MATTERPORT, INC./DE Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)

The following discussion and analysis provides information that Matterport's
management believes is relevant to an assessment and understanding of
Matterport's condensed consolidated results of operations and financial
condition. The discussion should be read together with our unaudited interim
condensed consolidated financial statements, the respective notes thereto, and
other financial information included elsewhere within this Report. The
discussion and analysis should also be read together with the audited
consolidated financial statements for the year ended December 31, 2021 and the
related notes in the 2021 Form 10-K. This discussion contains forward-looking
statements based upon Matterport's current expectations, estimates and
projections that involve risks and uncertainties. Actual results could differ
materially from those anticipated in these forward-looking statements as a
result of various factors, including those discussed under "Risk Factors",
"Forward-Looking Statements" and other disclosures included in this Report.
Unless the context otherwise requires, all references in this section to "we,"
"our," "us," "the Company" or "Matterport" refer to the business of Matterport,
Inc., a Delaware corporation, and its subsidiaries both prior to the
consummation of and following the Merger (as defined below).

Insight

Matterport is leading the digitization and datafication of the built world. We
believe the digital transformation of the built world will fundamentally change
the way people interact with buildings and the physical spaces around them. Our
Company's website is www.matterport.com.

Since its founding in 2011, Matterport's pioneering technology has set the
standard for digitizing, accessing and managing buildings, spaces and places
online. Our platform's innovative software, spatial data-driven data science,
and 3D capture technology have broken down the barriers that have kept the
largest asset class in the world, buildings and physical spaces, offline and
underutilized for many years. We believe the digitization and datafication of
the built world will continue to unlock significant operational efficiencies and
property values, and that Matterport is the platform to lead this enormous
global transformation.

The world is rapidly moving from offline to online. Digital transformation has
made a powerful and lasting impact across every business and industry today.
Nevertheless, the global building stock remains largely offline today, and we
estimate that less than 0.1% is penetrated by digital transformation. We were
among the first to recognize the increasing need for digitization of the built
world and the power of spatial data, the unique details underlying buildings and
spaces, in facilitating the understanding of buildings and spaces. With
approximately 8.0 million spaces under management as of June 30, 2022, we are
continuing to penetrate the estimated $327 trillion global building stock and
expand our footprint across various end markets, including residential and
commercial real estate, facilities management, retail, architecture, engineering
and construction ("AEC"), insurance and repair, and travel and hospitality. We
estimate our total addressable market to be more than four billion buildings and
20 billion spaces globally, yielding a more than $240 billion market
opportunity.

We believe the total addressable market for the digitization and datafication of
the built world could expand beyond $1 trillion as our spatial data platform
continues to grow, powered by the following:

•Bringing offline buildings online: Traditionally, our customers needed to
conduct site visits in-person to understand and assess their buildings and
spaces. With the AI-powered capabilities of Cortex, our proprietary AI software
engine, the world's building stock can move from offline to online and be
accessible to our customers real-time and on demand from anywhere.

•Driven by spatial data: Cortex uses the breadth of the billions of data points
we have accumulated over the years to improve the 3D accuracy of our digital
twins. Our sophisticated algorithms also deliver significant commercial value to
our subscribers by generating data-based insights that allow them to confidently
make assessments and decisions about their properties. With approximately
8.0 million spaces under management as of June 30, 2022, our spatial data
library is the clearinghouse for information about the built world.

•Powered by AI and ML: Artificial intelligence ("AI") and machine learning
("ML") technologies effectively utilize spatial data to create a robust virtual
experience that is dynamic, realistic, interactive, informative and permits
multiple viewing angles. AI and ML also make costly cameras unnecessary for
everyday scans-subscribers can now scan their spaces by simply tapping a button
on their smartphones. As a result, Matterport is a device agnostic platform,
helping us more rapidly scale and drive towards our mission of digitizing and
indexing the built world.
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We believe that Matterport has tremendous growth potential ahead. After securing
market-leading positions in a variety of geographies and vertical markets, we
have demonstrated our repeatable value proposition and the ability of our sales
growth model to scale. The magnitude of our total addressable market is so large
that even with leading market share, we believe our penetration rates today are
a small fraction of the opportunity for Matterport. With a mature and
tested go-to-market playbook and team in place, we are focused on scaling
execution across a carefully selected set of growth vectors, including: scaling
the enterprise across industry verticals, expanding internationally, investing
in R&D, and expanding partner integrations and third-party developer platforms.

Our business model

We generate revenue by selling subscriptions to our AI-powered spatial data platform to customers, licensing our data to third parties, selling capture devices (including our Matterport Pro2 camera), and providing customer services from our technicians and through in-app purchases. We are focused on substantial annual growth in subscription revenue and maintaining modest growth in license, product and service revenue.

We serve customers of all sizes, at every stage of maturity, from individuals to
large enterprises, and we see opportunities for growth across all of our
customer segments. We are particularly focused on increasing sales efficiency
and driving customer growth and recurring revenue growth from large enterprises.

Subscription revenue

Our AI-powered spatial data platform creates high-fidelity and high-accuracy
digital twins of physical spaces and generates valuable data analytics and
insights for customers. We derive subscription revenue from the sale of
subscription plans to subscribers of all sizes ranging from individuals to large
enterprises.

Our subscription plans are priced from free to custom plans tailored to the
needs of larger-scale businesses. Our standard subscription plans for
individuals and small businesses range from a free online Matterport account
with a single user and a single active space that can be captured with an iPhone
or an Android smartphone to multiple-user accounts that provide for the capture
of unlimited active spaces. The pricing of our subscription plans increases as
the number of users and active spaces increase. The wide variety and flexibility
of our subscription plans enable us to retain existing subscribers and grow our
subscriber base across diverse end markets, with particular focus on large
enterprise subscribers. Subscription revenue accounted for approximately 65% and
52% of our total revenue for the three months ended June 30, 2022 and 2021,
respectively, and approximately 62% and 52% of our total revenue for the six
months ended June 30, 2022 and 2021, respectively.

The majority of our subscription services are billed either monthly or annually
in advance and are typically non-refundable and non-cancellable. Consequently,
for month-to-month subscriptions, we recognize the revenue monthly, and for
annual or longer subscriptions, we record deferred revenue on our condensed
consolidated balance sheet and recognize the deferred revenue ratably over the
subscription term.

License Revenue

We also offer data license solutions that allow certain customers to use our
digital twin data for their own needs. We began offering these solutions in
2020. License revenue accounted for less than 1% and approximately 7% of our
total revenue for the three months ended June 30, 2022 and 2021, respectively,
less than 1% approximately and 8% of our total revenue for the six months ended
June 30, 2022 and 2021, respectively. Data licenses to date have been granted as
perpetual licenses and are therefore recognized at a point in time upon transfer
of control when the customer accepts delivery of the licensed data or other
property. We expect our license revenue to fluctuate from quarter to quarter
based on the number of new licenses purchased by our customers as we obtain new
customers for our license solutions and the delivery of our licensed content is
accepted by our customers during each quarter.

Product revenue

We offer a comprehensive set of solutions designed to provide our customers with
access to state-of-the-art capture technology that produces the high-quality
data necessary to process images into dimensionally accurate digital twins. We
derive product revenue from sales of our innovative 3D capture product, the Pro2
Camera, which has played an integral part in shaping the 3D building and
property visualization ecosystem. Recently, we also have begun to offer capture
devices and accessories manufactured by third parties and Matterport Axis, a
cost-effective motor-mount for smartphones.
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The Pro2 Camera has driven adoption of our solutions and has generated the
unique high-quality and scaled data set that has enabled Cortex to become the
pioneering software engine for digital twin creation, and we expect that future
sales of our Pro2 Camera and third party capture devices will continue to drive
increased adoption of our solutions. Product revenue accounted for approximately
18% and 31% of our total revenue for the three months ended June 30, 2022 and
2021, respectively, and approximately 22% and 31% of our total revenue for the
six months ended June 30, 2022 and 2021, respectively.

Service revenue

Most of our customers are able to utilize the Pro2 Camera or other compatible
capture devices to scan digital twins without external assistance, as the camera
is relatively easy to configure and requires minimal training. However, our
customers sometimes may also request professional assistance with the data
capture process. We generate professional services revenue from Matterport
Capture Services, a fully managed solution for enterprise subscribers worldwide
that require on-demand scheduling of experienced and reliable Matterport
professionals to scan their properties. In addition, we derive services revenue
from in-app purchases, made by subscribers using our smartphone applications or
by logging in to their subscriber account. Services revenue accounted for
approximately 18% and 10% of our total revenue for the three months ended
June 30, 2022 and 2021, respectively, and approximately 16% and 10% of our total
revenue for the six months ended June 30, 2022 and 2021, respectively.

Fusion

On July 22, 2021, we consummated the previously announced merger (collectively
with the other transactions described in the Merger Agreement (defined below),
the "Merger", "Closing", or "Transactions") pursuant to an Agreement and Plan of
Merger, dated February 7, 2021 (the "Merger Agreement"), by and among the
Company (at such time named Gores Holding VI, Inc., a Delaware Corporation
("Gores", or "GHVI")), First Merger Sub, Second Merger Sub and Legacy
Matterport. In connection with the consummation of the Merger, the registrant
changed its name from Gores Holdings VI, Inc. to Matterport, Inc. First Merger
Sub merged with and into Legacy Matterport, with Legacy Matterport continuing as
the surviving corporation (the "First Merger"), and immediately following the
First Merger and as part of the same overall transaction as the First Merger,
Legacy Matterport merged with and into Second Merger Sub, with Second Merger Sub
continuing as the surviving entity as a wholly owned subsidiary of the Company,
under the new name "Matterport Operating, LLC." In connection with the Closing,
we changed our name to Matterport, Inc. On July 23, 2021, our Class A common
stock and warrants began trading on the Nasdaq Global Market under the symbols
"MTTR" and "MTTRW," respectively.

In connection with the Merger, the Company raised gross proceeds of $640.1
million, including the contribution of $345.1 million of cash held in Gores'
trust account from its initial public offering and an aggregate purchase price
of $295.0 million in a private placement pursuant to the subscription agreements
("Private Investment in Public Equity" or "PIPE") at $10.00 per share of Gores'
Class A common stock. The Company paid $0.9 million to Gores' stockholders who
redeemed Gores' Class A common stock immediately prior to the Closing. The
Company and Gores incurred $10.0 million and $26.3 million transaction costs,
respectively. The total transaction cost was $36.3 million, consisting of
underwriting, legal, and other professional fees, of which $35.7 million was
recorded to additional paid-in capital as a reduction of proceeds and the
remaining $0.6 million was expensed immediately upon the Closing. The aggregate
consideration paid to Legacy Matterport stockholders in connection with the
Merger (excluding any potential Earn-Out Shares), was 218,875,000 shares of the
Company Class A common stock, par value $0.0001 per share. The Per Share
Matterport Stock Consideration was equal to approximately 4.1193 (the "Exchange
Ratio").

The Merger was accounted for as a reverse recapitalization in accordance with
U.S. GAAP. Under this method of accounting, Gores was treated as the "acquired"
company for financial reporting purposes. This determination was primarily based
on holders of Matterport capital stock comprising a relative majority of the
voting power of the combined entity upon consummation of the Merger and having
the ability to nominate the majority of the governing body of the combined
entity, Matterport's senior management comprising the senior management of the
combined entity, and Matterport's operations comprising the ongoing operations
of the combined entity. Accordingly, for accounting purposes, the financial
statements of the combined entity upon consummation of the Merger represented a
continuation of the financial statements of Matterport with the Merger being
treated as the equivalent of Matterport issuing stock for the net assets of
Gores, accompanied by a recapitalization. The net assets of Gores were stated at
historical cost, with no goodwill or other intangible assets recorded.
Operations prior to the Merger were presented as those of Matterport in this
report of the combined entity. All periods prior to the Merger have been
retroactively adjusted using the Exchange Ratio for the
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equivalent number of shares outstanding immediately after the Merger to effect the reverse recapitalization. See Note 1 and Note 3, Part I, Heading 1. “Financial Statements” for more details on the Merger.

Key indicators

We monitor the following key metrics to help us evaluate our business, identify
trends affecting our business, formulate business plans, and make strategic
decisions. The calculation of the key metrics discussed below may differ from
other similarly titled metrics used by other companies, analysts, investors and
other industry participants.

Spaces under management

We track the number of spaces that have been scanned and filed on the Matterport
platform, which we refer to as spaces under management, because we believe that
the number of spaces under management is an indicator of market penetration and
the growth of our business. A space can be a single room or building, or any one
contiguous scan of a discrete area, and is composed of a collection of imagery
and spatial data that is captured and reconstructed in a dimensionally accurate
digital twin of the scanned space. For tracking purposes, we treat each scanned
and filed space as a unique file or model. We have a history of growing the
number of our spaces under management and, as of June 30, 2022, we had
approximately 8.0 million spaces under management. The scale of our spaces under
management allows us to directly monetize each space managed for our paid
subscribers as well as increase our ability to offer new and enhanced services
to subscribers, which in turn provides us with an opportunity to convert
subscribers from free subscription plans to paid plans. We believe our spaces
under management will continue to grow as our business expands with our current
customers and as we add new free and paid subscribers.

The following graph shows our spaces under management for each of the periods presented (in millions):

                                Six Months Ended June 30,
                              2022                    2021
Spaces under management            8.0                     5.6


Total subscribers

We believe that our ability to increase the number of subscribers on our
platform is an indicator of market penetration, the growth of our business and
future revenue trends. For purposes of our business, a "subscriber" is an
individual or entity that has signed up for a Matterport account during the
applicable measurement period. We include both free and paid subscribers in our
total subscriber count. We refer to a subscriber that has signed up for a free
account and typically scans only one free space allocated to the account as a
"free subscriber." We refer to a subscriber that has signed up for one of our
paid subscription levels and typically scans at least one space as a "paid
subscriber." Our paid subscribers typically enter into monthly subscriptions
with us. We generally consider a single organization to be a single subscriber
if the organization has entered into a discrete enterprise agreement with us,
even if the organization includes multiple divisions, segments or subsidiaries
that utilize our platform. If multiple individuals, divisions, segments or
subsidiaries within an organization have each entered into a discrete
subscription with us, we consider each individual account to be a separate
subscriber.

We believe the number of paid subscribers on our platform is an important
indicator of future revenue trends, and we believe the number of free
subscribers on our platform is important because free subscribers may over time
become paid subscribers on our platform and are therefore another indicator of
our future revenue trend. We continue to demonstrate strong growth in the number
of free and paid subscribers on our platform as indicated by our results for the
three and six ended June 30, 2022.
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The following table shows the number of our free subscribers, paid subscribers and the total number of subscribers for each of the periods presented (in thousands):

                          Six Months Ended June 30,
                        2022                    2021
Free subscribers        554                     353
Paid subscribers         62                      51
Total subscribers       616                     404


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Net Dollar Expansion Rate

We believe our ability to retain and grow the subscription revenue generated by
our existing subscribers is an important measure of the health of our business
and our future growth prospects. We track our performance in this area by
measuring our net dollar expansion rate from the same set of customers across
comparable periods. We calculate this metric on a quarterly basis by comparing
the aggregate amount of subscription revenue attributable to a subscriber cohort
for the most recent quarter divided by the amount of subscription revenue
attributable to the same subscriber cohort for the same quarter in the previous
fiscal year. Our calculation for the applicable quarter includes any subscriber
in the cohort that upgrades or downgrades the subscriber's respective
subscription level or churns. Our net dollar expansion rate can fluctuate from
quarter to quarter due to a number of factors, including, but not limited to,
the number of subscribers that upgrade or downgrade their respective
subscription levels or a higher or lower churn rate during any given quarter.

                                    Three Months Ended June 30,
                                          2022                 2021
Net dollar expansion rate                           107  %     132  %



Non-GAAP Financial Measures

In addition to our results of operations below, we report certain financial
measures that are not required by, or presented in accordance with, U.S.
generally accepted accounting principles ("GAAP"). These measures have
limitations as analytical tools when assessing our operating performance and
should not be considered in isolation or as a substitute for GAAP measures,
including gross profit and net income. We may calculate or present our non-GAAP
financial measures differently than other companies who report measures with
similar titles and, as a result, the non-GAAP financial measures we report may
not be comparable with those of companies in our industry or in other
industries.

Non-GAAP operating loss

We calculate non-GAAP loss from operations as GAAP loss from operations
excluding stock-based compensation expenses, acquisition-related costs for
completed transactions, amortization expense of acquired intangible assets, and
the tax impact related to contingent earn-out share issuance, which we do not
consider to be indicative of our overall operating performance. We believe this
measure provides our management and investors with consistency and comparability
with our past financial performance and is an important indicator of the
performance and profitability of our business.

The following table sets forth our non-GAAP operating loss for each of the periods presented (in thousands):

                                                                                                   Six months ended
                                                     Three months ended June 30,                       June 30,
                                                       2022                  2021                           2022                2021
GAAP loss from operations                       $       (69,190)         $  (5,777)                     $ (154,132)         $  (8,132)
Add back: stock based compensation expense, net          32,889                   601                       88,977                 1,259
Add back: acquisition-related costs                         900                  -                           1,072                  -
Add back: Amortization expense of acquired
intangible assets                                           265                  -                             525                  -

Add back: Payroll tax related to contingent
earn-out share issuance                                       -                  -                           1,164                  -
Non-GAAP loss from operations                   $       (35,136)         $  (5,176)                     $  (62,394)         $  (6,873)



Free Cash Flow

We calculate free cash flow as net cash used in operating activities less
purchases of property and equipment and capitalized software and development
costs. We believe this metric provides our management and investors with an
important indicator of the ability of our business to generate additional cash
from our business operations or our need to access additional sources of cash,
in order to fund our operations and investments.

The following table presents our free cash flow for each of the periods presented (in thousands):

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                                                                       Six months ended June 30,
                                                                       2022                  2021
Net cash used in operating activities                            $      (58,278)         $   (2,631)
Less: purchases of property and equipment                                   866                 326
Less: capitalized software and development costs                          7,086               3,256
Free cash flow                                                   $      (66,230)         $   (6,213)

Factors affecting our performance

We believe that our growth and financial performance are dependent upon many
factors, including the key factors described below, which are in turn subject to
significant risks and challenges.

Penetrate a largely undigitized global real estate market

Despite the rapid pace of digital transformation in today's world, the massive
global building stock, estimated by Savills to be $327 trillion in total
property value as of June 30, 2022, remains largely undigitized today, and we
estimate that less than 0.1% is penetrated by digital transformation. As a first
mover in digital twin creation and spatial data library construction, we see
significant opportunities to continue leading the digitization and datafication
of the built world. We estimate that there are more than 4 billion buildings and
20 billion spaces in the world globally, yielding a more than $240 billion
market opportunity. We believe that as Matterport's unique spatial data library
and property data services continue to grow, this opportunity could increase to
more than $1 trillion based on the size of the building stock and the untapped
value creation available to buildings worldwide. The constraints created by
the COVID-19 pandemic have only reinforced and accelerated the importance of the
solutions that we have developed for diverse markets over the past decade.

Through providing a comprehensive set of solutions from cutting-edge capture
technology and high-accuracy digital twins to valuable property insights,
our AI-powered platform delivers value across the property lifecycle to
subscribers from various end markets, including residential and commercial real
estate, facilities management and retail, AEC, insurance and repair, and travel
and hospitality. As of June 30, 2022, we had over 616,000 subscribers on our
platform and approximately 8.0 million spaces under management, which we believe
represents more than 100 times number of spaces under management by the rest of
the market, and we aim to continue scaling our platform and strengthen our
foothold in various end markets and geographies to deepen our market
penetration. In July 2022, we completed the acquisition of VHT, Inc., known as
VHT Studios, a U.S.-based real estate marketing company that offers brokerages
and agents digital solutions to promote and sell properties, which expands
Matterport Capture Services by bringing together Matterport digital twins with
professional photography, drone capture, and marketing services. With this
acquisition, we aim to increase adoption of digital twin technology and expand
further into the residential real estate industry while adding marketing
services for other key markets such as commercial real estate, travel and
hospitality, and the retail sector. We believe that the breadth and depth of the
Matterport platform along with the strong network effect from our growing
spatial data library will lead to increased adoption of our solutions across
diverse end markets, enabling us to drive further digital transformation of the
built world.

Adoption of our Solutions by Subscriber Companies

We are pioneering the transformation of the built world from offline to online.
We provide a complete, data-driven set of solutions for the digitization and
datafication of the built world across a diverse set of use cases and
industries. We take a largely offline global property market to the online world
using a data-based approach, creating a digital experience for subscribers to
interact with buildings and spaces and derive actionable insights. Our
Cortex AI-driven engine and software platform uses the breadth of the billions
of data points we have accumulated over the years to improve the 3D accuracy of
our digital twin models. Our machine learning algorithms also deliver
significant commercial value to our subscribers by generating data-based
insights that allow them to confidently make assessments and decisions about
their properties. We provide enterprise subscribers with a comprehensive
solution that includes all of the capture, design, build, promote, insure,
inspect and manage functionality of our platform. We believe that our scale of
data, superior capture technology, continued focus on innovation and
considerable brand recognition will drive a continued adoption of
our all-in-one platform by enterprise subscribers. We are particularly focused
on acquiring and retaining large enterprise subscribers due to the significant
opportunities to expand our integrated solutions to different parts of an
organization and utilize digital twins for more use cases within an
organization. We will continue improving our proprietary spatial data library
and AI-powered platform while increasing investments in direct sales and
account-based marketing to enhance enterprise adoption of our solutions.
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Retention and expansion of existing subscribers

Our ability to increase revenue depends in part on retaining our existing
subscribers and expanding their use of our platform. We offer an integrated,
comprehensive set of solutions including spatial data capturing, digital twin
creation, publication, vertical-market specific content, and property analytics.
We have a variety of subscription plans to meet the needs of every subscriber,
including free subscription plans and several standard paid subscription plans,
and we are able to provide customized subscription plans tailored to the
specific needs of large enterprises. As we seek to develop long-term subscriber
relationships, our value proposition to subscribers is designed to serve the
entirety of the property lifecycle, from design and build to maintenance and
operations, promotion, insure, repair, restore, secure and finance. As a result,
we believe we are uniquely positioned to grow our revenue with our existing
subscribers as our platform helps them discover opportunities to drive short and
long term returns on their property investments.

Given the all-in-one nature of our platform and its ease of use, we are also
able to drive adoption of our solutions across various parts of an organization.
For example, we started a long-term relationship with a large commercial real
estate client when we were engaged to create digital twins for available office
spaces for promotion and leasing. We were then able to expand the relationship
by working with the subscriber's construction team to redesign office spaces
through integrating our digital twins with the construction team's design
software. Most recently, we signed a global agreement with the client's real
estate acquisition team to conduct due diligence of potential real property
acquisitions.

As a result of our long-term focus and expansion strategy, we have been able to
consistently retain our subscribers and drive increased usage of our platform.
Our net dollar expansion rate of 107% and 132% for the three months ended
June 30, 2022 and 2021 demonstrates the stickiness and growth potential of our
platform. We continued to see expansion with our enterprise customers in the
three months ended June 30, 2022. On a combined basis, growth in enterprise
customers was offset by lower expansion in our small and medium business
customers, which grew more slowly in the quarter ended June 30, 2022.

Scaling across various industry verticals

Matterport's fundamental go-to-market model is built upon a subscription first
approach. We have invested aggressively to unlock a scalable and cost-effective
subscription flywheel for customer adoption. With our large spatial data library
and pioneering AI-powered capabilities, we pride ourselves on our ability to
deliver value across the property lifecycle to subscribers from various end
markets, including residential and commercial real estate, facilities management
and retail, AEC, insurance and repair, and travel and hospitality. Going
forward, we will continue to improve our spatial data library
and AI-powered platform to address the workflows of the industries we serve,
while expanding our solutions and reaching new real estate segments. We also
plan to increase investments in industry-specific sales and marketing
initiatives to increase sales efficiency and drive subscriber and recurring
revenue growth. While we expect that these investments will result in a
considerable increase in our operating expenses, we expect operating margins to
improve over the long term as we continue to scale and gain higher operating
leverage.

International Expansion

We are focused on continuing to expand our AI-powered spatial data platform to
all corners of the world. Given that the global building stock remains largely
undigitized today and with the vast majority of the world's buildings located
outside of the United States, we expect significant opportunities in pursuing
the digitization and datafication of the building stock worldwide. We use a
"land and expand" model to capitalize on the potential for geographic expansion.
As we continue to seek to further penetrate our existing geographies in order to
add their spatial data to our platform. In the second half of 2021, we expanded
availability of our industry-leading Matterport Pro2 camera in the United
Kingdom, France, Italy and Spain and introduced Matterport for Android, making
3D capture available to anyone with a compatible Android device in more than 170
countries around the world. In February 2022, we started partnering with Midland
Holdings, one of the largest residential real estate (RRE) brokerages in the
Greater China region, and became the first brokerage firm in the region to use
Matterport digital twins to create virtual 3D experiences for its entire
portfolio of properties. In March 2022, we expanded our presence in the
Brazilian market via two strategic partners, Guandalini Posicionamento and PARS,
to offer Matterport's spatial data platform to their enterprise customers in the
AEC markets. We continued expansion of Capture Services™ On-Demand to 18
countries and 199 cities as of June 30, 2022. Subscribers outside the United
States accounted for approximately 42% and 43% of our subscription revenues for
the three and six months ended June 30, 2022, respectively. Given the
flexibility and ease of use of our platform and capture device agnostic data
capture strategy, we believe that we are well-positioned to further penetrate
existing and additional geographies.
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To scale our international penetration, we plan to continue to increase our
investment in sales and marketing efforts across the globe, including building
up sales and marketing teams in North America, Europe, the Middle East and
Africa, and the Asia Pacific region. With multiple sales attachment points and a
global marketing effort, we believe that we can further penetrate enterprises
and businesses worldwide through channel partnerships and direct sales. Such
international expansion efforts will also involve additional investments in our
market research teams to tailor platform solutions, subscription plans and
pricing for each market. These international expansion activities may impact our
near-term profitability as we lay the foundation for international growth.
Nevertheless, we believe that customers around the world will derive value from
the universal utility and flexibility of our spatial data platform which
transforms how customers interact with their physical spaces in the modern age.

Investing in research and innovation for growth

We will continue to invest in research and development to improve Cortex, expand
our solutions portfolio, and support seamless integration of our platform with
third-party software applications. We plan to concentrate on in-house innovation
and expect to consider acquisitions on an opportunistic basis. We have been
continuously developing a robust pipeline of new product releases since the
launch of Matterport for iPhone in May 2020. In April 2021, Matterport announced
the official release of the Android Capture app, giving Android users the
ability to quickly and easily capture buildings and spaces in immersive 3D. We
see significant potential for future subscriber growth as we release more
products and create additional upselling opportunities. We will also strengthen
our AI and ML capabilities as we enlarge our spatial data library, enabling
continuous improvement of the fidelity and accuracy of digital twins and
enhancing the commercial value from data-driven analytics. In June 2021,
Matterport announced a collaboration with Facebook AI (now known as Meta) to
release the world's largest dataset of 3D spaces for academic research and a
partnership with Apex, a national provider of advanced store surveys, to enable
retail brands across the U.S. and Canada to access, collect and evaluate
building data and information. In August 2021, we announced a new integration
with Xactimate that allows property professionals to order a TruePlan of a
Matterport 3D model with a single click in Verisk's Xactimate solution. Also in
August 2021, we launched Notes, an interactive collaboration and communication
tool for its digital twins to unlock big productivity gains for teams. In
October 2021, we launched Matterport for Mobile, making 3D capture freely
available to more than one billion Android mobile device users worldwide. These
investments may impact our operating profitability in the near term, but we
expect our operating margins to improve over the long term as we solidify our
scale and reach. In January 2022, we completed the acquisition of Enview, Inc.,
a pioneer in scalable artificial intelligence (AI) for 3D spatial data, which
will accelerate our development of artificial intelligence algorithms to
identify natural and man-made features in geospatial data using various
techniques, including deep learning, neural networks and physics-based modeling.
In February 2022, we introduced Axis, a new hands-free motor mount for precision
3D capture for smartphones to enable a hands-free solution that produces
reliable, high-fidelity results with just a click of a button. In April 2022, we
made Matterport Axis available for purchase, enabling hands-free precision 3D
capture for smartphones. While we plan to concentrate on in-house innovation, we
may also pursue acquisitions of products, teams and technologies on an
opportunistic basis to further expand the functionality of and use cases for our
platform. As with organic research and development, we adopt a long-term
perspective in the evaluation of acquisition opportunities in order to ensure
sustainable value creation for our customers.

Development of partner integrations and third-party development platform

We aim to foster a strong network of partners and developers around our
Matterport platform. Through integration with our open, scalable and secure
enterprise platform, organizations across numerous industries have been able to
automate workflows, enhance subscriber experiences and create custom extensions
for high-value vertical applications. For example, in May 2020, we rolled out
integration capability with Autodesk to assist construction teams with
streamlining documentation across workflows and collaborate virtually. In July
2021, by partnering with PTC, we offer a joint solution that gives customers a
highly visual and interactive way to deliver digital content onto the
environments captured by our platform. Going forward, we plan to develop
additional strategic partnerships with leading software providers to enable more
effective integrations and enlarge our marketplace of third-party software
applications. In November 2021, we launched a new plugin for Autodesk Revit
customers, allowing them to upload a Matterport Scan-to-BIM file into Autodesk
Revit and start creating and managing information on a construction or design
project across its different stages. In December 2021, we extended the
availability of the Matterport platform in AWS Marketplace so that AWS customers
will be able to access Matterport's digital twin technology with AWS add-ons
that potentially increase the value of digitization. In June 2022, we partnered
with CGS Partner to deliver virtual training solutions for front-line workers
across the Fortune 500. The companies will combine the CGS TeamworkARTM platform
with Matterport's industry-leading digital twins to help customers train workers
faster, increase productivity, and reduce costs by training workforces remotely
using an exact digital replica of the work environment in immersive 3D.
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We believe that our future growth and scale depend partially upon our ability to
develop a strong ecosystem of partners and developers which can augment the
value of our platform. Going forward, we plan to establish additional strategic
partnerships with leading software providers through the Matterport Platform
Partner Program, in which our industry partners and developers can build,
develop, and integrate with our spatial data library. We will also invest in the
Matterport Developer Program to enlarge our marketplace of value-added
third-party applications built on top of the Matterport platform. We expect that
monetization opportunities from partner integrations and the third-party
developer marketplace will allow us to drive subscriber growth and develop a
more loyal subscriber base, and the revenue derived from the marketplace will
grow over time.

Components of operating results

Revenue

Our revenue consists of subscription revenue, license revenue, service revenue and product revenue.

Subscription revenue-We provide our software as a service on our Matterport
platform. Subscribers use our platform under different subscription levels based
on the number of active scanned spaces. We typically bill our subscribers
monthly in advance based on their subscription level and recognize revenue on a
monthly basis based on the subscription level.

Licensing revenue – We provide spatial data to customers in return for payment of a license fee. Under these license agreements, customers acquire the right to possess spatial data and pay a fee for an agreed scope of use.

Services revenue-Services revenue consist of capture services
and add-on services. Capture services consist of professional services in which
a Matterport-qualified third-party technician will provide on-site digital
capture services for the customer. Under these arrangements, we will pay the
third-party technician directly and bill the customer directly. Add-on services
consist of additional software features that the customer can purchase. These
services are typically provided by third parties under our direction and
oversight and we pay the third party directly and bill the subscriber directly
for the provisions of such services.

Product revenue-Product revenue consists of revenue from the sale of capture
devices, including our Pro2 Camera, Matterport Axis, and out-of-warranty repair
fees. Customers place orders for our products, and we fulfill the order and ship
the devices directly to the customer or, in some cases, we arrange for the
shipment of devices from third parties directly to the customer. We recognize
product revenue associated with a sale in full at the time of shipment of the
product. In some cases, customers prepay for the ordered device and, in other
cases we bill the customer upon shipment of the device. Customers purchasing
capture devices from us also typically subscribe to the Matterport platform for
use with their captured spaces. However, we do not require Pro2 Camera owners to
have a subscription when purchasing a Pro2 Camera. We will also repair Pro2
Cameras for a fee if the nature of the repair is outside the scope of the
applicable warranty.

Revenue cost

Revenue cost includes subscription revenue cost, license revenue cost, service revenue cost, and product revenue cost.

Cost of subscription revenue-Cost of subscription revenue consists primarily of
costs associated with hosting and delivery services for our platform to support
our subscribers and other users of our subscribers' spatial data, along with our
customer support operations. Cost of subscription revenue also includes
amortization of internal-use software and stock-based compensation.

Cost of License Revenue – Cost of license revenue primarily includes costs associated with data curation and delivery costs associated with delivering spatial data to customers.

Cost of services revenue-Cost of services revenue consists primarily of costs
associated with capture services and costs for add-on features. Costs for
capture services are primarily attributable to services rendered by third-party
technicians that digitally capture spaces on behalf of the applicable customer,
as well as administration and support costs associated with managing the
program. Costs for add-on features are primarily attributable to services
rendered by third-party contractors that develop the floor plans or
other add-ons applications purchased by our subscribers as well as support costs
associated with delivering the applications.
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Cost of product revenue-Cost of product revenue consists primarily of costs
associated with the manufacture of our Pro2 Camera, warranty and repair expenses
relating to Pro2 Cameras and personnel-related expenses associated with
manufacturing employees including salaries, benefits, bonuses, overhead and
stock-based compensation. Cost of product revenue also includes depreciation of
property and equipment, costs of acquiring third-party capture devices, and
costs associated with shipping devices to customers.

Functionnary costs

Our operating expenses consist primarily of research and development expenses,
selling, general and administrative expenses. Personnel costs are the most
significant component of operating expenses and consist of salaries, benefits,
bonuses, stock-based compensation, and sales commissions. Operating expenses
also include overhead costs.

Research and development expenses-Research and development expenses consist
primarily of personnel-related expenses associated with our research and
development employees, including salaries, benefits, bonuses, and stock-based
compensation. Research and development expenses also include third-party
contractor or professional services fees, and software and subscription services
dedicated for use by our research and development organization. We expect that
our research and development expenses will increase in absolute dollars as our
business grows, particularly as we incur additional costs related to continued
investments in our platform and products. In addition, research and development
expenses that qualify as internal-use software development costs are
capitalized, the amount of which may fluctuate significantly from period to
period.

Selling, general and administrative expenses-Selling, general, and
administrative expenses consist primarily of personnel-related expenses
associated with our sales and marketing, finance, legal, information technology,
human resources, facilities, and administrative employees, including salaries,
benefits, bonuses, sales commissions, and stock-based compensation. We
capitalize and amortize commissions associated with attracting new paid
subscribers and services revenue equal to a period of three years, which is the
estimated period for which we expect to benefit from the sales commissions.
Selling, general and administrative expenses also include external legal,
accounting, and other professional services fees, software and subscription
services, and other corporate expenses. Following the closing of the Merger, we
have incurred and expect to incur in the future additional expenses as a result
of operating as a public company, including costs to comply with the rules and
regulations applicable to companies listed on a national securities exchange,
costs related to compliance and reporting obligations, and increased expenses
for insurance, investor relations, and professional services. We expect that our
selling, general and administrative expenses will continue to increase in
absolute dollars as our business grows. See "The Merger" above.

interest income

Interest income consists of interest income earned on our cash and cash equivalents and our investments.

Interest charges

Interest expense consists primarily of interest payments on our credit facilities.

Change in fair value of warrant liabilities

The public and private warrants are subject to fair value remeasurement at each
balance sheet date if outstanding, or upon the time immediately before the
exercise or redemption. All Public Warrants have been exercised or redeemed. As
of June 30, 2022, there were 1.7 million Private Warrants outstanding.
Matterport expects to incur incremental income (expense) in the condensed
consolidated statements of operations for the fair value change for the
outstanding private warrants liabilities going forward at the end of each
reporting period or through the exercise of such warrants.

Change in fair value of contingent earn-out liability

The contingent obligation to issue Earn-out Shares to Matterport Legacy
Stockholders was accounted for as a liability because the Earn-out triggering
events determine the number of Earn-out Shares required. The estimated fair
value of the total Earn-out Shares was determined based on a Monte Carlo
simulation valuation model and is subject to remeasurement to fair value at each
balance sheet date. Contingent earn-out liability was accounted for as a
liability as of the date of the Merger and remeasured to fair value until the
Earnout Triggering Events were met. On January 18, 2022, all Earn-out Triggering
Events occurred. Upon the occurrence of the triggering events, the Company's
common stock price
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represented the fair value of the Earn-out Awards and the Company reclassified
the outstanding Earn-out liability to additional paid-in capital as the Earn-out
shares become issuable as a fixed number of Common Shares. There will be no
incremental income (expense) in the consolidated statements of operations for
the fair value adjustments for the outstanding earn-out liability as all the
Earn-out Shares were issued February 1, 2022.

Other expenses, net

Other expenses, net, mainly consist of the amortization of the investment premium.

Provision for income taxes

Provision for income taxes consists primarily of income taxes in certain foreign
and state jurisdictions in which we conduct business. We record income taxes
using the asset and liability method. Under this method, deferred income tax
assets and liabilities are recorded based on the estimated future tax effects of
differences between the financial statement and income tax basis of existing
assets and liabilities. These differences are measured using the enacted
statutory tax rates that are expected to apply to taxable income for the years
in which differences are expected to reverse. We recognize the effect on
deferred income taxes of a change in tax rates in income in the period that
includes the enactment date.

We record a valuation allowance to reduce our deferred tax assets and liabilities to the net amount that we believe is more likely than not to be realized. We consider all available evidence, positive and negative, including historical levels of income, expectations and risks associated with estimates of future taxable income and ongoing tax planning strategies in assessing the need for a provision for capital loss.

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RESULTS OF OPERATIONS

The following table sets forth our results of operations for the periods presented based on data from our condensed consolidated statements of earnings (in thousands, except percentages). Comparison of results from period to period is not necessarily indicative of results in future periods.

                                                                                              Six Months Ended June
                                                 Three Months Ended June 30,                           30,
                                                   2022                  2021                              2022                2021
Revenue:
Subscription                                $        18,386          $  15,281                         $   35,527          $  29,081
License                                                  26              2,099                                 49              4,359
Services                                              5,013              2,879                              8,986              5,568
Product                                               5,056              9,244                             12,429             17,424
Total revenue                                        28,481             29,503                             56,991             56,432
Costs of revenue:
Subscription                                          6,109              3,384                             11,371              6,635
License                                                   -                  -                                  -                  -
Services                                              3,169              2,290                              6,152              4,325
Product                                               7,490              6,015                             15,846             10,930
Total costs of revenue                               16,768             11,689                             33,369             21,890
Gross profit                                         11,713             17,814                             23,622             34,542
Gross margin                                               41%                60%                                41%                61%
Operating expenses:
Research and development                             21,518              7,090                             47,520             13,115
Selling, general, and administrative                 59,385             16,501                            130,234             29,559
Total operating expenses                             80,903             23,591                            177,754             42,674
Loss from operations                                (69,190)            (5,777)                          (154,132)            (8,132)
Other income (expense):
Interest income                                       1,484                 14                              2,779                 22
Interest expense                                          -               (277)                                 -               (585)

Change in fair value of warrants
liabilities                                           4,714                  -                             26,147                  -
Change in fair value of contingent earn-out
liability                                                 -                  -                            136,043                  -
Other expense, net                                   (1,353)              (149)                            (2,674)              (347)
Total other income (expense)                          4,845               (412)                           162,295               (910)
Income (loss) before provision for income
taxes                                               (64,345)            (6,189)                             8,163             (9,042)
Provision for income taxes                              289                 20                                893                 39
Net income (loss)                           $       (64,634)         $  (6,209)                        $    7,270          $  (9,081)


Revenues

Total revenue decreased by $1.0 million, or (3)%, to $28.5 million during the
three months ended June 30, 2022, from $29.5 million during the three months
ended June 30, 2021. The decrease in revenue is attributable to a decrease in
license and product revenue, partially offset by growth from subscriptions and
service revenues.

Total revenue increased by $0.6 million, or 1%, to $57.0 million during the six
months ended June 30, 2022, from $56.4 million during the six months ended June
30, 2021. The increase in revenue is attributable to growth from subscriptions
and services revenue, partially offset by a decrease in license and product
revenue.
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                             Three Months Ended June 30,                                                  Six Months Ended June 30,
                               2022                 2021                      Change                        2022                2021                     Change
                              Amount               Amount            Amount              %                 Amount              Amount            Amount             %
                                                                                      (dollars in thousands)
Subscription             $       18,386          $ 15,281          $  3,105               20  %       $      35,527          $ 29,081          $ 6,446               22  %
License                              26             2,099            (2,073)             (99) %                  49             4,359           (4,310)             (99) %
Services                          5,013             2,879             2,134               74  %               8,986             5,568            3,418               61  %
Product                           5,056             9,244            (4,188)             (45) %              12,429            17,424           (4,995)             (29) %
Total revenue            $       28,481          $ 29,503          $ (1,022)              (3) %       $      56,991          $ 56,432          $   559                1  %


Subscription revenue increased for the three and six months ended June 30, 2022
compared to the same period in 2021, primarily due to higher volume of
subscription plans from both new and existing subscribers. Of the $3.1 million
increase for the three months ended June 30, 2022, approximately $2.2 million
was attributable to the higher volume of subscription plans from additional new
subscribers and approximately $0.9 million was attributable to additional sales
to existing customers during that period. Of the $6.4 million increase for the
six months ended June 30, 2022, approximately $3.8 million was attributable to
the higher volume of subscription plans form additional new subscribers and
approximately $2.6 million was attributable to additional sales to existing
customers during that period.

License revenue can fluctuate from period to period, depending on the timing of
completed transactions and any associated implementation work that we must
perform to recognize revenue. License revenue decreased for the three and six
months ended June 30, 2022 compared to the same period in 2021, primarily due to
not having substantial license transactions move to the revenue recognition
phase.

Services revenue increased for the three and six months ended June 30, 2022
compared to the same periods in 2021. The increase was primarily attributable to
increased sales of capture services and add-on services, primarily driven by our
investment in growing our capture services business and the increase in the
number of our subscribers.

Product revenue decreased for the three and six months ended June 30, 2022
compared to the same period in 2021. Although we believe demand for our products
remained strong in the quarter, based on the backlog of open orders, the
decrease was primarily due to global supply chain constraints. We are working to
mitigate such impact.

Cost of Revenue

Our revenue cost includes subscription revenue cost, license revenue cost, service revenue cost and product revenue cost.

                            Three Months Ended June 30,                                                 Six Months Ended June 30,
                              2022                 2021                     Change                        2022                2021                      Change
                             Amount               Amount            Amount             %                 Amount              Amount            Amount              %
                                                                                     (dollars in thousands)
Cost of subscription
revenue                 $        6,109          $  3,384          $ 2,725               81  %       $      11,371          $  6,635          $  4,736               71  %
Cost of license revenue              -                 -                -                -  %                   -                 -                 -                -  %
Cost of services
revenue                          3,169             2,290              879               38  %               6,152             4,325             1,827               42  %
Cost of products
revenue                          7,490             6,015            1,475               25  %              15,846            10,930             4,916               45  %
Total cost of revenue   $       16,768          $ 11,689          $ 5,079               43  %       $      33,369          $ 21,890          $ 11,479               52  %


Total cost of revenue increased for the three and six months ended June 30, 2022
compared to the same periods in 2021, primarily attributable to an increase in
subscription services provided, cost of products revenue, and capture services
sold.

Cost of subscription revenue increased for the three and six months ended
June 30, 2022 compared to the same periods in 2021, mainly due to the increase in costs related to the hosting and delivery services of our platform to support the

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growth of subscription services provided. We incurred incremental one-time costs
related to transitioning vendors to strengthen our platform, making it easier to
buy Matterport offerings in more languages and more currencies, and expanding
our professional support services to subscribers by offering more hours of
availability in more languages.

Cost of service revenue increased for the quarters and six months ended June 30, 2022 compared to the same periods in 2021, mainly due to an increase in volume and costs related to the capture services sold.

Cost of products revenue increased for the three and six months ended June 30,
2022 compared to the same periods in 2021, primarily attributable to increased
costs related to expediting and securing materials to meet the demand for
capture devices in the current supply chain environment as well as increased
overhead related to direct labor and manufacturing to support the capture
devices sold.

Gross profit and gross margin

                      Three Months Ended June 30,                     Six 

Months ended June 30th,

                          2022                   2021                                       2022          2021
                                       (dollars in thousands)
Gross profit   $       11,713                 $ 17,814                                   $ 23,622      $ 34,542
Gross margin                           41%           60%                                        41%           61%



Gross profit decreased for the three and six months ended June 30, 2022 compared
to the same periods in 2021, primarily due to the decrease in license gross
profit in line with the minimum license revenue transactions and the decrease in
the volume of the product revenue for the periods presented.

Gross margin decreased to 41% during the three months ended June 30, 2022 from
60% during the three months ended June 30, 2021 and decreased to 41% during the
six months ended June 30, 2022 from 61% during the six months ended June 30,
2021. The decrease in gross profit margin was primarily due to the decrease in
product gross margins as a result of us using alternative suppliers and
alternative parts from time to time to mitigate the challenges caused by supply
chain shortages, a decrease in subscription gross margin, and the minimum
license revenue transactions.

Research and development costs

                         Three Months Ended June 30,                                               Six Months Ended June 30,
                            2022              2021                     Change                        2022                2021                      Change
                           Amount            Amount           Amount              %                 Amount              Amount            Amount              %
                                                                                   (dollars in thousands)
Research and
development expenses    $  21,518          $ 7,090          $ 14,428              203  %       $      47,520          $ 13,115          $ 34,405              262  %



Research and development expenses increased by $14.4 million, or 203%, to
$21.5 million and by $34.4 million, or 262%, to $47.5 million for the three and
six months ended June 30, 2022, respectively, from $7.1 million and $13.1
million for the three and six months ended June 30, 2021, respectively. The
increase for the three months ended June 30, 2022 was primarily attributable to
a $4.5 million increase in salary compensation expenses as a result of increased
headcount, a $7.8 million increase in stock-based compensation, and a
$0.8 million increase in professional services to support our continued
investment into our platform and products. The increase for the six months ended
June 30, 2022 was primarily attributable to a $9.9 million increase in salary
compensation expenses as a result of increased headcount, a $20.7 million
increase in stock-based compensation, and a $1.9 million increase in
professional services to support our continued investment into our platform and
products.
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Selling, general and administrative expenses

                                Three Months Ended June 30,                                                   Six Months Ended June 30,
                                  2022                 2021                      Change                        2022                 2021                      Change
                                 Amount               Amount            Amount              %                 Amount               Amount             Amount              %
                                                                                           (dollars in thousands)
Selling, general and
administrative expenses     $       59,385          $ 16,501          $ 42,884              260  %       $      130,234          $ 29,559          $ 100,675              341  %


Selling, general and administrative expenses increased by $42.9 million, or
260%, to $59.4 million and by $100.7 million, or 341%, to $130.2 million for the
three and six months ended June 30, 2022, respectively, from $16.5 million and
$29.6 million for the three and six months ended June 30, 2021, respectively.
The increase was primarily attributable to an $8.2 million increase in
personnel-related costs, a $22.4 million increase in stock-based compensation, a
$3.6 million increase in legal fees due to an increase in acquisition costs and
litigation activities, and a $3.5 million increase in marketing programs. The
increase for the six months ended June 30, 2022 was primarily attributable to a
$19.1 million increase in personnel-related costs, including an $11.5 million
increase in salaries as a result of increased headcount, a $62.5 million
increase in stock-based compensation, a $5.3 million increase in legal fees due
to an increase in acquisition costs and litigation activities, and a
$5.3 million increase in marketing programs.

Interest Income

                                                       Three Months Ended June 30,         Six Months Ended June 30,
                                                           2022             2021              2022             2021
                                                                           (dollars in thousands)
Interest income                                        $   1,484          $   14          $   2,779          $   22


Interest income increased for the three and six months ended June 30, 2022
compared to the same periods in 2021. The increase was primarily attributable to
interest earned on our cash equivalents and investments during the three and six
months ended June 30, 2022.

Interest Expense

                                                         Three Months Ended June 30,         Six Months Ended June 30,
                                                             2022             2021              2022             2021
                                                                             (dollars in thousands)
Interest expense                                         $       -          $ (277)         $       -          $ (585)


Interest expense decreased for the three and six months ended June 30, 2022
compared to the three and six months ended June 30, 2021, primarily due to the
repayment of our outstanding loans during the year ended December 31, 2021. As
of June 30, 2022, we had no outstanding debts.

Change in fair value of warrant liabilities

                                                      Three Months Ended June 30,          Six Months Ended June 30,
                                                         2022              2021              2022               2021
                                                                           (dollars in thousands)
Change in fair value of warrants liabilities         $   4,714          $   

$26,147 $-


We recognized a change in fair value of warrants liabilities of $4.7 million and
$26.1 million during the three and six months ended June 30, 2022, respectively,
due to the decrease in the fair value of our outstanding Public and Private
Warrants. As of June 30, 2022, there were 1.7 million Private Warrants remaining
outstanding as a result of the exercise or redemption activities of our Public
warrants.

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Change in Fair Value of Contingent Earn-out Liability

                                                        Three Months Ended June 30,              Six Months Ended June 30,
                                                           2022                 2021               2022               2021
                                                                              (dollars in thousands)
Change in fair value of contingent earn-out
liability                                            $            -         

$- $136,043 $-


We recognized a change in fair value of contingent earn-out liability of
$136.0 million for the six months ended June 30, 2022, primarily due to the
decrease in the fair value of the Company common stock. As of January 18, 2022,
all Earn-out triggering events were achieved, and the Company issued a total of
21.5 million shares of common stock for Earn-out Shares, net of tax withholding
to eligible recipients on February 1, 2022.

Other (expenses) income, net

                                                         Three Months Ended June 30,         Six Months Ended June 30,
                                                             2022             2021              2022             2021
                                                                             (dollars in thousands)
Other expense, net                                       $  (1,353)         $ (149)         $  (2,674)         $ (347)

Other expenses increased for the quarters and six months ended June 30, 2022
compared to the same periods in 2021. The increase is mainly due to the amortization of the investment premium.

Provision for income taxes

                                                   Three Months Ended June 30,        Six Months Ended June 30,
                                                      2022             2021             2022             2021
                                                                      (dollars in thousands)
Provision for income taxes                         $    289          $   20          $    893          $   39


For the three and six months ended June 30, 2022, our provision for income taxes
reflects an effective tax rate of (0.4)% and 10.9%, respectively. Our effective
tax rate for the three months ended June 30, 2022, differs from the U.S. federal
statutory tax rate of 21% primarily due to losses that cannot be benefited from
due to the valuation allowance on the U.S entity, foreign earnings being taxed
at different tax rates and the tax benefit from stock-based compensation
activities during the period. Our provision for income taxes for the three and
six months ended June 30, 2021 reflects an effective tax rate of (0.3)% and
(0.4)%, respectively. The difference was due primarily to the tax benefit of
pre-tax book losses being offset by a valuation allowance for both periods
presented.

CASH AND CAPITAL RESOURCES

Sources of liquidity

Our capital requirements will depend on many factors, including the growth and
expansion of our paid subscribers, development of our technology and software
platform (including research and development efforts), expansion of our sales
and marketing activities and sales, general and administrative expenses. As of
June 30, 2022, we had cash, cash equivalents and investments of approximately
$562.1 million. Our cash equivalents primarily consist of cash on hand and
amounts on deposit with financial institutions. To date, our principal sources
of liquidity have been proceeds received from the issuance of equity, the
proceeds from the Merger and proceeds from warrant and option exercises for
cash.

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                                                 June 30, 2022       December 31, 2021
                                                         (dollars in thousands)
Cash, cash equivalents, and investments:
Cash and cash equivalents                       $      113,923      $          139,519
Restricted cash                                              -                     468
Investments                                            448,142                 528,590

Total cash, cash equivalents and investments $562,065 $

668 577


We believe our existing cash resources are sufficient to support planned
operations for the next 12 months. On January 14, 2022, the Public Warrants
ceased trading on the Nasdaq Global Market. As of the Redemption Date of January
14, 2022, 9.1 million shares of Common Stock have been issued upon the exercise
of Public Warrants and Private Warrants by the holders thereof at an exercise
price of $11.50 per share during the Exercise Period from December 15, 2021 to
January 14, 2022, resulting in aggregate proceeds to Matterport of
$104.4 million, including 7.1 million shares issued upon the exercise of Public
Warrants and Private Warrants by the holders with a total proceeds of
$27.8 million received during the six months ended June 30, 2022. As a result,
management believes that its current financial resources are sufficient to
continue operating activities for at least one year past the issuance date of
the financial statements.

We have incurred negative cash flows from operating activities and significant
losses from operations in the past. We expect to continue to incur operating
losses at least for the next 12 months due to the investments that we intend to
make in our business. Our future capital requirements will depend on many
factors, including increase in our customer base, the timing and extent of spend
to support the expansion of sales, marketing and development activities, and the
impact of the COVID-19 pandemic. As a result, we may require additional capital
resources to grow our business. We believe that current cash, cash equivalents
and investments will be sufficient to fund our operations for at least the next
12 months.

Other commitments

We lease office space under operating leases for our U.S. headquarters and other
locations in the United States that expire at various dates through 2025. In
addition, we have purchase obligations, which include contracts and issued
purchase orders containing non-cancellable payment terms to purchase third-party
goods and services. As of June 30, 2022, our 12-month lease obligations (through
June 30, 2023) totaled approximately $1.3 million, or approximately $3.5 million
through the year ending December 31, 2025. Our non-cancellable purchase
obligations as of June 30, 2022 totaled approximately $21.3 million and are due
through the year ending December 31, 2024.

Cash flow

The following table presents a summary of our cash flows for the six months ended June 30, 2022 and 2021 (in thousands):

                                    Six Months Ended June 30,
                                        2022                 2021
Cash provided by (used in):
Operating activities          $      (58,278)             $ (2,631)
Investing activities          $       34,155              $ (4,582)
Financing activities          $       (1,612)             $ (2,252)

Net cash used in operating activities

Net cash used in operating activities was $58.3 million for the six months ended
June 30, 2022. This amount primarily consisted of net income of $7.3 million,
offset by non-cash gains of $67.0 million, and a change in net operating assets
and liabilities of $1.4 million. The non-cash gains primarily consisted of
$26.1 million of change in fair value of warrants liabilities and $136.0 million
of change in fair value of contingent earn-out liability, partially offset by
$5.6 million of depreciation and amortization expense, $87.2 million of
stock-based compensation expense, and $1.8 million of amortization of investment
premiums, net of accretion of discounts. Changes in net operating assets and
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Liabilities consisted primarily of an increase in accounts payable, deferred revenue, accrued liabilities and other liabilities, which was partially offset by an increase in accounts receivable and prepaid expenses and other assets.

Net cash used in operating activities was $2.6 million for the six months ended
June 30, 2021. This amount primarily consisted of a net loss of $9.1 million,
offset by non-cash charges of $4.2 million, and an increase in net operating
assets and liabilities of $2.2 million. The non-cash charges primarily consisted
of $2.6 million of depreciation and amortization expense and $1.3 million of
stock-based compensation expense. Changes of net operating assets and
liabilities primarily consisted of an increase in accounts payable, deferred
revenue, accruals and other liabilities, and a decrease in inventory, which was
partially offset by an increase in account receivable and prepaid and other
assets.

Net cash provided by (used in) investing activities

Net cash provided by investing activities was $34.2 million for the six months
ended June 30, 2022. This amount primarily consisted of maturities of marketable
securities investments of $160.1 million, partially offset by investments in
available-for-sale securities of $88.0 million, purchase price (net of cash
acquired) for business acquisitions of $30.0 million, capitalized software and
development costs of $7.1 million, and purchases of property and equipment of
$0.9 million.

Net cash used in investing activities was $4.6 million for the six months ended
June 30, 2021. This amount primarily consisted of capitalized software and
development costs of $3.3 million, an investment in convertible notes receivable
of $1.0 million and purchases of property and equipment of $0.3 million.

Net cash used in fundraising activities

Net cash used in financing activities was $1.6 million for the six months ended
June 30, 2022. This amount primarily consisted of a $34.4 million payment for
taxes related to the net settlement of equity awards, partially offset by $27.8
million of proceeds from the exercise of warrants and $4.9 million of proceeds
from the exercise of stock options.

Net cash used in financing activities was $2.3 million for the six months ended
June 30, 2021. This amount primarily consisted of repayment of debt of $2.4
million and payment of deferred transaction costs of $1.2 million for the
Merger, partially offset by proceeds from the exercise of stock options of $1.3
million.

Emerging Growth Company Status

Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being
required to comply with new or revised financial accounting standards until
private companies are required to comply with the new or revised financial
accounting standards. The JOBS Act provides that a company can choose not to
take advantage of the extended transition period and comply with the
requirements that apply to non-emerging growth companies, and any such election
to not take advantage of the extended transition period is irrevocable.

The Company is an "emerging growth company" as defined in Section 2(a) of the
Securities Act, and has elected to take advantage of the benefits of the
extended transition period for new or revised financial accounting standards.
The Company will remain an emerging growth company until the earliest of (i) the
last day of the fiscal year in which the market value of common stock that is
held by non-affiliates exceeds $700 million as of the end of that year's second
fiscal quarter, (ii) the last day of the fiscal year in which the Company has
total annual gross revenue of $1.07 billion or more during such fiscal year (as
indexed for inflation), (iii) the date on which the Company has issued more than
$1 billion in non-convertible debt in the prior three-year period or
(iv) December 31, 2025, and the Company expects to continue to take advantage of
the benefits of the extended transition period, although it may decide to early
adopt such new or revised accounting standards to the extent permitted by such
standards. This may make it difficult or impossible to compare the Company's
financial results with the financial results of another public company that is
either not an emerging growth company or is an emerging growth company that has
chosen not to take advantage of the extended transition period exemptions
because of the potential differences in accounting standards used.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our discussion and analysis of our financial condition and results of operations
are based upon our condensed consolidated financial statements, which have been
prepared in accordance with GAAP. We evaluated the development and selection of
our critical accounting policies and estimates and believe that the following
involve a higher degree of
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judgment or complexity and are most significant to reporting our results of
operations and financial position and are therefore discussed as critical. We
believe that the critical accounting estimates discussed under Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in our 2021 Form 10-K for the fiscal year ended December 31, 2021
reflect our more significant judgments and estimates used in the preparation of
our condensed consolidated financial statements. There have been no material
changes to our critical accounting estimates as filed in such report. Refer to
Note 2.-Summary of Significant Accounting Policies in Part I, Item 1 of this
Report for more information on our adoption of new accounting guidance.

Recent accounting pronouncements

For a discussion of the recent accounting pronouncements, refer to "Accounting
Pronouncements" in Note 2. Summary of Significant Accounting Policies in Part I,
Item 1 of this Report.
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