Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
References in this Quarterly Report on Form 10-Q (the “Quarterly Report”) to “we,” “us” or our “Company” refer to Mondee Holdings, Inc., a Delaware corporation, and its wholly-owned subsidiaries. References to our “management” or our “management team” refer to our officers and directors. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this Quarterly Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
Special Note Regarding Forward-Looking Statements
This Quarterly Report contains “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Investors are cautioned that statements that are not strictly historical statements of fact constitute forward-looking statements, including, without limitation, statements under this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and are identified by words like “believe,” “expect,” “may,” “will,” “should,” “seek,” “anticipate,” or “could” and similar expressions. Forward-looking statements in this Quarterly Report on Form 10-Q may include, for example, statements about:
•changes in domestic and foreign business, market, financial, political, regulatory and legal conditions;
•our ability to execute our business strategy, including monetization of our products;
•our ability to implement our strategic initiatives and continue to innovate our existing services;
•our projected financial information, growth rate and market opportunity;
•the ability to maintain the listing of the our Class A common stock, par value $0.0001 per share (our “Common Stock”) on the Nasdaq Global Market, and the potential liquidity and trading of such securities;
•the ability to recognize the anticipated benefits of any mergers and acquisition activity, which may be affected by, among other things, competition, our ability of to grow, manage growth profitably, and retain our key employees;
•changes in applicable laws or regulations;
•rising inflationary pressures and fluctuations in interest rates;
•our ability to raise financing in the future and ability to continue as a going concern;
•our success in retaining or recruiting, or changes required in, our officers, key employees or directors;
•our ability to maintain relationships with customers and suppliers;
•our officers and directors allocating their time to other businesses and potentially having conflicts of interest with our business;
•our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;
•our financial performance;
•our ability to expand or maintain our existing customer base;
•our ability to remediate any material weaknesses and maintain an effective system of internal control over financial reporting;
•the outcome of any legal proceedings that may be instituted against us;
•unfavorable conditions in our industry, the global economy or global supply chain, including financial and credit market fluctuations, international trade relations, pandemics (such as the COVID-19 pandemic), political turmoil, natural catastrophes, warfare (such as the conflict involving Russia and Ukraine), and terrorist attacks; and
•other factors detailed under the section entitled “Risk Factors” discussed in our Quarterly Report on Form 10-Q for the three months ended March 31, 2023.
Forward-looking statements are not assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those expressed or implied by forward-looking statements include those discussed elsewhere in this Quarterly Report on Form 10-Q and in our future Quarterly Reports on Form 10-Q or other reports we file with the Securities and Exchange Commission (“SEC”).
Any forward-looking statement made by us in this Quarterly Report on Form 10-Q is based only on information currently available to us and speaks only as of the date of this report. We undertake no obligation to publicly revise or
update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law. References to a fiscal quarter refer to our fiscal quarter ended March 31, 2023.
Overview
We are a leading travel technology company and marketplace with a portfolio of globally recognized technology solutions in the leisure, retail and corporate travel sectors.
We provide state-of-the art technologies, operating systems and technology-enabled services that seamlessly facilitate travel market transactions to better serve travelers through travel affiliates and numerous other emerging channels. These technology solutions with access to global travel inventory and extensive negotiated travel content, combined with our distribution network, create a modern travel marketplace. Our modern marketplace provides the increasingly discerning traveler with enhanced options on efficient consumer-friendly distribution platforms, while supporting our travel supplier partners in utilizing highly-perishable travel inventory.
In addition to the rapid development and enhancement of our modern travel marketplace, we are increasingly focused on expanding our penetration of the "gig economy" segment of the travel market. We believe our technology solutions are well-suited to serve gig workers seeking more flexible, diverse content and travel services.
From its founding, our Company began building a leading international wholesale travel business through acquisitions and deployment of our technology platform. We have continued to enhance our technology, expand our market reach and increase our travel market penetration with a combination of organic and inorganic initiatives and transactions. Most recently, we have acquired companies with subscription products, expanded hotel and retail consumer services and added more global content.
We believe the successful execution of our combined organic and inorganic acquisition business strategy has enhanced our modern travel marketplace and positioned us well for emerging travel business opportunities.
We generate revenue primarily from sales of airline tickets and other travel products and have begun adding subscription fees with some services. Primarily all of our revenue today is generated by providing omni-channel travel services that result in airline ticket and ancillary sales. Revenue is received in the forms of ticket markups, supplier commission, or ticketing or ancillary fees, fintech revenues, as well as incentive payments from airlines, GDS service providers, and banks and financial institutions, which we leverage in our payment processing and settlement platform. We also fulfill and settle the reservations booked through affiliated travel agents or directly by travelers.
Recent Developments
Share Pledge Agreement
On April 14, 2023, Mondee Brazil, LLC, a Delaware limited liability company (“Mondee Brazil”), and Mondee, Inc., a Delaware corporation (“Mondee, Inc.”, together with Mondee Brazil, the “Pledgors”), both subsidiaries of Mondee Holdings, Inc. (the “Company”), TCW Asset Management Company, a Delaware limited liability company (the “Administrative Agent”), the lenders from time to time (the “Lenders”) party to the TCW Agreement (as defined herein) and Orinter Viagens E Turismo S.A., a corporation organized under the laws of Brazil (“Orinter”), executed that certain share pledge agreement, effective as of March 28, 2023 (the “Share Pledge Agreement”) pursuant to that certain Amendment No. 10, dated as of January 31, 2023 (the “Amendment”), to that certain financing agreement, dated as of December 23, 2019, by and among Mondee Holdings, Inc., the Administrative Agent and the other parties thereto (as the same may be amended, restated, supplemented, or otherwise modified from time to time, the “TCW Agreement”). The Share Pledge Agreement is governed by the laws of Brazil and the parties to the Share Pledge Agreement irrevocably submit to exclusive jurisdiction of the Brazilian courts located in São Paulo, Brazil for any action or proceeding arising out of the Share Pledge Agreement.
The Share Pledge Agreement sets forth the terms on which: (i) Mondee, Inc., the sole equity owner of Mondee Brazil and minority equity owner of Orinter, pledges 100% of the equity interests of Mondee Brazil, which is the majority equity owner of Orinter, pursuant to the Amendment, as previously disclosed on our Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on February 2, 2023 (the “Amendment 8-K”); and (ii) the Pledgors pledge 100% of the equity interests of Orinter, pursuant to the Amendment, as previously disclosed on the Amendment 8-K. The Share Pledge Agreement shall terminate on the termination date of the TCW Agreement.
In addition, the Share Pledge Agreement includes customary representations, warranties, of covenants of the Pledgors and Orinter, including: (1) the security interest created by the Share Pledge Agreement constitutes a perfected first priority security interest in the shares of Orinter and any assets or rights related thereto (the “Pledged Assets and Rights”), securing the payment of the secured obligations described in Exhibit I of the Share Pledge Agreement, that is binding and enforceable against the Pledgors and Orinter; (2) if the Pledgors acquire new shares issued, acquired, or distributed by Orinter (“Additional Shares”), the Pledgors shall enter into an amendment to the Share Pledge Agreement to extend and perfect the security interest created by the Share Pledge Agreement to the Additional Shares and the related Pledged Assets and Rights; (3) without the prior written consent of the Administrative Agent or as expressly permitted under the Share Pledge Agreement and TCW Agreement, the Pledgors shall not (x) create, incur or permit to exist any security in favor of, or any claim of any person with respect to the Pledged Assets and Rights, or (y) sell, assign, transfer, exchange, or otherwise dispose of the Pledged Assets and Rights; and (4) Pledgors shall defend the right, title and interest of the Administrative Agent and Lenders for the benefit of the Administrative Agent and Lenders in and to the Pledged Assets and Rights against all claims and demands.
The Share Pledge Agreement also provides that the Pledgors may not vote any of the equity interests of Orinter on the following matters, without the prior written consent of the Administrative Agent: (a) the sale, encumbrance of a substantial portion of the assets of Orinter, except as authorized in accordance with the terms of the TCW Agreement; (b) the merger, amalgamation, spin-off, consolidation or corporate restructuring of Orinter, or any type of corporate reorganization of Orinter, except as authorized in accordance with the terms of the TCW Agreement; and (c) the performance of any act or the execution of any document, for the purpose of approving, requesting, filing or agreeing with the judicial or extrajudicial reorganization, the bankruptcy or liquidation of Orinter, except as authorized in accordance with the terms of the TCW Agreement.
TCW Agreement Amendments
On January 11, 2023, we executed a ninth amendment to the TCW Agreement (the “Ninth Amendment”), wherein Wingspire Capital LLC (“Wingspire”) became a party to the TCW Agreement, among other changes. Wingspire funded an additional $15.0 million of term loan commitment on top of the already outstanding Term Loan. Additionally, the Ninth Amendment split the Term Loan with TCW into two loans. Term Loan A will be represented by Wingspire with an outstanding principal balance of $30.0 million and Term Loan B will be represented by TCW with an outstanding principal balance of $137.8 million.
Additionally, pursuant to the Ninth Amendment, Wingspire consented to take over the TCW line of credit for a principal amount not to exceed $15.0 million. Until January 11, 2024, we have the option to increase Term Loan A by $20.0 million under two conditions: (i) our Company must have a trailing 12-month EBITDA of at least $25.0 million; and (ii) our Company must draw in increments of at least $5.0 million.
On January 31, 2023, we 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 Share Purchase and Sale Agreement, dated as of January 31, 2023, among us, Mondee Brazil, LLC, a Delaware limited liability company (“Mondee Brazil”), OTT Holdings Ltda. (“OTT Holdings”), Orinter, and the other parties named therein (the “Orinter Purchase Agreement”); (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.
Orinter Acquisition
On January 31, 2023, our Company and its wholly-owned subsidiary, Mondee Brazil LLC, a Delaware limited liability company (together with our Company, “Buyer”), entered into that certain Share Purchase and Sale Agreement, dated January 31, 2023 (the “Purchase Agreement”), with OTT Holding LTDA, a Brazilian limited liability company (the “Seller”), and Orinter Tour & Travel, S.A., a Brazilian corporation (the “Orinter”), along with other parties thereto (the “Intervening Parties”), as described in the Purchase Agreement. Pursuant to the Purchase Agreement, the Seller sold to Buyer, and Buyer purchased from Seller, all of the issued and outstanding shares of the Orinter, in exchange for total consideration of $37.7 million (the “Consideration”) (such transactions contemplated by the Purchase Agreement, the “Orinter Acquisition”). The Consideration was comprised of: (i) a cash component equal to $20.5 million, $18.9 million of which was paid to Seller on the Closing Date and $1.5 million of which will be 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) a stock component equal to $16.0 million, in the form of 1,726,405 shares of our Common Stock (the “Escrow Shares”). The release of the shares are as follows: (a) 903,202 after a
period of 12 months from the Closing Date, and (b) 823,203 shares after a period of 24 months from the Closing Date; and (iii) an earn-out obligation of $10.0 million (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 2024, 2025 and 2026, respectively.
Pro Rata Distribution
In connection with the business combination between ITHAX Acquisition Corp., a Cayman Islands exempted company, and Mondee Holdings II, Inc., a Delaware company, (the “Business Combination”), Mondee Holdings, LLC, a Delaware limited liability company, (the “Mondee Stockholder”) received 60,800,000 shares of our Common Stock. In March 2023, the Mondee Stockholder effected the pro rata distribution of the 60,800,000 shares of our Common Stock to the members of the Mondee Stockholder (the “Pro Rata Distribution”). Upon the consummation of the Pro Rata Distribution, the Mondee Stockholder ceased to hold any shares of our Common Stock.
Settlement of Mondee Group Note and Shareholder Receivable
On March 25, 2016 Mondee, Inc. extended a loan in the original amount of $19.3 million to Mondee Group, LLC (“Mondee Group” and such loan, the “Mondee Group Note”). Mondee Group is owned by Prasad Gundumogula, our chief executive officer (“Gundumogula”).
On July 18, 2022, the closing date of the Business Combination (the “Closing”), Mondee, Inc. entered into a second amendment to the Mondee Group Note. Mondee, Inc. agreed to settle $2.0 million of the outstanding balance of the Mondee Group Note through the acquisition of Metaminds Technologies Pvt. Ltd., (“Metaminds”) pursuant to that certain Asset Purchase Agreement, dated July 18, 2022 (the “Metaminds Agreement”) by and among Mondee, Inc., Metaminds, Gundumogula, Madhuri Pasam, and Mondee Group to acquire substantially all of the assets and associated liabilities of Metaminds in exchange for $2.0 million. As payment of the $2.0 million under the Metaminds Agreement the outstanding balance of the loan receivable under the Mondee Group Note was reduced to $20.3 million (the “Remaining Balance”).
Additionally on the Closing Date, we and Mondee Group entered into a note repayment agreement that finalized how the Remaining Balance was settled. Consistent with SAB Topic 4E, we recorded such right to receive our Company’s Common Stock as a deduction from shareholders' deficit. In connection with the Business Combination, the Mondee Stockholder received our Common Stock, which was distributed to Mondee Group on March 10, 2023, pursuant to the Pro Rata Distribution. Mondee Group assigned the right to receive 2,033,578 shares of our Common Stock to Mondee, Inc., in settlement of the Remaining Balance. The shares of our Common Stock were valued at $10.00 each, which resulted in 2,033,578 shares being issued to Gundumogula by our Company. The Remaining Balance was reflected as treasury stock since the settlement of the Remaining Balance was a result of Gundumogula transferring our Common Stock to us.
2023 Restructuring
During the three months ended March 31, 2023, our Company announced reductions to employees in India, Thailand and the United States. The purpose of this actions was to pursue greater cost efficiencies and to realign our business and strategic priorities. As part of this action, we generally provided involuntary termination benefits in the amount of one month of compensation as a severance payment.
Interep Acquisition
On May 12, 2023 (the “Interep Closing Date”), the Company executed the Share Purchase and Sale Agreement to purchase all of the outstanding shares of Interep Representações Viagens E Turismo S.A. (“Interep”). Interep is a Brazilian travel operator specializing in national and international land travel with service aimed exclusively at travel agents. Through this acquisition, the Company continues to expand its geographic footprint in Brazil's domestic and outbound travel market.
In connection with the acquisition, the Company agreed to pay total consideration of (i) $4 million on the Interep Closing Date, with an adjustment for working capital, (ii) a deferred payment of $0.7 million paid in 36 installments, (iii) 416,000 shares of Company Class A Common Stock and (iv) an earn-out component up to an aggregate of $3 million contingent on Interep meeting certain adjusted EBITDA targets.
Consolid Acquisition
On May 12, 2023 (the “Consolid Closing Date”), the Company executed the Share Purchase and Sale Agreement to acquire all of the outstanding equity interests in Consolid Mexico Holding, S.A. P.I. de C.V. ("Consolid").Consolid is a Mexican corporation and leader in the travel market 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 that satisfy travelers. 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.
In connection with the acquisition, the Company agreed to pay total consideration of (i) $4 million on the Consolid Closing Date, with an adjustment for working capital, and (ii) an earn-out component up to an aggregate of $1 million and 400,000 shares of Company Class A Common Stock contingent on Consolid meeting certain adjusted EBITDA targets.
Factors Affecting Our Performance
The COVID-19 pandemic has had, and may continue to have, a material impact on the expansion of the global gig economy and remote worker populations, which could provide a material business leverage opportunity for our Company with commensurate operating and revenue performance results.
The COVID-19 pandemic caused a fundamental, and potentially permanent, shift of business practices globally to the adoption of remote and virtual work environments. This change, among other generational factors, rapidly increased the proliferation of the global gig economy, creating larger fragmented pools of remote, part-time and home-based gig workers. In many industries, and especially in the travel industry, this shift has created a significant market white space for remote and home-based business solutions that are largely technology enabled. We believe our micro-services and self-service modern technology solutions, combined with our affiliate and travel agent market segment focus, extensive high-value content access and consumer-friendly apps, give us a material early-to-market advantage in this market white space. In addition, this advantage may provide us with significant market growth and penetration opportunities for an unpredictable period of time, which could result in a potentially material increase in transactions. Since our financial results and prospects are largely dependent on these transaction volumes, we may see a commensurate positive impact on our operating and financial performance.
The COVID-19 pandemic has had, and may continue to have, a material adverse impact on the travel industry, which could materially affect our business, liquidity, financial condition and operating results.
The COVID-19 pandemic and the resulting economic conditions and government orders forced many of our travel suppliers, including airlines and hotels, to curtail drastically their service offerings, pursue cost reduction measures and seek financing, including government financing and support, so they could reduce financial distress and continue operating. In addition, the COVID-19 pandemic resulted in a material decrease in business and consumer spending and an unprecedented decline in transaction volumes in the global travel industry. Our financial results are largely dependent on these transaction volumes. As a result, our financial results for the quarters ended March 31, 2023, 2022, 2021, and 2020 were impacted in total revenues, net income, cash flow from operations and Adjusted EBITDA, as compared to 2019. Financial results began to improve in 2021 and continued to trend upward through 2023.
Our liquidity and ongoing access to capital could be materially and negatively affected by the impacts of the COVID-19 pandemic.
We have incurred negative cash flows from operating activities and significant losses from operations in the past as reflected in our accumulated deficit of $293.2 million and $280.3 million as of March 31, 2023 and December 31, 2022, respectively. We believe that our cash on hand, cash generated from operating activities and available line of credit will satisfy our working capital and capital requirements for at least the next 12 months. Our future capital requirements, however, will depend on many factors, including on-going effects of the COVID-19 pandemic, consolidation of the travel industry, changes in the general market conditions for travel services, and future business combinations. We may in the future enter into arrangements to acquire or invest in complementary businesses, services, and technologies, including intellectual property rights. From time to time, we may seek to raise additional funds through the sale of equity and debt. If we are unable to raise additional capital when desired and on reasonable terms, our business, results of operations, and financial condition could be adversely affected.
Our continued access to sources of liquidity depends on multiple factors, including global economic conditions, the condition of global financial markets, the availability of sufficient amounts of financing and our operating performance. Since the COVID-19 pandemic, there has been increased volatility in the financial and securities markets, which has generally made access to capital less certain and has increased the cost of obtaining new capital. However, there is no guarantee that we will not need to obtain debt financing in the future to fund our operations, or that such debt financing will be available in the future, or that it will be available on commercially reasonable terms, in which case we may need to seek other sources of funding.
Adverse changes in general market conditions for travel services, including the effects of macroeconomic conditions, terrorist attacks, natural disasters, health concerns, civil or political unrest or other events outside our control could materially affect our business, liquidity, financial condition and operating results.
Our revenue is derived from the global travel industry and would be significantly impacted by declines in, or disruptions to, travel activity, particularly air travel. Global factors over which we have no control, but which could impact our clients’ willingness to travel and, depending on the scope and duration, cause a significant decline in travel volumes include, among other things:
•widespread health concerns, epidemics or pandemics, such as the COVID-19 pandemic, the Zika virus, H1N1 influenza, the Ebola virus, avian flu, SARS or any other serious contagious diseases;
•global security concerns caused by terrorist attacks, the threat of terrorist attacks, or the precautions taken in anticipation of such attacks, including elevated threat warnings or selective cancellation or redirection of travel;
•cyber-terrorism, political unrest, the outbreak of hostilities or escalation or worsening of existing hostilities or war;
•natural disasters or severe weather conditions, such as hurricanes, flooding and earthquakes;
•climate change-related impact to travel destinations, such as extreme weather, natural disasters and disruptions, and actions taken by governments, businesses and supplier partners to combat climate change;
•the occurrence of travel-related accidents or the grounding of aircraft due to safety concerns;
•adverse changes in visa and immigration policies or the imposition of travel restrictions or more restrictive security procedures; and
•any decrease in demand for consumer or business travel could materially and adversely affect our business, financial condition and results of operations.
Our operating results are impacted by our ability to manage costs and expenses, while achieving a balance between making appropriate investments to grow revenue and increase profitability.
Cost and expense management will have a direct impact on our financial performance. We may look to drive revenue growth through investments in marketing, technology, and acquisitions to increase our net revenue, product offerings, revenue per transaction, and ultimately market share. These investments will need to be weighed against creating a more cost-efficient business to reduce operating expenses as a percentage of revenue.
To address the adverse impact of the COVID-19 pandemic, our management has taken specific actions including: renegotiating certain terms and conditions of our loans with our lenders to defer interest payments and thereby manage our cash; raising additional capital through external borrowings; restructuring accounts payable to accommodate a longer time horizon for payment; and investing in and developing our platform to increase operating efficiencies and reduce labor expenses.
While it appears that travel market transactions are recovering, our management will continue to monitor our travel transaction volumes for the impacts due to the COVID-19 virus and future variants. In response to any changes in our travel transaction volumes, our management intends to update and immediately enact initiatives to scale the business infrastructure and operating expenses up or down as appropriate to ensure optimal earnings and cash flows in future periods. In addition, our management will coordinate with suppliers, operating partners and our financial partners to attempt to arrange adequate capital to withstand any future potential COVID-19 induced volume variability.
Use of Transaction Volumes
Transaction volume represents the gross value of transactions handled by our platform between a third party seller or service provider and the ultimate customer. We generate revenue from service fees earned on these transactions and, accordingly our revenue increases or decreases based on the increase or decrease in either or both the number or value of transactions we process. Revenue will increase as a result of an increase in the number of customers using our platform or as a result of an increase in service fees from higher value services offered on the platform. As an example of one of these two factors, while transaction volume was flat from 2020 to 2021, our revenue increased from $65.8 million to $93.2 million during that same period as a result of an increase in transaction value, driven by our development of new revenue streams such as fintech revenue as well as the addition of subscription based and other ancillary revenues. Our management
believes that transaction volume has a strong correlation to the opportunity to realize revenue and is therefore a useful unit of measurement for our investors.
Comparability of Financial Information
Our results of operations between the three months ended March 31, 2023 and the three months ended March 31, 2022 and our statements of assets and liabilities as of March 31, 2023 and as of December 31, 2022 may not be comparable as a result of the Business Combination.
Lastly, our 2020 and 2021 annual financial results were more severely impacted by the COVID-19 pandemic, an event that occurred out of the ordinary course of business, in comparison with the financial results during 2022. The travel industry began to recover during 2021 as vaccination rates increased, infection rates decreased, and restrictions began to lift, and continues to trend upwards towards pre-pandemic travel activity during 2023.
Non-GAAP Financial Measures
In addition to our financial results determined in accordance with GAAP, we believe the following non-GAAP measures are useful in evaluating our operating performance. We use the term “Adjusted EBITDA” to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that this non-GAAP financial measure, when taken together with the corresponding GAAP financial measures, provides meaningful supplemental information regarding our performance by excluding certain items that may not be indicative of our business, results of operations, or outlook. We use the term “Unlevered Free Cash Flow” to measure cash generated internally that is available to service debt and fund inorganic growth or acquisitions.
We consider both Adjusted EBITDA and Unlevered Free Cash Flow to be important non-GAAP financial measures, because they illustrate underlying trends in our business and our historical operating performance on a more consistent basis. We believe that the use of both Adjusted EBITDA and Unlevered Free Cash Flow is helpful to our investors in assessing the health of our business and our operating performance.
Non-GAAP financial information, which is presented for supplemental informational purposes only, has limitations as an analytical tool and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP. In addition, other companies, including companies in our industry, may calculate similarly titled non-GAAP measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. A reconciliation is provided below for the non-GAAP financial measures to the most directly comparable financial measures stated in accordance with GAAP. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures, and not to rely on any single financial measure to evaluate our business.
Adjusted EBITDA and Unlevered Free Cash Flow
Adjusted EBITDA is a key performance measure that our management uses to assess our operating performance, and our management believes Unlevered Free Cash Flow is relevant to investors because it provides a measure of cash generated internally that is available both to service debt and to fund inorganic growth or acquisitions. Our management believes that these measures provide useful information to investors regarding our operating performance. We believe that these measures are used by many investors, analysts and rating agencies as a measure of performance. By reporting these measures, we provide a basis for comparison of our business operations between current, past and future periods by excluding items that we do not believe are indicative of our core operating performance.
Financial measures that are non-GAAP should not be considered as alternatives to operating income, cash flows from operating activities or any other performance measures derived in accordance with GAAP as measures of operating performance, or cash flows as measures of liquidity. These measures have limitations as analytical tools, and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP.
Because Adjusted EBITDA facilitates internal comparisons of our historical operating performance on a more consistent basis, we use this measure for business planning purposes. We define Adjusted EBITDA as net loss before (1) depreciation and amortization; (2) provision for income taxes; (3) interest expense (net); (4) other income net; (5) stock-based compensation; (6) restructuring and related costs; (7) costs pertaining to acquisition (including bank fees, due
diligence fees, etc.); (8) legal costs pertaining to acquisition, and other filings which are not ordinary and outside the course of our business (9) other non-recurring expenses, (10) and changes in fair value attributable to warrants classified as liability.
The above items are excluded from our Adjusted EBITDA measure because these items are non-cash in nature, or because the amount and timing of these items is unpredictable, not driven by core results of operations, and renders comparisons with prior periods and competitors less meaningful. We believe Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our results of operations, as well as provides a useful measure for period-to-period comparisons of our business performance.
Unlevered Free Cash Flow is defined as cash used in operating activities, less capital expenditures, plus cash paid for interest.
The following table reconciles net loss to Adjusted EBITDA for the three months ended March 31, 2023 and 2022, respectively:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended March 31, | | | | | | | | |
| 2023 | | 2022 | | $ Change | | % Change | | | | |
| ($ in thousands) |
Net loss | $(12,915) | | $(6,991) | | $(5,924) | | 85% | | | | |
Interest expense, (net) | $7,870 | | $6,102 | | $1,768 | | 29% | | | | |
Stock-based compensation expense | $2,561 | | $80 | | $2,481 | | 3101% | | | | |
Depreciation and amortization | $3,386 | | $2,817 | | $569 | | 20% | | | | |
Restructuring and related costs | $1,529 | | $— | | $1,529 | | —% | | | | |
Provision for income taxes | $699 | | $54 | | $645 | | 1194% | | | | |
Changes in fair value of warrant liability | $21 | | $— | | $21 | | —% | | | | |
Acquisition costs | $279 | | $— | | $279 | | —% | | | | |
Other non-recurring expenses | $216 | | $— | | $216 | | —% | | | | |
Legal expense | $662 | | $— | | $662 | | —% | | | | |
Other expense (income), net | $(322) | | $151 | | $(473) | | (313)% | | | | |
| | | | | | | | | | | |
Adjusted EBITDA | $3,986 | | $2,213 | | $1,773 | | 80% | | | | |
Some of the limitations of Adjusted EBITDA are as follows: (i) Adjusted EBITDA does not properly reflect capital commitments to be paid in the future; and (ii) although depreciation and amortization are non-cash charges, the underlying assets may need to be replaced and Adjusted EBITDA does not reflect these capital expenditures. In evaluating Adjusted EBITDA, our investors should be aware that in the future we may not incur expenses similar to the adjustments in this presentation. Lastly, Adjusted EBITDA can obfuscate the one-time impacts of events that happen out of the ordinary course of business, such as the impact of COVID-19 on our Adjusted EBITDA in 2022.
We believe the presentation of Unlevered Free Cash Flow is relevant and useful for investors because it facilitates the comparison of our results with the results of other companies that have different financing and capital structures. Unlevered Free Cash Flow is the gross free cash flow from operations that we can use to expand operations, pay debt holders, or pay equity and other stakeholders.
Unlevered Free Cash Flow has the same limitations as Adjusted EBITDA, in that it does not consider the capital structure of our Company.
The following table reconciles net cash used in operating activities to Unlevered Free Cash Flows for the three months ended March 31, 2023, and 2022, respectively:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended March 31, | | | | | | | | | | |
| 2023 | | 2022 | | $ Change | | % Change | | | | | | | | |
| ($ in thousands) |
Net cash provided by (used in) operating activities | $ | (9,979) | | | $ | 3,418 | | | $ | (13,397) | | | (392) | % | | | | | | | | |
Capital expenditures | $ | (1,968) | | | $ | (1,721) | | | $ | (247) | | | 14 | % | | | | | | | | |
Cash paid for interest | $ | 5,025 | | | $ | 4 | | | $ | 5,021 | | | 125525 | % | | | | | | | | |
Unlevered free cash flow | $ | (6,922) | | | $ | 1,701 | | | $ | (8,623) | | | (507) | % | | | | | | | | |
Basis of Presentation
We currently conduct our business through two operating segments, namely our travel marketplace, which is our transactional business serving the end travelers directly or through travel affiliates, and our software-as-a service (“SaaS”) platform. Substantially, all of our long-lived assets are maintained in, and all of our losses are attributable to, the United States of America. See Note 13 to the accompanying unaudited condensed consolidated financial statements for the quarter ended March 31, 2023 included in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information on basis of presentation and operating segments, respectively.
Components of Results of Operation
Revenues, Net
We have four material revenue streams: transactional revenue, incentive revenue, fintech program revenue, and subscription services revenue.
We generate transactional revenue primarily by airline ticket sales, which include mark-up fees as well as commissions from the sale of ancillary products such as travel insurance, seats, and bags. We also derive transactional revenue from hotel and rental car commission. It also includes, to a lesser extent, services related to reservation of hotel accommodation, rental car, travel insurance, travel packages and other travel products and services. We generate backend incentives from airlines for achieving volume targets. We also generate booking incentives from the three separate GDS service providers and supplier direct systems, which host the airlines’ inventory that we use to sell in our marketplace. We 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, and alternate payment methods, and next generation fraud protection tools. In most cases, revenue is recognized at the time of booking, when we are in an agent position, and thus not responsible for the delivery of travel and have no significant obligations following the processing of the transaction.
| | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | | | | | | |
| 2023 | 2022 | $ Change | % Change | | | | | | | |
| ($ in thousands) |
Revenue from Travel Marketplace | $ | 49,549 | | $ | 38,775 | | $ | 10,774 | | 28 | % | | | | | | | |
Revenue from SAAS Platform | 380 | | 292 | | $ | 88 | | 30 | % | | | | | | | |
| | | | | | | | | | | |
Sales and Marketing Expenses
We changed the presentation of “Sales and other Expense” and “Marketing Expense” within the Consolidated Statement of Operations. We changed the presentation by combining “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.
Sales expenses are generally variable in nature and consist primarily of: (1) credit cards and other payment processing fees associated with merchant transactions; (2) fees paid to third parties that provide call center, website content translations, fraud protection services, and other services; (3) offshore customer support; and (4) customer chargeback provisions.
We rely on marketing channels to generate a significant amount of traffic to our websites. Marketing expenses consist primarily of the costs of (1) advertising, including digital and physical advertising and (2) affiliate marketing programs. We intend to continue making significant investments in marketing to drive additional revenue, increase our market share, and expand our global customer base. As a result, we expect our marketing expenses to increase in absolute dollars as we expect to invest in growing and training our sales force and broadening our brand awareness.
General and Administrative
General and administrative expenses consist primarily of: (1) occupancy and office expenses; (2) fees for outside professionals, including legal and accounting services; (3) audit and tax fees; and (4) other miscellaneous expenses. We expect to incur additional general and administrative expenses as a result of operating as a public company, including expenses related to compliance with the rules and regulations of the SEC and stock exchange listing standards, additional insurance expenses (including directors’ and officers’ insurance), investor relations activities and other administrative and professional services. We also expect to increase the size of general and administrative functions to support the growth of our business. However, we anticipate general and administrative expenses to decrease as a percentage of revenue over the long term.
Personnel Expenses
Personnel expenses consist of compensation to our personnel, including salaries, bonuses, payroll taxes, and employee health and other benefits, as well as stock based compensation expense. We expect to incur additional personnel expenses as a result of operating as a public company, including expanding head count through organic growth as well as increasing headcount through mergers and acquisitions. However, we anticipate personnel expenses to decrease as a percentage of revenue over the long term.
IT Expenses
IT expenses consist primarily of: (1) software license and system maintenance fees; (2) outsourced data center and web hosting costs; (3) payments to contractors; and (4) data communications and other expenses associated with operating our services. We expect to incur additional IT expenses as a result of operating as a public company, including expanding our operations through growth of our online booking platform and hosting fees. We also expect to increase the size of IT expenses to support the growth of our business. However, we anticipate IT expenses to decrease as a percentage of revenue over the long term.
Depreciation and Amortization
Depreciation and amortization expenses consist of: (1) amortization of intangible assets with determinable lives; (2) depreciation of computer equipment; (3) amortization of internally developed and purchased software; and (4) depreciation of furniture and office equipment. We expect to incur additional depreciation and amortization expenses as a result of operating as a public company, including expanding our operations through capital expenditures and purchases of long-lived assets, as well as potential impacts of our continued mergers and acquisitions strategy. However, we anticipate depreciation and amortization expenses to decrease as a percentage of revenue over the long term.
Other Income (Expense)
Other income (expense) consists primarily of: (1) interest income; (2) interest expense; (3) other income and expense, and (4) government assistance. Interest expense relates to interest on loans, amortization of debt issuance costs, and factoring interest and commissions on receivables. Interest income was recorded from the Mondee Group Note, our related party loan settled upon the consummation of the business combination with ITHAX. Other expenses include realized gains and losses on foreign currency exchange.
Benefit from (Provision for) Income Taxes
We are subject to payment of federal and state income taxes in the U.S. and other forms of income taxes in other jurisdictions. Consequently, we determine our consolidated provision for income taxes based on tax obligations incurred using the asset and liability method. Under this method, deferred tax assets and liabilities are calculated based upon the temporary differences between the consolidated financial statements and income tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be recovered or settled. The deferred tax assets are recorded net of a valuation allowance when, based on the weight of available evidence, we believe it is more likely than not that some portion or all of the recorded deferred tax assets will not be realized in future periods.
We evaluate uncertain tax positions to determine if it is more likely than not that such tax positions would be sustained upon examination. We record a liability when such uncertainties fail to meet the more likely than not threshold.
A U.S. shareholder is subject to current tax on “global intangible low-taxed income” (“GILTI”) of its controlled foreign corporations (“CFCs”). We are subject to tax under GILTI provisions and include our CFCs’ income in our U.S. income tax provision in the period that the CFCs earn the income.
Results of Operations
Comparison of Three Months Ended March 31, 2023 and 2022
We have derived this data from our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report. This information should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report. The results of historical periods are not necessarily indicative of our results of operations for any future period. The following tables set forth our audited consolidated statement of operations as well as other financial data that our management considers meaningful for 2023 and 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended March 31, | | | | | | | | | | |
| 2023 | | 2022 (As Revised) | | $ Change | | % Change | | | | | | | | |
| ($ in thousands) |
Revenues, net | $ | 49,929 | | | $ | 39,067 | | | $ | 10,862 | | | 28 | % | | | | | | | | |
Operating expenses: | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Sales and marketing expenses | $ | 37,445 | | | $ | 27,409 | | | $ | 10,036 | | | 37 | % | | | | | | | | |
Personnel expense | $ | 7,466 | | | $ | 5,572 | | | $ | 1,894 | | | 34 | % | | | | | | | | |
General and administrative expense | $ | 4,494 | | | $ | 2,440 | | | $ | 2,054 | | | 84 | % | | | | | | | | |
Information technology expense | $ | 923 | | | $ | 1,306 | | | $ | (383) | | | (29) | % | | | | | | | | |
Provision for doubtful accounts receivable and contract assets | $ | (667) | | | $ | 207 | | | $ | (874) | | | (422) | % | | | | | | | | |
Depreciation and amortization | $ | 3,386 | | | $ | 2,817 | | | $ | 569 | | | 20 | % | | | | | | | | |
Restructuring and related costs | $ | 1,529 | | | $ | — | | | $ | 1,529 | | | N/A% | | | | | | | | |
Total Operating Expenses | $ | 54,576 | | | $ | 39,751 | | | $ | 14,825 | | | 37 | % | | | | | | | | |
Net (loss) Income from operations | $ | (4,647) | | | $ | (684) | | | $ | (3,963) | | | 579 | % | | | | | | | | |
Other income (expense): | | | | | | | | | | | | | | | |
Interest income | $ | 347 | | | $ | 127 | | | $ | 220 | | | 173 | % | | | | | | | | |
Interest expense | $ | (8,217) | | | $ | (6,229) | | | $ | (1,988) | | | 32 | % | | | | | | | | |
| | | | | | | | | | | | | | | |
Changes in fair value of warrant liability | (21) | | | — | | | $ | (21) | | | N/A% | | | | | | | | |
Other (expense) income, net | $ | 322 | | | $ | (151) | | | $ | 473 | | | (313) | % | | | | | | | | |
Total other expense | $ | (7,569) | | | $ | (6,253) | | | $ | (1,316) | | | 21 | % | | | | | | | | |
Net loss before income taxes | $ | (12,216) | | | $ | (6,937) | | | $ | (5,279) | | | 76 | % | | | | | | | | |
Benefit from (provision for) income taxes | $ | (699) | | | $ | (54) | | | $ | (645) | | | 1194 | % | | | | | | | | |
Net loss | $ | (12,915) | | | $ | (6,991) | | | $ | (5,924) | | | 85 | % | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | | | | | | | | | |
| 2023 | | 2022 (As Revised) | | $ Change | | % Change | | | | | | | | |
| ($ in thousands) |
Revenues, net | 49,929 | | | 39,067 | | | $ | 10,862 | | | 28 | % | | | | | | | | |
Revenues, net for the three months ended March 31, 2023 increased by $10.9 million, or 28%, compared to the same period in 2022. The increase was primarily driven by the Orinter acquisition and significant improvement in travel demand trends in 2023, as the COVID-19 pandemic recovery continued to improve. Specifically, transactional revenues increased due to acquisition of Orinter. GDS service provider incentives and other service revenues increased by $1.7 million during the three months ended March 31, 2023, compared to the same period in 2022. Further, airline incentive revenues increased by $1.1 million during the three months ended March 31, 2023, compared to the same period in 2022.
Operating Expenses and Other (Income) Expense
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | | | | | | | | | |
| 2023 | | 2022 (As Revised) | | $ Change | | % Change | | | | | | | | |
| ($ in thousands) |
| | | | | | | | | | | | | | | |
Sales and marketing expenses | 37,445 | | | 27,409 | | | 10,036 | | | 37 | % | | | | | | | | |
Personnel expense | 7,466 | | | 5,572 | | | 1,894 | | | 34 | % | | | | | | | | |
General and administrative expense | 4,494 | | | 2,440 | | | 2,054 | | | 84 | % | | | | | | | | |
Information technology expense | 923 | | | 1,306 | | | (383) | | | (29) | % | | | | | | | | |
Provision for doubtful accounts receivable and contract assets | (667) | | | 207 | | | (874) | | | 422 | % | | | | | | | | |
Depreciation and amortization | 3,386 | | | 2,817 | | | 569 | | | 20 | % | | | | | | | | |
Restructuring and related costs | 1,529 | | | — | | | 1,529 | | | N/A% | | | | | | | | |
Interest income | (347) | | | (127) | | | (220) | | | 173 | % | | | | | | | | |
Interest expense | 8,217 | | | 6,229 | | | 1,988 | | | 32 | % | | | | | | | | |
| | | | | | | | | | | | | | | |
Changes in fair value of warrant liability | 21 | | | — | | | 21 | | | N/A% | | | | | | | | |
Other (income) expense, net | (322) | | | 151 | | | (473) | | | (313) | % | | | | | | | | |
| 62,145 | | | 46,004 | | | $ | 16,141 | | | 35 | % | | | | | | | | |
Sales and Marketing Expenses
Sales and marketing expenses for the three months ended March 31, 2023 increased by $10.0 million, or 37%, compared to the same period in 2022. The increase was primarily driven by an increase of $9.4 million in affiliate marketing expense and affiliate credit card merchant expense, which is consistent with the increase in revenue for the three months ended March 31, 2023 compared to the same period in 2022. $5.3 million of the increase in affiliate marketing expense and credit card merchant expense was due to the Orinter acquisition.
Personnel Expenses
Personnel expenses for the three months ended March 31, 2023 increased by $1.9 million, or 34%, compared to the same period in 2022. The increase was primarily attributable to an increase in stock based compensation due to Earn-Out Shares and restricted stock units of $2.3 million.
General and Administrative Expenses
General and administrative expenses for the three months ended March 31, 2023 increased by $2.1 million, or 84% , compared to the same period in 2022. The increase was primarily due to an increase in legal and professional fees of $1.5
million which was attributed to our preparation and filings with the SEC. Additionally, business insurance expense increased by $0.2 million and the remainder of the increase is primarily driven by an increase in non-employee stock compensation of $0.4 million.
IT Expenses
IT expenses for the three months ended March 31, 2023 decreased by $0.4 million, or 29%, compared to the same period in 2022. The decrease was primarily due to an decrease in off shore consulting costs.
Provision for Doubtful Accounts
Provision for doubtful accounts for the three months ended March 31, 2023 decreased by $0.9 million, or 422%, compared to the same period in 2022. The variances were mainly driven by changes in estimated recovery of accounts receivable as a result of gradual improvement in travel industry, which were previously severely impacted by the COVID-19 pandemic.
Depreciation and Amortization
Depreciation and amortization expenses for the three months ended March 31, 2023 increased by $0.6 million, or 20% , respectively, compared to the same period in 2022. The increase was primarily due to an increase in depreciation in computer software as a result of additional capitalized software and an increase in amortization of intangibles as a result of the Orinter acquisition.
Interest Income
Interest income for the for the three months ended March 31, 2023 increased by $220 thousand, or 173%, compared to the same period in 2022. The increase was primarily due to an increase in cash interest income on bank balances.
Interest Expense
Interest expense for the three months ended March 31, 2023 increased by $2.0 million, or 32%, respectively, compared to the same period in 2022. The increase was driven by an increase in our outstanding debt balance as Payment in Kind ("PIK") interest continues to accrue towards the outstanding debt balance. Additionally, there was a $0.7 million increase in interest expense as primarilyattributablee to factoring arrangements entered into by Orinter.
Other (Income) Expense
Other income for the three months ended March 31, 2023 changed by $0.5 million, or 313%, compared to the same period in 2022 primarily due to gains and losses on foreign currency exchange.
Income Taxes
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| Three Months Ended March 31, | | | | | | | | | | |
| 2023 | | 2022 | | $ Change | | % Change | | | | | | | | |
| ($ in thousands) |
Benefit from (provision for) income taxes | (699) | | | (54) | | | (645) | | | 1194 | % | | | | | | | | |
The provision for income taxes for the three months ended March 31, 2023 increased by $0.6 million, or 1194%, respectively, compared to the same period in 2022, mainly driven by the impact of profits earned by Orinter.
Liquidity and Capital Resources
Sources of Liquidity
As of March 31, 2023, we had cash and cash equivalents totaling $58.5 million, which were held for working capital purposes, as well as restricted short-term investments of $8.8 million and $15.0 million of our line of credit available. Our cash equivalents are comprised primarily of cash checking accounts. To date, our principal sources of liquidity have been payments received from our revenue arrangements and financing arrangements with banks and financial institutions.
TCW Agreement
On January 11, 2023, we executed the Ninth Amendment to the TCW Agreement wherein Wingspire became a party to the TCW Agreement, among other changes. Wingspire funded an additional $15 million of term loan commitment on top of the already outstanding Term Loan. Additionally, the Ninth Amendment split the Term Loan with TCW into two
loans. Term Loan A will be represented by Wingspire with an outstanding principal balance of $30.0 million and Term Loan B will be represented by TCW with an outstanding principal balance of $137.8 million.
Additionally, pursuant to the Ninth Amendment, Wingspire consented to take over the TCW LOC for a principal amount not to exceed $15.0 million. Until January 11, 2024, we have the option to increase Term Loan A by $20.0 million under two conditions: (i) our Company must have a trailing 12-month EBITDA of at least $25.0 million; and (ii) our Company must draw in increments of at least $5.0 million.
On January 31, 2023, we executed the Tenth Amendment. The Tenth Amendment (1) set forth the terms on which we could acquire Orinter, pursuant to the Orinter Purchase Agreement; (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.
Financial Position
We have prepared our condensed consolidated financial statements assuming that we will continue as a going concern. We are required to make debt repayments aggregating to $8.51 million million in the next 12 months from the date of issuance of the consolidated financial statements.
As of March 31, 2023, our current liabilities are $109.13 million and current assets are $159.25 million. Given that we have historically generated recurring net losses, we may be unable to make such specified debt repayments from operations when the balance is due. These conditions raise substantial doubt about our ability to continue as a going concern. Our condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
As of March 31, 2023, we had $58.50 million of unrestricted cash and $15.00 million in unused line of credit.
As of the date on which our condensed consolidated financial statements for the fiscal quarter ended March 31, 2023
were available to be issued, we believe that the cash on hand, cash generated from operating activities, available line of credit will satisfy our working capital and capital requirements for at least the next 12 months and accordingly, substantial doubt about our ability to continue as a going concern is alleviated.
Cash Flow Summary for the Three Months Ended March 31, 2023
The following table summarizes our cash flows for the periods presented:
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2023 | | 2022 |
| ($ in thousands) |
Net cash (used in) provided by Operating activities | (9,979) | | | 3,418 | |
Net cash used in Investing activities | (20,445) | | | (1,721) | |
Net cash provided (used in) by Financing activities | 10,099 | | | (384) | |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | (14) | | | (229) | |
Net (decrease)/increase in cash, cash equivalents and restricted cash | $ | (20,339) | | | $ | 1,084 | |
Cash Used in Operating Activities
During the three months ended March 31, 2023, cash used in operating activities was $10.0 million. The primary factors affecting our operating cash flows during this period were our net loss totaling $12.9 million, which was offset by non-cash charges of $8.9 million primarily consisting of stock-based compensation of $2.6 million, PIK interest expense of $1.4 million, amortization of loan origination fees of $2.0 million and depreciation and amortization of $3.4 million. Cash used in our operating assets and liabilities was $6.0 million, primarily owing to $17.9 million increase in accounts
receivable. These changes were offset by a $11.0 million increase in accounts payable and a $1.3 million decrease in contract assets.
During the three months ended March 31, 2022, cash provided by operating activities was $3.4 million. The primary factors affecting our operating cash flows during this period were our net loss of $7.0 million, offset by our non-cash charges of $9.3 million primarily consisting of PIK interest expense of $5.7 million and depreciation, amortization of $2.8 million. The cash provided from changes in our operating assets and liabilities was $1.2 million, which was primarily due to a $10.5 million increase in accounts payable, $2.7 million increase in accrued expenses and other current liabilities, and a $1.3 million increase in amounts payable to related parties, partially offset by a $7.5 million increase in accounts receivable, $2.6 million increase in contract assets, $2.3 million increase in prepaid expenses and other curent assets, and $0.7 million decrease in deferred revenue.
Cash Used in Investing Activities
During the three months ended March 31, 2023, cash used in investing activities was $20.4 million, which was primarily due to cash paid for the Orinter Acquisition and the purchase of property and equipment.
During the three months ended March 31, 2022, cash used in investing activities was $1.7 million, which was due to the purchase of property and equipment.
Cash Provided by Financing Activities
During the three months ended March 31, 2023, cash provided by financing activities was $10.1 million, primarily due to $15.0 million in proceeds from the Wingspire Loan, offset by the repayment of debt and offering costs.
During the three months ended March 31, 2022, cash used by financing activities was $0.4 million, primarily due to the repayment of debt and offering costs.
Contractual Obligations and Commitments
Our material cash requirements as of March 31, 2023 include the following contractual obligations and commitments:
•TCW Term Loan - Principal and interest payments related to the TCW Term Loan. As of March 31, 2023, we had an outstanding balance of $137.1 million, with $7.5 million payable within 12 months. See Note 5 to our Condensed Consolidated Financial Statements for additional information.
•Wingspire Term Loan - Principal and interest payments related to the Wingspire Term Loan. As of March 31, 2023, we had an outstanding balance of $30 million, with $0.8 million payable within 12 months. See Note 5 to our Condensed Consolidated Financial Statements for additional information.
•PPP and Other Governmental Loans - Principal and interest payments related to the PPP, CEBA and HASCAP loans. Our outstanding balance related to the PPP loan was $0.0 million as of March 31, 2023. As of March 31, 2023, our outstanding balance related to the CEBA and HASCAP loans was $0.2 million, with $0.1 million payable within 12 months.
•Operating Lease Obligations - Fixed lease payments related to our operating leases. As of March 31, 2023, we had outstanding operating lease obligations of $2.8 million, with $0.8 million payable within 12 months.
See Note 10 to our condensed consolidated financial statements for further information related to our letters of credit and outstanding legal claims.