Fiscal years ending December 31, | |
| 2023 (remaining three months) | $ | 2,508 | |
| 2024 | 10,034 | |
| 2025 | 9,860 | |
| 2026 | 9,510 | |
| 2027 | 9,510 | |
| Thereafter | 39,080 | |
| $ | 80,502 | |
8. DEBT
The following table summarizes the Company’s outstanding borrowing arrangements, excluding governmental loans:
| | | | | | | | | | | |
| As of September 30, | | As of December 31, |
| 2023 | | 2022 |
| TCW Term Loan | $ | 102,500 | | | $ | 106,250 | |
| Wingspire Term Loan | 14,632 | | | — | |
| TCW Term Loan payment in-kind interest | 50,543 | | | 46,518 | |
| Wingspire Term Loan payment in-kind interest | 379 | | | — | |
| Others | — | | | 14 | |
| Total outstanding principal balance | 168,054 | | | 152,782 | |
| Less: TCW Term Loan unamortized debt issuance costs and discounts | (12,316) | | | (18,386) | |
| Less: Wingspire Term Loan unamortized debt issuance costs and discounts | (283) | | | — | |
| Total debt | 155,455 | | | 134,396 | |
| Less: Current portion of long-term debt | (10,313) | | | (7,514) | |
| Long-term debt, excluding current portion | $ | 145,142 | | | $ | 126,882 | |
TCW Credit Agreement
On December 23, 2019, the Company, entered into a financing agreement (the “TCW Agreement”) with TCW (the “Lenders”) consisting of a $150,000 multi-draw term loan with a maturity date of December 23, 2024 (the “TCW Term Loan”). Additionally, on the same day, the Company entered into a revolving credit facility (“TCW LOC”) with an aggregate principal amount not exceeding $15,000. Undrawn balances available under the revolving credit facility are subject to commitment fees of 1%. These facilities are guaranteed and are secured by substantially all of the assets of the Company.
On January 11, 2023, the Company executed a Ninth Amendment to the financing agreement with TCW (the “Ninth Agreement”), wherein Wingspire Capital LLC (“Wingspire”) became a party to the TCW Agreement. The amendment resulted in the redesignation of $15,000 under the TCW Term Loan from other lenders to Wingspire. Concurrently, Wingspire funded an additional $15,000 of term loan commitment on top of the already outstanding TCW Term Loan (the “Wingspire Term Loan”), with a total of $30,000 contributed by Wingspire as part of this amendment. Additionally, the Ninth Amendment split the TCW Term Loan into two loans. The first loan will be represented by Wingspire with an outstanding principal balance of $30,000 and the second loan will be represented by TCW with an outstanding principal balance of $137,753. Further, pursuant to the Ninth Amendment, Wingspire consented to take over the TCW LOC for a principal amount not to exceed $15,000, which resulted in a total of contributed by Wingspire in the arrangement.
Until January 11, 2024, the Company has the option to increase the Wingspire Term Loan by $20,000 under two conditions: (i) the Company must have a trailing 12-month EBITDA of at least $25,000; and (ii) the Company must draw in increments of at least $5,000.
On January 31, 2023, the Company executed a tenth amendment to the TCW Agreement (the “Tenth Amendment”). The Tenth Amendment (1) set forth the terms on which we could acquire Orinter, pursuant to that certain Orinter Purchase Agreement, among us, Mondee Brazil, LLC, a Delaware limited liability company (“Mondee Brazil”), OTT Holdings Ltda. (“OTT Holdings”), Orinter, and the other parties named therein; (2) set forth the terms on which we could pay the earn-out payment contemplated to be paid to OTT Holdings and certain key executives of OTT Holdings pursuant to the Orinter Purchase Agreement; (3) required that Mondee Brazil join as a party to the TCW Agreement and the Security Agreement (as defined in the TCW Agreement); (4) required that Mondee, Inc. pledge 100% of the equity interests of Mondee Brazil; and (5) required that Mondee Brazil and Mondee Inc. pledge 100% of the equity interests of Orinter.
The effective interest on the TCW Term Loan for the nine months ended September 30, 2023, and 2022 is 24% and 22%, respectively. The effective interest on the Wingspire Term Loan for the nine months ended September 30, 2023 is 17%.
As of September 30, 2023, and December 31, 2022, the total estimated fair value of the Company’s TCW Term Loan was $147,426 and $143,651, respectively. As of September 30, 2023, the total fair value of the Company’s Wingspire Term Loan was $14,460. The fair value of debt is calculated using a market-based discount rate.
9. EQUITY
Class A Common Stock
As of September 30, 2023, the Company had authorized a total of 500,000,000 shares for issuance of common stock, of which 85,498,657 shares are issued and outstanding. Not reflected in the shares issued and outstanding is approximately 118,769 shares related to restricted stock units (“RSUs”) that vested during 2023, but have not been settled and issued.
As of December 31, 2022, the Company had 82,266,160 shares of the Company’s common stock issued and outstanding. Not reflected in the shares issued and outstanding is approximately 331,600 shares related to RSUs that vested in 2022, but had not been settled and issued.
Warrants
As of September 30, 2023 and December 31, 2022, the Company had the following common stock warrants outstanding:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Warrants | | Exercise Price | | Issuance Date | | Expiration |
| Private Placement Warrants | | 232,500 | | | $ | 11.50 | | | 7/18/2022 | | 7/18/2027 |
| Common Stock Warrants | | 1,275,000 | | | 11.50 | | | 9/29/2022 | | 9/29/2027 |
| Total | | 1,507,500 | | | | | | | |
Share Repurchase Program
On September 21, 2023, the Company’s Board of Directors (the “Board”) authorized a share repurchase program to purchase up to $30,000 of the Company’s outstanding shares of Class A Common Stock (the “Share Repurchase Program”). The amount and timing of repurchases is determined at the Company’s discretion, depending on market and business conditions, and prevailing stock prices among other factors. Open market repurchases will be structured to occur in accordance with applicable federal securities laws, including insider trading laws. The program is not subject to any self-imposed Company trading restrictions or blackout periods and has no expiration date.
During the nine months ended September 30, 2023, the Company repurchased 215,350 shares of its Class A Common Stock for a total of $766. The repurchase was at a weighted-average price of $3.54 per share when excluding commissions, and are recorded to treasury stock. The repurchase liability of $766 is included in accrued expenses and other current liabilities on the Company’s condensed consolidated balance sheets, pending settlement of trade in October 2023. As of September 30, 2023, $29,234 remained available under the Share Repurchase Program. On October 17, 2023, the Company’s Board authorized a $10,000 expansion of the Company’s on-going Share Repurchase Program, bringing the total size of the common stock repurchase program authorized by the Board up to $40,000.
10. STOCK-BASED COMPENSATION
2022 Equity Incentive Plan
The Board adopted, and the stockholders of the Company approved the 2022 Equity Incentive Plan (the “2022 Plan”), effective as of the Closing Date. The maximum number of shares of common stock that may be issued pursuant to the 2022 Plan is 9,615,971.
Restricted Stock Units
RSU activity during the nine months ended September 30, 2023 was as follows:
| | | | | | | | | | | | | | |
| | Number of Restricted Stock
Incentive Units
Outstanding | | Weighted-Average Grant Date Fair Value |
| Unvested - December 31, 2022 | | 105,000 | | $ | 9.40 | |
| Granted | | 2,978,378 | | 7.70 | |
| Vested | | (383,818) | | 8.90 | |
| Forfeited or canceled | | — | | — | |
| Unvested – September 30, 2023 | | 2,699,560 | | $ | 7.30 | |
The Company recognized $2,170 and $3,596 in personnel expense for RSUs in the three and nine months ended September 30, 2023. The Company recognized $59 and $227, respectively, in general and administrative expense for RSUs in the three and nine months ended September 30, 2023. The Company recognized $3,386 in personnel expense for RSUs during the three and nine months ended September 30, 2022. The Company recognized $139 in general and administrative expense for RSUs during the three and nine months ended September 30, 2022.
Secondary Sale
In June 2023, the Company facilitated the sale of 5,250,000 shares of the Company’s Class A Common Stock at a price of $10.00 per share to investors for an aggregate purchase price of $52,500. Of the 5,250,000 shares that were sold in the transaction, 2,148,783 shares of common stock were sold by current and former employees. The Company did not receive any proceeds from the secondary sale, however, as the shares were sold above fair value, the Company recognized the excess purchase price paid above fair value to current and former employees as stock-based compensation expense. The Company recognized $1,848 in personnel expense on the condensed consolidated statement of operations for the nine months ended September 30, 2023.
Of the 5,250,000 shares sold, 2,122,529 shares, or an aggregate purchase price of $1,825, were sold by related parties of the Company.
Earn-out Shares
Earn-out shares were issued following the closing of the reverse recapitalization on July 18, 2022. Holders of the earn-out shares are entitled to the right to receive up to an aggregate amount of 9,000,000 shares of common stock. The earn-out shares would vest in equal thirds if the trading price of the Company’s common stock was greater than or equal to $12.50, $15.00, and $18.00 for any 20 trading days in any 30 consecutive trading day period, at any time during the period beginning on the first anniversary of the Closing Date and ending on the fourth anniversary of the Closing Date. These earn-out shares were determined to be equity-classified
As of September 30, 2023, the earn-out shares were allocated as follows:
| | | | | | | | | | | | | | |
| Shareholder Type | | Grant Date | | Number of Shares |
| Employee | | 7/18/2022 | | 6,000,000 | |
| Investor | | 7/18/2022 | | 500,000 | |
| Employee | | 9/7/2022 | | 900,000 | |
| Non-employee | | 9/12/2022 | | 200,000 | |
| Employee | | 4/20/2023 | | 180,000 | |
| Unallocated shares | | — | | 1,220,000 | |
| Total | | | | 9,000,000 | |
Except for the 380,000 earn-out shares allocated on September 12, 2022 and April 20, 2023, the remaining earn-out shares have been legally issued to the respective shareholders and have restrictions that prohibit the shareholders from transferring them until the vesting market conditions are met. These earn-out shares in escrow are not considered outstanding for accounting purposes until resolution of the earn-out contingency.
The estimated grant date fair value of shares allocated in 2023 was determined using the Monte Carlo simulation method. Assumptions used in the valuation were as follows:
| | | | | |
| April 20, 2023 |
| Fair value of Class A Common Stock | $10.70 |
| Selected volatility | 65.0% |
| Risk-free interest rate | 3.9% |
| Contractual term (years) | 3.2 |
The Company recognized $450 and $3,787 of compensation expense for employees to personnel expenses within the condensed consolidated statement of operations for the three and nine months ended September 30, 2023, respectively. The non-employee is an advisor to the Company and its stock-based compensation expense of $278 and $851 for the three and nine months ended September 30, 2023, respectively was recorded to general and administrative expenses within the condensed consolidated statement of operations.
The Company recognized $50,734 of compensation expense for employees to personnel expenses within the condensed consolidated statement of operations for the three and nine months ended September 30, 2022. The Company recognized $33 of non-employee stock-based compensation expense to general and administrative expenses within the condensed consolidated statement of operations for the three and nine months ended September 30, 2022.
On the Closing Date, 6,000,000 of the earn-out Class A Common Stock were issued to the chief executive officer of Mondee which was determined to be equity settled in accordance with ASC 480. The chief executive officer was awarded earn out shares primarily to lead and direct activities contributing to successful close of the Business Combination in his capacity of an executive responsible for oversight with no future services required. The Company determined his awards to be compensatory in nature owing to his service agreement and oversight role in the Business Combination. The Company recorded compensation expenses upon completion of the Business Combination totaling $50,060 within personnel expenses on the condensed consolidated statement of operations for the three and nine months ended September 30, 2022.
Subsequent to the Closing Date, the Company allocated an additional 1,100,000 shares. These earn-out shares require future services and therefore were concluded to be compensatory in nature in accordance with ASC 718. The stock based compensation expense for employee earn-out shares were recognized over the derived service period. For non-employee earn-out shares, the Company recorded stock based compensation expense on a monthly basis over the longest period between the implicit or derived service period. The Company recorded an additional $674 of compensation expense for employees to personnel expenses within the condensed consolidated statement of operations for the three and nine months ended September 30, 2022.
Employee Stock Purchase Plan
The Board adopted, and the stockholders of the Company approved, the Employee Stock Purchase Plan (“ESPP”), which became effective as of the Closing Date. The ESPP initially reserves and authorizes the issuances of up to a total of 1,923,194 shares of common stock to participating employees. The ESPP permits participants to purchase common stock of up to the lesser of 8% of their eligible compensation or $25,000 per offering period. The initial offering period began May 1, 2023 and will end on October 31, 2023. On each purchase date, participating employees will purchase the shares at a price per share equal to 85% of the lesser of (1) the fair market value of our common stock on the offering date or (2) the fair market value of our common stock on the purchase date. Stock-based compensation for ESPP for the three months ended September 30, 2023 was not material. As of September 30, 2023, the remaining unrecognized stock-based compensation for ESPP is not material.
11. COMMITMENTS AND CONTINGENCIES
Legal Matters
From time to time, the Company may be a party to litigation and subject to claims incidental to its business. Although the results of litigation and claims cannot be predicted with certainty, the Company currently believes that the final outcome of these matters will not have a material effect on its business. Regardless of the outcome, litigation can have an adverse impact on the Company because of judgment, defense and settlement costs, diversion of management resources,
and other factors. As of September 30, 2023, the Company currently has two outstanding legal claims that may have a material impact.
Litigation Relating to LBF Acquisition. Thomas DeRosa, a shareholder of LBF Travel Management Corp. (f/k/a LBF Travel, Inc.), the entity that sold LBF Travel Holdings, LLC to Mondee, sued LBF Travel Management Corp. and its CEO to recover a portion of the proceeds of the sale of LBF Travel Holdings, LLC to Mondee. Mondee was later added as a party to this litigation via a third-party complaint that alleges, among other things, that Mondee aided and abetted the directors and officers of LBF Travel Management Corp. in breaches of their fiduciary duties in connection with the acquisition. The case remains pending in Federal Court. There is a separate state court action that has been stayed. While the Company believes that they will be successful based on their position, it is nevertheless reasonably possible that the Company could be required to pay any assessed amounts in order to contest or litigate the assessment and an estimate for a reasonably possible range of loss of any such payments cannot be made.
On October 13, 2021, Mondee received a summons from Global Collect Services B.V. to appear in the District Court of Amsterdam with respect to a claim of $548 for past dues and outstanding invoices, fees, plus interest and costs of collection. The Company is in current discussions to settle this lawsuit and at this time the Company cannot reasonably estimate the possible loss.
Letters of Credit
The Company had $7,650 and $7,432 secured letters of credit outstanding as of September 30, 2023 and December 31, 2022, respectively. These primarily relate to securing the payment for the potential purchase of airline tickets in the ordinary course of business and are collateralized by term deposits, for which the contractual obligation is less than a year.
12. RELATED PARTY TRANSACTIONS
A summary of balances due to and from related parties, and transactions with related parties are as follows:
| | | | | | | | | | | | | | |
| Balances at Period End | | September 30,
2023 | | December 31,
2022 |
Amount payable to related party (1) | | $ | 42 | | | $ | 13 | |
Amount receivable from related party (2) | | 43 | | | 38 | |
Loan receivable from related party (3) | | 92 | | | — | |
Note payable to related party (4) | | 200 | | | 197 | |
Rent payable to related parties and an affiliate associated with these related parties and an employee(5) | | 222 | | | — | |
Amounts receivable from related parties (6) | | 156 | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended
September 30, |
| Transactions with Related Parties | | 2023 | | 2022 | | 2023 | | 2022 |
Offshore IT and software development services, sales support and other services (7) | | $ | — | | | $ | — | | | $ | — | | | $ | 660 | |
Interest income (8) | | — | | | 26 | | | — | | | 282 | |
Payment made on behalf of Mondee Holdings LLC (9) | | — | | | 5,241 | | | — | | | 5,241 | |
Service fees (2) | | (1) | | | 441 | | | (1) | | | 2,382 | |
Loan receivable from related party (3) | | 92 | | | — | | | 92 | | | — | |
Lease expense (5) | | 112 | | | 58 | | | 222 | | | 116 | |
_________________________
| | | | | |
| (1) | As of December 31, 2022 Mondee Tech Pvt Ltd had a payable to Metaminds Software, which was settled in the three months ending March 31, 2023. As of September 30, 2023, Interep owes a travel credit of $42 to Asi Ginio, a member of the Board of Directors. In connection with the Interep Acquisition, the Company has agreed to provide Mr. Ginio the travel credits in exchange for the general advisory services Mr. Ginio provided to the former owners of Interep. |
| (2) | Pursuant to a Universal Air Travel Plan (“UATP”) Servicing Agreement dated May 11, 2021, the Company sold certain airline tickets using prepaid UATP credit cards arranged by Mondee Group, LLC (“Mondee Group”), in exchange for a service fee equal to 10.0% of the revenue derived from the sale of such airline tickets. Mondee Group is owned by the Company’s CEO, Prasad Gundumogula, and is not a wholly-owned subsidiary of the Company. Mondee Group led the fundraising and arranged the funds that were used to purchase prepaid UATP credit cards at a discount from their face value from a certain airline. |
| (3) | In July 2023, the Company provided financing of $100 to its Chief Financial Officer ("CFO") as part of his relocation package. The promissory note bears an annual interest rate of 3.3% per annum and matures at the earlier of April 2026 or when the CFO's employment with the Company terminates. All outstanding principal, inclusive of any accrued and unpaid interest, is slated for settlement upon maturity of the note. The Company has the option to forgive the obligation in one-third increments which is contingent upon the absence of any breach of the CFO's obligations with the Company and his continued service. |
| (4) | The Company has a note payable to the CEO amounting to $200 and $197 as of September 30, 2023 and December 31, 2022, respectively. The loan is collateralized and carries an interest rate of 2.0% per annum. Principal and interest are due on demand. |
| (5) | The Company currently leases office space from Metaminds Software. The lease commencement date for this was April 1, 2022. The lease had an original lease term of 11 months, and has been renewed, and the monthly minimum base rent is immaterial. From August 2023, the Company started leasing office spaces from certain employees and entities associated with these employees. These leases were recognized on the Skypass Closing Date and have 3 year terms. The monthly minimum base rent is immaterial. |
| (6) | Corresponds to receivables from former owners of Interep and Skypass for payments made by the Company on their behalf. |
| (7) | Metaminds Technologies Pvt. Ltd. and Metaminds Software Solutions Ltd, corporations limited by shares organized under the laws of India, and Metaminds Global Solutions Inc. (“Metaminds”), provide certain consulting services to Mondee and its subsidiaries in the areas of software development, fulfillment and other support. The CEO co-owns Metaminds with his wife. The CEO is a material shareholder in Mondee, and both the CEO and his wife serve on the Board of Directors of Mondee, Inc. and certain of its subsidiaries. Prior to acquisition of certain assets and liabilities of Metaminds Technologies Pvt Ltd (“Metaminds Technologies”), Mondee hired all employees of Metaminds Technologies and Metaminds Software Solutions Ltd (“Metaminds Software”) in April 2022. There were no services rendered by Metaminds Technologies and Metaminds Software for offshore IT, offshore software development, or sales support for the three and nine months ended September 30, 2023. |
| (8) | The Company had a secured promissory note receivable from Mondee Group, bearing an interest rate of 2.3% compounded annually, with a 10-year term, and was secured by 14,708 Class A units in Mondee Holdings, LLC. The note was settled upon the occurrence of the reverse recapitalization with ITHAX, partly by a right to receive the Company’s Class A Common Stock to the extent of $20,336 and partly by the asset acquisition of Metaminds Technologies (defined below). On March 10, 2023, the Company received 2,033,578 shares of Class A Common Stock, which were valued at $20,336. The shares are reflected as treasury stock on the condensed consolidated balance sheet as the shares have not been retired as of September 30, 2023. |
| (9) | Corresponds to a payment made to Rocketrip put option holders by the Company on behalf Mondee Holdings LLC. |
In addition to the above transactions, in connection with the Orinter Acquisition, the former owners of Orinter agreed that upon the release of the 903,202 escrow shares from escrow 12 months after the Orinter Closing Date the former owners will transfer 80,000 of those escrow shares to Asi Ginio, a current Board member of the Company, in connection with general advisory services Mr. Ginio provided to the former owners.
Prepaid expenses and other current assets on the Company's condensed consolidated balance sheets includes the current portion of loans receivable from related parties and other employees of $98 and $81 as of September 30, 2023 and December 31, 2022, respectively. Other non-current current assets on the Company's condensed consolidated balance sheets includes the non-current portion of loans receivable from related parties and other employees of $322 and $200 as of September 30, 2023 and December 31, 2022, respectively.
13. SEGMENT INFORMATION
We have the following reportable segments: travel marketplace and SaaS Platform. These reportable segments offer different products and services and are managed separately because the nature of products and services, and methods used to distribute the services are different. Our primary segment measure is Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). Assets, liabilities, one-time legal expenses, income tax expense and other expense, net are reviewed on an entity-wide basis by the Chief Operating Decision Maker (“CODM”), and hence are not allocated to these reportable segments. Segment revenue is reported and reviewed by the CODM on a monthly basis.
Such amounts are detailed in our segment reconciliation below.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2023 |
| Travel Marketplace | | SaaS Platform | | Corporate | | Total |
| | | | | | | |
| | | | | | | |
| Revenue | $ | 54,101 | | | $ | 431 | | | $ | — | | | $ | 54,532 | |
| Adjusted EBITDA | 5,805 | | | (512) | | | 208 | | | 5,501 | |
| Depreciation and amortization | (4,031) | | | (134) | | | — | | | (4,165) | |
| Stock-based compensation | (2,974) | | | — | | | — | | | (2,974) | |
| Payroll tax expense related to stock-based compensation | (140) | | | — | | | — | | | (140) | |
| Restructuring (expense) income, net | (239) | | | — | | | — | | | (239) | |
| Acquisition cost | (545) | | | — | | | — | | | (545) | |
| Non-recurring legal expense | — | | | — | | | (785) | | | (785) | |
One time non-recurring expense1 | (22) | | | — | | | — | | | (22) | |
| Change in fair value of earn-out liability | 593 | | | — | | | — | | | 593 | |
| Operating loss | | | | | | | $ | (2,776) | |
| Total other expense, net | | | | | | | (16,942) | |
| Loss before income taxes | | | | | | | (19,718) | |
| Provision for income taxes | | | | | | | (381) | |
| Net loss | | | | | | | $ | (20,099) | |
1 Includes non-recurring transaction filing fees and associated professional services
| | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2022 |
| Travel Marketplace | | SaaS Platform | | Total |
| | | | | |
| | | | | |
| Revenue | $ | 40,094 | | | $ | 419 | | | $ | 40,513 | |
| Adjusted EBITDA | 3,763 | | | (195) | | | 3,568 | |
| Depreciation and amortization | (2,826) | | | (137) | | | (2,963) | |
| Restructuring (expense) income, net | (2,130) | | | — | | | (2,130) | |
| Stock-based compensation | (55,236) | | | — | | | (55,236) | |
| Operating loss | | | | | $ | (56,761) | |
| Total other expense, net | | | | | (7,526) | |
| Loss before income taxes | | | | | (64,287) | |
| Provision for income taxes | | | | | (321) | |
| Net loss | | | | | $ | (64,608) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended
September 30, 2023 |
| Travel Marketplace | | SaaS Platform | | Corporate | | Total |
| | | | | | | |
| | | | | | | |
| Revenue | $ | 160,302 | | | $ | 930 | | | $ | — | | | $ | 161,232 | |
| Adjusted EBITDA | 14,351 | | | (255) | | | — | | | 14,096 | |
| Depreciation and amortization | (10,948) | | | (406) | | | — | | | (11,354) | |
| Stock-based compensation | (10,339) | | | — | | | — | | | (10,339) | |
| Payroll tax expense related to stock-based compensation | (226) | | | — | | | — | | | (226) | |
| Restructuring (expense) income, net | (1,600) | | | — | | | — | | | (1,600) | |
| Acquisition cost | (1,088) | | | — | | | — | | | (1,088) | |
| Non-recurring legal expense | — | | | | | (2,024) | | | (2,024) | |
One time non-recurring expense1 | (632) | | | — | | | — | | | (632) | |
| Change in fair value of earn-out liability | (108) | | | — | | | — | | | (108) | |
| Operating loss | | | | | | | $ | (13,275) | |
| Total other expense, net | | | | | | | (31,259) | |
| Loss before income taxes | | | | | | | (44,534) | |
| Provision for income taxes | | | | | | | (3,088) | |
| Net loss | | | | | | | $ | (47,622) | |
1 Includes non-recurring transaction filing fees and associated professional services
| | | | | | | | | | | | | | | | | |
| Nine Months Ended
September 30, 2022 |
| Travel Marketplace | | SaaS Platform | | Total |
| | | | | |
| | | | | |
| Revenue | $ | 124,272 | | | $ | 964 | | | $ | 125,236 | |
| Adjusted EBITDA | 11,500 | | | (1,203) | | | 10,297 | |
| Depreciation and amortization | (8,138) | | | (411) | | | (8,549) | |
| Restructuring (expense) income, net | (2,130) | | | — | | | (2,130) | |
| Stock-based compensation | (55,397) | | | — | | | (55,397) | |
| Operating loss | | | | | $ | (55,779) | |
| Total other expense, net | | | | | (17,322) | |
| Loss before income taxes | | | | | (73,101) | |
| Provision for income taxes | | | | | (611) | |
| Net loss | | | | | $ | (73,712) | |
Geographic Information
Revenue by geographic area, based on the geographic location of the Company’s subsidiaries processing the bookings, which is not necessarily representative of the travel destination or customer location, is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended
September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| United States | $ | 27,729 | | | $ | 37,004 | | | $ | 98,306 | | | $ | 117,588 | |
| Brazil | 22,015 | | | — | | | 50,879 | | | — | |
| Rest of the world | 4,788 | | | 3,509 | | | 12,047 | | | 7,648 | |
| $ | 54,532 | | | $ | 40,513 | | | $ | 161,232 | | | $ | 125,236 | |
Long-lived assets (excluding capitalized software) and operating lease assets by geographic area is as follows:
| | | | | | | | | | | |
| September 30, | | December 31, |
| 2023 | | 2022 |
| United States | $ | 1,267 | | | $ | 1,016 | |
| Rest of the world | 1,573 | | | 642 | |
| $ | 2,840 | | | $ | 1,658 | |
14. NET LOSS PER SHARE
The following table sets forth the computation of the basic and diluted net loss per share attributable to common stockholders for the three and nine months ended September 30, 2023 and 2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended
September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| Numerator: | | | | | | | |
| Net loss | $ | (20,099) | | | $ | (64,608) | | | $ | (47,622) | | | $ | (73,712) | |
| Cumulative dividends allocated to preferred stockholders | (2,859) | | | (47) | | | (8,023) | | | (47) | |
| Net loss attributable to common stockholders, basic and diluted | $ | (22,958) | | | $ | (64,655) | | | $ | (55,645) | | | $ | (73,759) | |
| Denominator: | | | | | | | |
| Weighted average shares outstanding, basic and diluted | 77,925,635 | | | 72,462,512 | | | 77,162,363 | | | 64,730,224 | |
| Basic and diluted net loss per share | $ | (0.29) | | | $ | (0.89) | | | $ | (0.72) | | | $ | (1.14) | |
The following table presents the potential common shares outstanding that were excluded from the computation of diluted net loss per share of common shares as of the periods presented because including them would be anti-dilutive:
| | | | | | | | | | | |
| September 30, |
| 2023 | | 2022 |
| Warrants (public warrants, private warrants, common stock warrants) | 1,507,500 | | | 13,568,543 | |
Outstanding earn-out shares (a) | 7,780,000 | | | 7,600,000 | |
| Consolid earn-out shares | 400,000 | | | — | |
| Skypass earn-out shares | 1,800,000 | | | — | |
| Restricted stock units | 2,699,560 | | | 105,000 | |
| ESPP shares | 17,550 | | | — | |
| Potential common share excluded from diluted net loss per share | 14,204,610 | | | 21,273,543 | |
______________________________
| | | | | |
(a) | While 7,400,000 of the earn-out shares allocated are legally issued and outstanding, they are excluded from the weighted average shares outstanding calculation because they are contingently returnable based on the Company's stock price during the term of the earn-out shares. |
15. RESTRUCTURING EXPENSE, NET
During the three and nine months ended September 30, 2023 and 2022, the Company took actions at some of the office locations to reduce the size of its workforce to optimize efficiency and reduce costs. The Company completed the vast majority of announcements that affected employees by March 2023, including office closures.
During the three and nine months ended September 30, 2023, the Company recorded a net expense of $239 and $1,600, respectively, in restructuring expense, net on the condensed consolidated statements of operations. These expenses
are one-time and are primarily related to employee severance and other termination benefits. During the nine months ended September 30, 2023, the Company terminated an office lease in India and recognized a gain of $337.
During the three and nine months ended September 30, 2023, the Company made employee severance, other termination benefits, and other restructuring costs payments of $232 and $1,368, respectively. The restructuring activity was completed by the end of June 30, 2023 and the Company currently does not expect material costs associated with restructuring activities in future periods.
During the three and nine months ended September 30, 2022, the Company recorded expense of $2,130, within restructuring expense, net in the condensed consolidated statements of operations. These expenses are one-time cash-based and of employee severance, lease rental termination related, and other termination benefits. During the three and nine months ended September 30, 2022, the Company made employee severance, other termination benefits, and other restructuring costs payments of $1,216. Outstanding restructuring charges at the reporting period are recorded in accrued expenses and other current liabilities, on the Company's condensed consolidated balance sheets.
Activities related to our restructuring impacted our travel marketplace segment. The following is a roll forward of the outstanding restructuring charges by cost type for the nine months ended September 30, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Balance as of December 31, 2022 | | Additions | | Adjustments | | Cash Payments | | Balance as of September 30, 2023 |
| Severance and termination-related costs | | $ | — | | | $ | 1,676 | | | $ | (14) | | | $ | (1,118) | | | $ | 544 | |
| Other exit costs | | — | | | 277 | | | (2) | | | (250) | | | 25 | |
| Total | | $ | — | | | $ | 1,953 | | | $ | (16) | | | $ | (1,368) | | | $ | 569 | |
16. INCOME TAXES
We have assessed our ability to realize our deferred tax assets and have recorded a valuation allowance against such assets to the extent that, based on the weight of all available evidence, it is more likely than not that all or a portion of the deferred tax assets will not be realized. In assessing the likelihood of future realization of our deferred tax assets, we placed significant weight on our history of generating tax losses. As a result, we have a full valuation allowance against all of our net deferred tax assets in the United States and certain other jurisdictions. We expect to maintain a valuation allowance in such jurisdictions for the foreseeable future.
We determine our provision for income taxes for interim periods using an estimate of our annual effective tax rate. We record any changes affecting the estimated annual effective tax rate in the interim period in which the change occurs, including discrete items. The tax expense arising on account of tax amortization of an indefinite lived intangible asset and the state minimum taxes is calculated based on the discrete approach.
The Company recorded a $1,476 liability for an income tax contingency related to the acquisition of Orinter. At the date of acquisition, we recognized an indemnification asset at the same time and on the same basis as the recognized liability, to the extent that collection is reasonably assured, in accordance with ASC 805.
The effective income tax rate was (2)% and (7)% on the pre-tax loss for the three and nine months ended September 30, 2023, respectively, and (1)% and (1)% for the three and nine months ended September 30, 2022, respectively.
The effective tax rate differs from the U.S. statutory tax rate primarily due to the valuation allowances on the Company’s deferred tax assets as it is more likely than not that some or all of the Company’s deferred tax assets will not be realized.
17. EMPLOYEE BENEFIT PLAN
The Company sponsors a 401(k) defined contribution plan covering its employees in the United States of America. Participants may contribute a portion of their compensation to the 401(k) plan, subject to limitations under the Internal Revenue Code. The Company does not match contributions to its 401(k) plan.
The Company’s Gratuity Plan in India (the “India Plan”) provides for a lump sum payment to vested employees on retirement or upon termination of employment in an amount based on the respective employee’s salary and years of employment with the Company. Liabilities with regard to the India Plan are determined by actuarial valuation using the projected unit credit method. Current service costs for these plans are accrued in the year to which they relate. Actuarial gains or losses or prior service costs, if any, resulting from amendments to the plans are recognized and reported as personnel expenses in the condensed consolidated statement of operations.
Components of net periodic benefit costs are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended
September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| Current service cost | $ | 25 | | | $ | 20 | | | $ | 87 | | | $ | 65 | |
| Past service cost | 10 | | | — | | | 10 | | | — | |
| Interest cost | 6 | | | 8 | | | 24 | | | 23 | |
| Net actuarial (gain)/loss recognized in the period | (42) | | | 33 | | | (204) | | | (4) | |
| Expenses recognized in the condensed consolidated statement of operations | $ | (1) | | | $ | 61 | | | $ | (83) | | | $ | 84 | |
The components of actuarial gain/(loss) on retirement benefits are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended
September 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
| Actuarial gain/(loss) for the period obligation | $ | 42 | | | $ | (33) | | | $ | 204 | | | $ | 4 | |
| Actuarial gain/(loss) for the period plan assets | — | | | — | | | — | | | — | |
| Actuarial gain for the period | $ | 42 | | | $ | (33) | | | $ | 204 | | | $ | 4 | |
18. SUBSEQUENT EVENTS
The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the condensed consolidated financial statements were issued. Based upon this review, other than as described below, the Company did not identify any additional subsequent events that would have required adjustment or disclosure in the condensed consolidated financial statements.
On October 13, 2023, the Company executed an eleventh amendment to the TCW Agreement (the “Eleventh Amendment”). The Eleventh Amendment (1) provided consent to the Company’s acquisitions of Interep, Consolid and Skypass; (2) required that the Company pledge 100% of the equity interests of Interep, Consolid and Skypass, and certain other subsidiaries; (3) specifies that certain leverage ratios, minimum unadjusted EBITDA and fixed charge coverage ratio covenants shall not be measured through the term of the TCW Agreement; (4) sets forth certain qualified cash requirements; (5) adds as an event of default the failure of the Company to achieve certain refinancing milestones; (6) provides that the revolving credit commitment shall be uncommitted and discretionary in nature; and (7) provides for the payment of certain fees.
On October 17, 2023, the Company completed a private placement of the Company’s Series A-3 Preferred Stock and issued 10,000 shares for gross proceeds of $10,000. In conjunction with the closing of the preferred stock financing, the Company issued warrants to purchase 1,275,000 shares of the Company’s Class A Common Stock to the participating investors.
On November 2, 2023, the Company entered into a waiver (the "Waiver") with TCW Asset Management Company, Wingspire Capital LLC regarding the TCW Agreement which waived certain mandatory prepayment obligations of the Company.
On November 13, 2023 (the “Purplegrids Closing Date”), the Company executed a stock purchase agreement to purchase all of the outstanding shares of Purplegrids, Inc. Purplegrids combines open AI with business intelligence and
RPA to automate customer experiences. In connection with the acquisition, the Company agreed to pay total consideration of approximately 1,900,000 shares adjusted for net working capital to target net working capital, closing cash to target cash, and indebtedness, including approximately i) 700,000 shares at closing with no lock-up; ii) 200,000 shares with a six month lock-up after closing and iii) 1,000,000 shares with a one year lock-up after closing. Sellers may receive up to 1,000,000 earn out shares that can be earned over a two-year period upon the achievement of certain revenue targets. Additionally, sellers may receive up to 1,542,857 shares depending on the price of the Company's stock on the first anniversary of the Purplegrids Closing date.
