NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (Tabular amounts in thousands, except per share amounts)
1. Description of the Business
BuzzFeed, Inc. (referred to herein, collectively with its subsidiaries, as “BuzzFeed” or the “Company”) is a premier digital media company for the most diverse, most online, and most socially connected generations the world has ever seen. Across food, news, pop culture and commerce, our brands drive conversation and inspire what audiences watch, read, and buy now — and into the future. The Company’s portfolio of iconic, globally-loved brands includes BuzzFeed, HuffPost, Tasty, Complex Networks, and First We Feast. BuzzFeed derives its revenue primarily from advertising, content, and commerce and other sold to leading brands. The Company has one reportable segment.
On December 3, 2021, we consummated a business combination (the “Business Combination”) with 890 5th Avenue Partners, Inc. (“890”), certain wholly-owned subsidiaries of 890, and BuzzFeed, Inc., a Delaware corporation (“Legacy BuzzFeed”). In connection with the Business Combination, we acquired 100% of the membership interests of CM Partners, LLC. CM Partners, LLC, together with Complex Media, Inc., is referred to herein as “Complex Networks.” Following the closing of the Business Combination, 890 was renamed “BuzzFeed, Inc.”
Additionally, pursuant to subscription agreements entered into in connection with the entry into the merger agreement pursuant to which the Business Combination was consummated, the Company issued, and certain investors purchased, $150.0 million aggregate principal amount of unsecured convertible notes due 2026 concurrently with the closing of the Business Combination (the “Notes”).
Liquidity
As a digital media company, the Company is subject to certain inherent risks and uncertainties associated with the development of its business. To date, substantially all of the Company’s efforts have been devoted to the growth of its owned and operated properties and portfolio of brands. This includes the Company’s proprietary technology infrastructure, advertising solutions, content creation tools, and more. The Company has invested in the recruitment of key management and technical staff and has acquired certain businesses. These investments have historically been funded by raising outside capital, and as a result of these efforts, the Company has generally incurred significant losses and used net cash outflows from operations since inception — and it may continue to incur such losses and use net cash outflows for the foreseeable future until such time it reaches scale of profitability without needing to rely on funding from outside capital to sustain its operations.
In order to execute its growth strategy, the Company has historically relied on outside capital through the issuance of equity, debt, and borrowings under financing arrangements (collectively “outside capital”). The Company may continue to rely on outside capital for the foreseeable future. While the Company believes it will eventually reach a scale of profitability to sustain its operations, there can be no assurance it will be able to achieve such profitability or do so in a manner that does not necessitate its continued reliance on outside capital.
As of the date the condensed consolidated financial statements were issued (the “issuance date”), the presence of the following risks and uncertainties associated with the Company’s financial condition may adversely affect our ability to sustain its operations over the next twelve months beyond the issuance date.
•Since its inception, the Company has generally incurred significant losses and used net cash flows from operations to grow its owned and operated properties and portfolio of brands. During the three months ended March 31, 2023, the Company incurred a net loss of $36.3 million and used net cash flows from its operations of $0.2 million. Additionally, as of March 31, 2023, the Company had unrestricted cash and cash equivalents of $49.9 million available to fund its operations, $2.3 million available under the Company’s $50.0 million revolving loan and standby letter of credit facility agreement (the “Revolving Credit Facility”) (see Note 9 herein for additional details), and an accumulated deficit of $559.2 million.
•The Company expects to continue to be impacted by the challenging U.S. and global macroeconomic environment, which could adversely impact its ability to grow revenue over the next twelve months beyond the issuance date.
•The Company continues to be affected by its ongoing efforts to integrate Complex Networks and sales execution against the combined brand portfolio, which may result in the incurrence of unexpected expenses or the inability to realize in anticipated benefits and synergies over the next twelve months beyond the issuance date.
•The Company is required to remain in compliance with certain covenants required by the Revolving Credit Facility, which, among others, require it to maintain a minimum of $25.0 million of unrestricted cash at all times and limit, under prescribed circumstances, its ability to incur additional indebtedness, pay dividends, hold unpermitted investments or make material changes to the business. While the Company was in compliance with the financial covenants under the Revolving Credit Facility as of March 31, 2023, and it expects to remain in compliance throughout twelve months beyond the issuance date, the Company may be unable to remain in compliance with one or more of these covenants if it is unable to generate net cash inflows from operations or, if necessary, secure additional outside capital. In the event the Company is unable to remain in compliance with one or more of the aforementioned covenants, and it is unable to secure a waiver or forbearance, the lender may, at its discretion, exercise any and all of its existing rights and remedies, which may include, among others, accelerating repayment of the outstanding borrowings and/or asserting its rights in the assets securing the loan.
Due to the risks and uncertainties described above, the Company continues to carefully evaluate its liquidity position. The Company recognizes the significant challenge of maintaining sufficient liquidity to sustain its operations or remain in compliance with one or more of the covenants required by the Revolving Credit Facility, for the next twelve months beyond the issuance date. However, notwithstanding its liquidity position as of the issuance date, and while it is difficult to predict its future liquidity requirements with certainty, the Company currently expects it will be able to generate sufficient liquidity to fund its operations over the next twelve months beyond the issuance date.
In response to the risks and uncertainties described above, the Company may plan to secure additional outside capital over the next twelve months beyond the issuance date. While the Company has historically been successful in its ability to secure outside capital, as of the issuance date, the Company had no firm commitments of additional outside capital. The Company can provide no assurance it will be able to continue to secure outside capital in the future or do so on terms that are acceptable to it. Furthermore, the Company also plans to continue to closely monitor its cash flow forecast and, if necessary, it will implement certain incremental cost savings to preserve its liquidity beyond those that were implemented through the restructuring activities that occurred during fiscal year 2022 and 2023 (see Note 19 herein for additional details) or through the reduction of its real estate footprint. While the Company currently expects it will be able to generate sufficient liquidity to fund its operations for the next twelve months beyond the issuance date, it can provide no assurance it will successfully generate such liquidity, or if necessary, secure additional outside capital or implement incremental cost savings.
COVID-19
In March 2020, the World Health Organization declared the viral strain of COVID-19 a global pandemic and recommended containment and mitigation measures worldwide. The spread of COVID-19 and the resulting economic contraction resulted in increased business uncertainty and significantly impacted the Company’s business and results of operations. While the extent of the impact has generally decreased, the Company continues to monitor the status, and respond to the effects of, the COVID-19 pandemic and its impact on the Company’s business. Future developments regarding COVID-19 continue to be uncertain and difficult to predict. There can be no assurances that future impacts related to COVID-19, including new variants, or other global pandemics will not adversely impact our business, results of operations, financial condition and cash flows in future periods.
2. Summary of Significant Accounting Policies
Basis of Financial Statements and Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been omitted pursuant to such rules and regulations. As such, the accompanying condensed consolidated financial statements and these related notes should be read in conjunction with the Company’s consolidated financial statements and related notes as of and for the year
ended December 31, 2022, as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
The condensed consolidated financial statements include all normal recurring adjustments that, in the opinion of management, are necessary to present fairly the results for the interim periods presented. Interim results are not necessarily indicative of the results for the full year ended December 31, 2023.
The condensed consolidated financial statements include the accounts of BuzzFeed, Inc., and its wholly-owned and majority-owned subsidiaries, and any variable interest entities for which the Company is the primary beneficiary. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported results of operations during the reporting period. Due to the use of estimates inherent in the financial reporting process actual results could differ from those estimates.
Key estimates and assumptions relate primarily to revenue recognition, fair values of intangible assets acquired in business combinations, valuation allowances for deferred income tax assets, allowance for doubtful accounts, fair value of the derivative liability, fair values used for stock-based compensation in periods prior to the Business Combination, useful lives of fixed assets, and capitalized software costs.
Recently Adopted Accounting Pronouncements
The Company, an emerging growth company (“EGC”) has elected to take advantage of the benefits of the extended transition period provided for in Section 7(a)(2)(B) of the Securities Act, as amended, for complying with new or revised accounting standards which allows the Company to defer adoption of certain accounting standards until those standards would otherwise apply to private companies.
In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update 2016-13, Financial Instruments — Credit Losses (Topic 326), which changes the impairment model for most financial assets, including accounts receivable, and replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. The guidance is effective for the Company for interim and annual periods beginning after December 15, 2022, with early adoption permitted. Effective January 1, 2023, the Company adopted this standard using a modified retrospective transition approach, which required a cumulative effect adjustment to the balance sheet as of January 1, 2023. The adoption of this standard did not have a material impact to our condensed consolidated financial statements.
Accounting Pronouncements Not Yet Adopted
None.
3. Acquisitions and Dispositions
Complex Networks Acquisition
On December 3, 2021, in conjunction with the Business Combination, the Company completed the acquisition of 100% of the members’ interests of Complex Networks, a publisher of online media content targeting Millennial and Gen Z consumers (the “Complex Networks Acquisition”).
The following table summarizes the fair value of consideration exchanged as a result of the Complex Networks Acquisition:
| | | | | |
Cash consideration(1) | $ | 197,966 |
Share consideration(2) | 96,200 |
Total consideration | $ | 294,166 |
_________________________________
(1)Includes the cash purchase price of $200.0 million adjusted for certain closing specified liabilities as specified in the Complex Networks Acquisition purchase agreement.
(2)Represents 10,000,000 shares of our Class A common stock at a price of $9.62 per share, which is based on the closing stock price of our Class A common stock on the date on which the Business Combination was consummated.
The following table summarizes the determination of the fair value of identifiable assets acquired and liabilities assumed in connection with the Complex Networks Acquisition. During the year ended December 31, 2022, the Company finalized the fair value of assets acquired and liabilities assumed. Measurement period adjustments were reflected during the year ended December 31, 2022, which is the period in which the adjustments occurred. The adjustments resulted from new information obtained about facts and circumstances that existed as of the acquisition date.
| | | | | | | | | | | | | | | | | |
| Preliminary | | Measurement Period Adjustments | | Final |
Cash | $ | 2,881 | | | — | | | $ | 2,881 | |
Accounts receivable | 22,581 | | | 11 | | | 22,592 | |
Prepaid and other current assets | 17,827 | | | 281 | | | 18,108 | |
Property and equipment | 332 | | | (15) | | | 317 | |
Intangible assets | 119,100 | | | — | | | 119,100 | |
Goodwill | 189,391 | | | (909) | | | 188,482 | |
Accounts payable | (2,661) | | | — | | | (2,661) | |
Accrued expenses | (12,319) | | | (803) | | | (13,122) | |
Accrued compensation | (12,867) | | | 349 | | | (12,518) | |
Deferred revenue | (5,855) | | | (48) | | | (5,903) | |
Deferred tax liabilities | (22,776) | | | 1,134 | | | (21,642) | |
Other liabilities | (1,468) | | | — | | | (1,468) | |
Total consideration for Complex Networks | $ | 294,166 | | | $ | — | | | $ | 294,166 | |
The table below indicates the estimated fair value of each of the identifiable intangible assets:
| | | | | | | | | | | |
| Asset Fair Value | | Weighted Average Useful Life (Years) |
Trademarks & tradenames | 97,000 | | | 15 |
Customer relationships | 17,000 | | | 4 |
Developed technology | 5,100 | | | 3 |
The fair values of the intangible assets were estimated using Level 3 inputs. The fair value of trademarks and trade names was determined using the relief from royalty method, the fair value of customer relationships was determined using the multi-period excess earnings approach, and the fair value of acquired technology was determined using the replacement cost approach. The excess of purchase consideration over the fair value of net tangible and identifiable intangible assets acquired resulted in $188.5 million of goodwill, which is primarily attributed to workforce and synergies, and is not deductible for tax purposes.
Goodwill Impairment
The Company reviews goodwill for impairment annually as of October 1 and more frequently if events or changes in circumstances indicate an impairment may exist (a “triggering event”). As of March 31, 2023, the Company had $91.6 million of goodwill recorded on its condensed consolidated balance sheet. During the year ended December 31, 2022, the Company recorded a $102.3 million non-cash goodwill impairment charge driven by a sustained decline in share price that pushed our market capitalization below the carrying value of our stockholders’ equity. The Company concluded there were no new impairment triggering events as of and for the three months ended March 31, 2023.
4. Revenue Recognition
Disaggregated Revenue
The table below presents the Company’s revenue disaggregated based on the nature of its arrangements. Management uses these categories of revenue to evaluate the performance of its businesses and to assess its financial results and forecasts.
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2023 | | 2022 |
Advertising | | | | | $ | 34,248 | | | $ | 48,668 | |
Content | | | | | 21,618 | | | 32,279 | |
Commerce and other | | | | | 11,287 | | | 10,611 | |
Total | | | | | $ | 67,153 | | | $ | 91,558 | |
The following table presents the Company’s revenue disaggregated by geography:
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2023 | | 2022 |
Revenue: | | | | | | | |
United States | | | | | $ | 62,601 | | | $ | 83,100 | |
International | | | | | 4,552 | | | 8,458 | |
Total | | | | | $ | 67,153 | | | $ | 91,558 | |
Contract Balances
The timing of revenue recognition, billings and cash collections can result in billed accounts receivable, unbilled receivables (contract assets), and deferred revenues (contract liabilities). The payment terms and conditions within the Company’s contracts vary by type, but the substantial majority require that customers pay for their services on a monthly or quarterly basis, as the services are being provided. When the timing of revenue recognition differs from the timing of payments made by customers, the Company recognizes either unbilled revenue (performance precedes the billing date) or deferred revenue (customer payment is received in advance of performance). The Company has determined its contracts generally do not include a significant financing component.
The Company’s contract assets are presented in Prepaid and other current assets on the accompanying condensed consolidated balance sheets and totaled $8.1 million and $12.1 million at March 31, 2023 and December 31, 2022, respectively. These amounts relate to revenue recognized during the respective period that is expected to be invoiced and collected in future periods.
The Company’s contract liabilities, which are recorded in Deferred revenue on the accompanying condensed consolidated balance sheets, are expected to be recognized as revenues during the succeeding twelve-month period. Deferred revenue totaled $6.4 million and $8.8 million at March 31, 2023 and December 31, 2022, respectively.
The amount of revenue recognized during the three months ended March 31, 2023 that was included in the deferred revenue balance as of December 31, 2022 was $2.9 million.
Transaction Price Allocated to Remaining Performance Obligations
The Company has certain licensing contracts with minimum guarantees and terms extending beyond one year. Revenue to be recognized related to the remaining performance obligations was $1.3 million at March 31, 2023 and is expected to be recognized over the next two years. This amount does not include: (i) contracts with an original expected duration of one year or less, such as advertising contracts; (ii) variable consideration in the form of sales-based royalties; or (iii) variable consideration allocated entirely to wholly unperformed performance obligations.
For each contract, the Company estimates whether it will be subject to variable consideration under the terms of the contract and includes its estimate of variable consideration, subject to constraint, in the transaction price based on the expected value method when it is deemed probable of being realized based on historical experience and trends. The Company updates its estimate of the transaction price each reporting period and the effect of variable consideration on the transaction price is recognized as an adjustment to revenue on a cumulative catch-up basis.
5. Fair Value Measurements
The Company’s financial assets and liabilities that are measured at fair value on a recurring basis are summarized below:
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 |
| Level 1 | | Level 2 | | Level 3 | | Total |
Assets: | | | | | | | |
Cash equivalents: | | | | | | | |
Money market funds | $ | 25,017 | | | $ | — | | | $ | — | | | $ | 25,017 | |
Total | $ | 25,017 | | | $ | — | | | $ | — | | | $ | 25,017 | |
Liabilities: | | | | | | | |
Derivative liability | $ | — | | | $ | — | | | $ | 1,185 | | | $ | 1,185 | |
Other non-current liabilities: | | | | | | | |
Public Warrants | 978 | | | — | | | — | | | 978 | |
Private Warrants | — | | | 10 | | | — | | | 10 | |
Total | $ | 978 | | | $ | 10 | | | $ | 1,185 | | | $ | 2,173 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Level 1 | | Level 2 | | Level 3 | | Total |
Assets: | | | | | | | |
Cash equivalents: | | | | | | | |
Money market funds | $ | 1,154 | | | $ | — | | | $ | — | | | $ | 1,154 | |
Total | $ | 1,154 | | | $ | — | | | $ | — | | | $ | 1,154 | |
Liabilities: | | | | | | | |
Derivative liability | $ | — | | | $ | — | | | $ | 180 | | | $ | 180 | |
Other non-current liabilities: | | | | | | | |
Public Warrants | 384 | | — | | — | | 384 |
Private Warrants | — | | 11 | | — | | 11 |
Total | $ | 384 | | | $ | 11 | | | $ | 180 | | | $ | 575 | |
The Company’s investments in money market funds are measured at amortized cost, which approximates fair value.
The Company’s warrant liability as of March 31, 2023 and December 31, 2022 includes public and private warrants that were originally issued by 890, but which were assumed by the Company as part of the closing of the Business Combination (the “Public Warrants” and “Private Warrants,” respectively), which are recorded on the balance sheet at fair value. The carrying amount is subject to remeasurement at each balance sheet date. With each remeasurement, the carrying amount is adjusted to fair value, with the change in fair value recognized in the Company’s condensed consolidated statements of operations and comprehensive loss.
The Public Warrants are publicly traded under the symbol “BZFDW”, and the fair value of the Public Warrants at a specific date is determined by the closing price of the Public Warrants as of that date. As such, the Public Warrants are classified within Level 1 of the fair value hierarchy. The closing price of the Public Warrants was $0.10 and $0.04 as of March 31, 2023 and December 31, 2022, respectively.
As of March 31, 2023 and December 31, 2022, Level 3 instruments consisted of the Company’s derivative liability related to the Notes. Fair value measurements categorized within Level 3 are sensitive to changes in the assumptions or methodologies used to determine fair value, and such changes could result in a significant increase or decrease in the fair value. To measure the fair value of the derivative liability, the Company compared the calculated value of the Notes with the indicated value of the host instrument, defined as the straight-debt component of the Notes. The difference between the value of the straight-debt host instrument and the fair value of the Notes resulted in the value of the derivative liability. The value of the straight-debt host instrument was estimated based on a binomial lattice model, excluding the conversion option and the make-whole payment upon conversion.
The following table provides quantitative information regarding the significant unobservable inputs used by the Company related to the derivative liability:
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
Term (in years) | 3.7 | | 3.9 |
Risk-free rate | 3.74 | % | | 4.11 | % |
Volatility | 94.1 | % | | 76.6 | % |
The following table represents the activity of the Level 3 instruments:
| | | | | |
| Derivative Liability |
Balance as of December 31, 2022 | $ | 180 | |
Change in fair value of derivative liability | 1,005 | |
Balance as of March 31, 2023 | $ | 1,185 | |
There were no transfers between fair value measurement levels during the three months ended March 31, 2023.
Equity Investment
For equity investments in entities that the Company does not exercise significant influence over, if the fair value of the investment is not readily determinable, the investment is accounted for at cost, and adjusted for subsequent observable price changes. If the fair value of the investment is readily determinable, the investment is accounted for at fair value. The Company reviews equity investments without readily determinable fair values at each period end to determine whether they have been impaired.
As of March 31, 2023 and December 31, 2022, the Company had an investment in equity securities of a privately-held company without a readily determinable fair value. The total carrying value of the investment, included in Prepaid and other assets on the condensed consolidated balance sheets, was $3.6 million as of March 31, 2023 and December 31, 2022, respectively.
6. Property and Equipment, net
Property and equipment, net consisted of the following:
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
Leasehold improvements | $ | 50,711 | | | $ | 50,688 | |
Furniture and fixtures | 6,158 | | | 6,069 | |
Computer equipment | 5,898 | | | 5,629 | |
Video equipment | 792 | | | 792 | |
Total | 63,559 | | | 63,178 | |
Less: Accumulated depreciation | (47,113) | | | (45,404) | |
Net Carrying Value | $ | 16,446 | | | $ | 17,774 | |
Depreciation totaled $1.7 million and $2.5 million for the three months ended March 31, 2023 and 2022, respectively, included in Depreciation and amortization expense.
7. Capitalized Software Costs, net
Capitalized software costs, net consisted of the following:
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
Website and internal-use software | $ | 79,845 | | | $ | 75,871 | |
Less: Accumulated amortization | (59,497) | | | (56,612) | |
Net Carrying Value | $ | 20,348 | | | $ | 19,259 | |
The Company capitalized $4.0 million and $3.6 million for the three months ended March 31, 2023 and 2022, respectively, included in Capitalized software costs. The Company amortized $2.9 million and $2.2 million for the three months ended March 31, 2023 and 2022, respectively, included in Depreciation and amortization expense.
8. Intangible Assets, net
The following table presents the detail of intangible assets for the periods presented and the weighted average remaining useful lives:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
| Weighted- Average Remaining Useful Lives (in years) | | Gross Carrying Value | | Accumulated Amortization | | Net Carrying Value | | Weighted- Average Remaining Useful Lives (in years) | | Gross Carrying Value | | Accumulated Amortization | | Net Carrying Value |
Acquired Technology | 1 | | $ | 10,600 | | | $ | 6,163 | | | $ | 4,437 | | | 2 | | $ | 10,600 | | | $ | 5,279 | | | $ | 5,321 | |
Trademarks and Trade Names | 14 | | 111,000 | | | 10,606 | | | 100,394 | | | 14 | | 111,000 | | | 8,756 | | | 102,244 | |
Trademarks and Trade Names | Indefinite | | 1,368 | | | — | | | 1,368 | | | Indefinite | | 1,368 | | | — | | | 1,368 | |
Customer Relationships | 3 | | 17,000 | | | 5,667 | | | 11,333 | | | 3 | | 17,000 | | | 4,604 | | | 12,396 | |
Total | | | $ | 139,968 | | | $ | 22,436 | | | $ | 117,532 | | | | | $ | 139,968 | | | $ | 18,639 | | | $ | 121,329 | |
With respect to intangible assets, the Company amortized $3.8 million and $3.8 million for the three months ended March 31, 2023 and 2022, respectively, included in Depreciation and amortization expense.
Estimated future amortization expense as of March 31, 2023 is as follows (in thousands):
| | | | | |
Remainder of 2023 | $ | 11,388 | |
2024 | 13,438 | |
2025 | 11,296 | |
2026 | 7,400 | |
2027 | 7,400 | |
Thereafter | 65,242 | |
Total | $ | 116,164 | |
9. Debt
Revolving Credit Facility
On December 30, 2020, the Company entered into a three-year, $50.0 million, revolving loan and standby letter of credit facility agreement (i.e., the Revolving Credit Facility). The Revolving Credit Facility provides for the issuance of up to $15.5 million of standby letters of credit and aggregate borrowings under the Revolving Credit Facility are generally
limited to 95% of qualifying investment grade accounts receivable and 90% of qualifying non-investment grade accounts receivable, subject to adjustment at the discretion of the lenders. The $15.5 million of standby letters of credit were issued during the three months ended March 31, 2021 in favor of certain of the Company’s landlords. The Revolving Credit Facility was amended and restated in connection with the closing of the Business Combination to, among other things, add the Company and certain other entities as guarantors. The Revolving Credit Facility was further amended and restated on December 15, 2022 to, among other things, extend the maturity date until December 30, 2025, replace the London Inter-Bank Offered Rate (LIBOR) rate with the Secured Overnight Financing Rate (“SOFR”) rate, and provide for an early termination fee of between 0.5% and 2% of the maximum facility loan amount. The Company incurred $0.2 million of debt issuance fees associated with the December 15, 2022 amendment. On May 10, 2023, the parties to the Revolving Credit Facility entered into a joinder agreement adding one of the Company’s Canadian subsidiaries as a borrower under the Revolving Credit Facility, granting the lenders under the Revolving Credit Facility a lien on that subsidiary’s collateral, and including that subsidiary's receivables in the calculation of the borrowing base under the Revolving Credit Facility.
The Revolving Credit Facility includes covenants that, among other things, require the Company to maintain at least $25.0 million of unrestricted cash at all times and limit, under prescribed circumstances, the ability of the Company to incur additional indebtedness, pay dividends, hold unpermitted investments, or make material changes to the business. The Company was in compliance with the financial covenants under such facility as of March 31, 2023.
Borrowings under the Revolving Credit Facility bear interest at the SOFR rate, subject to a floor rate of 0.75%, plus a margin of 3.75% to 4.25%, depending on the level of the Company’s utilization of the facility (8.49% at March 31, 2023), and subject to a monthly minimum utilization of $15.0 million. The facility also includes an unused commitment fee of 0.375%.
The Company had outstanding borrowings of $32.2 million and $33.5 million at March 31, 2023 and December 31, 2022, respectively. The Company had outstanding letters of credit of $15.5 million under the Revolving Credit Facility at March 31, 2023 and December 31, 2022, and the total unused borrowing capacity was $2.3 million and $1.0 million as of March 31, 2023 and December 31, 2022, respectively.
As of March 31, 2023 and December 31, 2022, the Company had $0.3 million and $0.4 million, respectively, of costs in connection with the issuance of debt included in Prepaid and other assets in the condensed consolidated balance sheet.
Convertible Notes
In June 2021, in connection with the entry into the merger agreement pursuant to which Business Combination was consummated, the Company entered into subscription agreements with certain investors to sell $150.0 million aggregate principal amount of unsecured convertible notes due 2026 (i.e., the Notes). In connection with closing of the the Business Combination, the Company issued, and those investors purchased, the Notes. The Notes bear interest at a rate of 8.50% per annum, payable semi-annually, are convertible into approximately 12,000,000 shares of our Class A common stock (or, at the Company’s election, a combination of cash and our Class A common stock), at an initial conversion price of $12.50, and mature on December 3, 2026.
The Company may, at its election, force conversion of the Notes after December 3, 2024 (i.e., after the third anniversary of the issuance of the Notes), subject to a holder’s prior right to convert and the satisfaction of certain other conditions, if the volume-weighted average trading price of our Class A common stock is greater than or equal to 130% of the conversion price for more than 20 trading days during a period of 30 consecutive trading days, which has yet to occur. In the event that a holder of the Notes elects to convert its Notes after the one year anniversary, and prior to the three-year anniversary, of the issuance of the Notes (i.e., between December 3, 2022 and December 3, 2024), the Company will be obligated to pay an amount equal to: (i) from the one year anniversary of the issuance of the Notes to the two year anniversary of the issuance of the Notes, an amount in cash equal to 18 month’s interest declining ratably on a monthly basis to 12 month’s interest on the aggregate principal amount of the Notes so converted and (ii) from the two year anniversary of the issuance of the Notes to the three year anniversary of the issuance of the Notes, an amount equal to 12 month’s interest declining ratably on a monthly basis to zero month’s interest, in each case, on the aggregate principal amount of the Notes so converted. Without limiting a holder’s right to convert the Notes at its option, interest will cease to accrue on the Notes during any period in which the Company would otherwise be entitled to force conversion of the Notes, but is not permitted to do so solely due to the failure of a trading volume condition specified in the indenture governing the Notes.
Each holder of a Note will have the right to cause the Company to repurchase for cash all or a portion of the Notes held by such holder (i) at any time after the third anniversary of the date on which the Business Combination was consummated, at a price equal to par plus accrued and unpaid interest; or (ii) at any time upon the occurrence of a fundamental change (as defined in the indenture governing the Notes), at a price equal to 101% of par plus accrued and unpaid interest.
The indenture governing the Notes includes restrictive covenants that, among other things, limit the Company’s ability to incur additional debt or liens, make restricted payments or investments, dispose of significant assets, transfer intellectual property, or enter into transactions with affiliates.
In accounting for the Notes, the Company bifurcated a derivative liability representing the conversion option, with a fair value at issuance of $31.6 million. To measure the fair value of the derivative liability, the Company compared the calculated value of the Notes with the indicated value of the host instrument, defined as the straight-debt component of the Notes. The difference between the value of the straight-debt host instrument and the fair value of the Notes resulted in the value of the derivative liability. The value of the straight-debt host instrument was estimated based on a binomial lattice model, excluding the conversion option and the make-whole payment upon conversion. The derivative liability is remeasured at each reporting date with the resulting gain or loss recorded in Change in fair value of derivative liability within the condensed consolidated statements of operations.
Interest expense on the Notes is recognized at an effective interest rate of 15% and totaled $4.5 million and $4.3 million for the three months ended March 31, 2023 and 2022, respectively, of which amortization of the debt discount and issuance costs comprised $1.4 million and $1.2 million for the three months ended March 31, 2023 and 2022, respectively.
The net carrying amount of the Notes as of March 31, 2023 and December 31, 2022 was:
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
Principal outstanding | $ | 150,000 | | | $ | 150,000 | |
Unamortized debt discount and issuance costs | (29,907) | | | (31,252) | |
Net carrying value | $ | 120,093 | | | $ | 118,748 | |
The fair value of the Notes was approximately $98.1 million and $99.8 million as of March 31, 2023 and December 31, 2022, respectively. The fair value of the Notes was estimated using Level 3 inputs.
10. Redeemable Noncontrolling Interest
The redeemable noncontrolling interest represented BuzzFeed Japan, which was held by Yahoo Japan. On May 17, 2022, Yahoo Japan transferred its interests in BuzzFeed Japan to other third parties. The agreements with the third parties do not contain any put rights. As such, on May 17, 2022, the Company reclassified the former redeemable noncontrolling interest to nonredeemable noncontrolling interest that is presented within Stockholders’ equity permanent equity on the Company’s condensed consolidated balance sheet, with no adjustment to the prior periods presented.
The table below presents the reconciliation of changes in redeemable noncontrolling interest:
| | | | | | | | | | | |
| 2023 | | 2022 |
Balance as of January 1, | $ | — | | | $ | 2,294 | |
Allocation of net income | — | | | 164 | |
Balance as of March 31, | $ | — | | | $ | 2,458 | |
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11. Stockholders’ Equity
Common Stock
In connection with the closing of the Business Combination, the Company authorized the issuance of 700,000,000 shares of Class A common stock, par value $0.0001 per share, 20,000,000 shares of Class B common stock, par value $0.0001 per share, and 10,000,000 shares of Class C common stock, par value $0.0001 per share. Each share of
Class A common stock is entitled to one vote and each share of Class B common stock is entitled to fifty votes. Class C common stock is non-voting.
Preferred Stock
In connection with the closing of the Business Combination, the Company authorized the issuance of 50,000,000 shares of preferred stock, par value $0.0001 per share. The Board of Directors is authorized, without further stockholder approval, to issue such preferred stock in one or more series, to fix the voting rights, if any, designations, powers, preferences, the relative, participating, optional or other special rights and any qualifications, limitations and restrictions thereof, applicable to the shares of each series. There were no issued and outstanding shares of preferred stock as of March 31, 2023 or December 31, 2022.
Stock-Based Compensation
Stock Options
A summary of the stock option activity under the Company’s equity incentive plans is presented below:
| | | | | | | | | | | | | | | | | | | | | | | |
| Number of Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Term | | Aggregate Intrinsic Value |
Balance as of December 31, 2022 | 3,976 | | $ | 6.20 | | | 3.80 | | $ | — | |
Granted | — | | | — | | | — | | | — | |
Exercised | (34) | | 0.86 | | | — | | | — | |
Forfeited | (52) | | 4.97 | | | — | | | — | |
Expired | (95) | | 4.06 | | | — | | | — | |
Balance as of March 31, 2023 | 3,795 | | $ | 6.31 | | | 3.53 | | $ | 6 | |
Expected to vest at March 31, 2023 | 3,795 | | $ | 6.31 | | | 3.53 | | $ | 6 | |
Exercisable at March 31, 2023 | 3,216 | | $ | 6.47 | | | 2.59 | | $ | 6 | |
As of March 31, 2023, the total share-based compensation costs not yet recognized related to unvested stock options was $1.4 million, which is expected to be recognized over the weighted-average remaining requisite service period of 1.2 years.
Restricted Stock Units
A summary of Restricted Stock Unit (“RSU”) activity is presented below:
| | | | | | | | | | | |
| Shares | | Weighted Average Grant- Date Fair Value |
Outstanding as of December 31, 2022 | 7,495 | | $ | 3.59 | |
Granted | — | | | — | |
Vested | (360) | | 4.65 | |
Forfeited | (531) | | 5.03 | |
Outstanding as of March 31, 2023 | 6,604 | | $ | 3.41 | |
As of March 31, 2023, there were approximately $12.2 million of unrecognized compensation costs related to RSUs.
Stock-Based Compensation Expense
The following table summarizes stock-based compensation cost included in the condensed consolidated statements of operations:
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2023 | | 2022 |
Cost of revenue, excluding depreciation and amortization | | | | | $ | 356 | | | $ | 460 | |
Sales and marketing | | | | | 569 | | | 722 | |
General and administrative | | | | | 542 | | | 2,598 | |
Research and development1 | | | | | (345) | | | 160 | |
Total | | | | | $ | 1,122 | | | $ | 3,940 | |
_________________________________
(1) The negative stock-based compensation expense for the three months ended March 31, 2023 for Research and development was due to forfeitures.
RSUs settle into shares of common stock upon vesting. Upon the vesting of the RSUs, for certain employees, the Company net-settles the RSUs and withholds a portion of the shares to satisfy minimum statutory employee withholding tax requirements. Total payment of the employees’ tax obligations to the tax authorities is reflected as a financing activity within the condensed consolidated statements of cash flows.
12. Net Loss Per Share
Net loss per share is computed using the two-class method. Basic net loss per share is computed using the weighted average number of shares of common stock outstanding for the period. Diluted net loss per share reflects the effect of the assumed exercise of any stock options, the vesting of any restricted stock units, the exercise of any warrants (including the Public Warrants and the Private Warrants), the conversion of any convertible debt (including the Notes), and the conversion of any convertible preferred stock, in each case only in the periods in which such effect would have been dilutive.
For the three months ended March 31, 2023, net loss per share amounts were the same for Class A and Class B common stock because the holders of each class are entitled to equal per share dividends. For the three months ended March 31, 2022, net loss per share amounts were the same for Class A, Class B, and Class C common stock because the holders of each class are entitled to equal per share dividends.
The table below presents the computation of basic and diluted net loss per share:
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2023 | | 2022 |
Numerator: | | | | | | | |
Net loss | | | | | $ | (36,261) | | | $ | (44,566) | |
Net income attributable to the redeemable noncontrolling interest | | | | | — | | | 164 | |
Net (loss) income attributable to noncontrolling interests | | | | | (260) | | | 164 | |
Net loss attributable to holders of Class A, Class B, and Class C common stock | | | | | (36,001) | | | (44,894) | |
Denominator: | | | | | | | |
Weighted average common shares outstanding, basic and diluted | | | | | 140,704 | | 136,425 |
Net loss per common share, basic and diluted | | | | | $ | (0.26) | | | $ | (0.33) | |
The table below presents the details of securities that were excluded from the calculation of diluted net income (loss) per share as the effect would have been anti-dilutive:
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2023 | | 2022 |
Stock options | | | | | 3,795 | | 4,355 |
Restricted stock units | | | | | 6,604 | | 7,019 |
Warrants | | | | | 9,876 | | 9,876 |
Convertible notes | | | | | 12,000 | | 12,000 |
Additionally, the calculation of diluted loss per share excluded 2.5 million RSUs for the three months ended March 31, 2022, for which the related liquidity condition had not been met.
13. Income Taxes
The Company’s tax provision or benefit from income taxes for interim periods is determined using an estimate of its annual effective tax rate, adjusted for discrete items, if any. Each quarter the Company updates its estimate of the annual effective tax rate and makes a year-to-date adjustment to the provision.
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2023 | | 2022 |
Income tax provision | | | | | $ | 147 | | | $ | 350 | |
Effective tax rate | | | | | (0.4) | % | | (0.8) | % |
For the three months ended March 31, 2023 and 2022, the Company’s effective tax rate differed from the U.S. federal statutory income tax rate of 21% primarily due to limited tax benefits provided for against its current year pre-tax operating loss as the Company maintains a full valuation allowance against its U.S. deferred tax assets that are not realizable on a more-likely-than-not basis.
The Company, or one of its subsidiaries, files its tax returns in the U.S. and certain state and foreign income tax jurisdictions with varying statute of limitations. The major jurisdictions in which the Company is subject to potential examination by tax authorities are the U.S., the United Kingdom, Japan, and Canada.
14. Leases
The Company leases office space under non-cancelable operating leases with various expiration dates through 2029. The Company accounts for leases under Accounting Standards Update 2016-02, Leases (Topic 842) (“ASC 842”) by recording right-of-use assets and liabilities. The right-of-use asset represents the Company’s right to use underlying assets for the lease term and the lease liability represents the Company’s obligation to make lease payments under the lease. The Company determines if an arrangement is, or contains, a lease at contract inception and exercises judgment and applies certain assumptions when determining the discount rate, lease term, and lease payments. ASC 842 requires a lessee to record a lease liability based on the discounted unpaid lease payments using the interest rate implicit in the lease or, if the rate cannot be readily determined, the incremental borrowing rate. Generally, the Company does not have knowledge of the rate implicit in the lease and, therefore, uses its incremental borrowing rate for a lease. The lease term includes the non-cancelable period of the lease plus any additional periods covered by an option to extend that the Company is reasonably certain to exercise. The Company’s lease agreements generally do not contain any material residual value guarantees or material restrictive covenants. Certain of the Company’s lease agreements include escalating lease payments. Additionally, certain lease agreements contain renewal provisions and other provisions which require the Company to pay taxes, insurance, or maintenance costs.
The Company subleases certain leased office space to third parties when it determines there is excess leased capacity. On July 8, 2022, the Company entered into a sublease with Monday.com with respect to substantially all of the Company's existing corporate headquarters. The sublease commenced on August 26, 2022 and expires on May 30, 2026, unless terminated sooner in accordance with the provisions of the sublease. Pursuant to the terms of the sublease, Monday.com will pay a fixed monthly rent of $0.8 million, subject to periodic increases. In-lieu of a cash security deposit, the Company received a letter of credit from Citibank for approximately $4.5 million.
Sublease rent income is recognized as an offset to rent expense on a straight-line basis over the lease term. In addition to sublease rent, other costs such as common-area maintenance, utilities, and real estate taxes are charged to subtenants over the duration of the lease for their proportionate share of these costs.
The following illustrates the lease costs for the three months ended March 31, 2023 and 2022:
| | | | | | | | | | | | | | | | | |
| | | | | Three Months Ended March 31, |
| | | | | | | 2023 | | 2022 |
Operating lease cost | | | | | | | $ | 7,447 | | | $ | 7,727 | |
Sublease income | | | | | | | (3,958) | | | (1,829) | |
Total lease cost | | | | | | | $ | 3,489 | | | $ | 5,898 | |
All components of total lease cost are recorded within General and administrative expenses within the condensed consolidated statement of operations. The Company does not have material short-term or variable lease costs.
The following amounts were recorded in the Company’s condensed consolidated balance sheet related to operating leases:
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
Assets | | | |
Right-of-use assets | $ | 61,615 | | | $ | 66,581 | |
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Liabilities | | | |
Current lease liabilities | 22,667 | | | 23,398 | |
Noncurrent lease liabilities | 54,269 | | | 59,315 | |
Total lease liabilities | $ | 76,936 | | | $ | 82,713 | |
Other information related to leases was as follows:
| | | | | | | | | | | |
| Three Months Ended March 31, 2023 | | Three Months Ended March 31, 2022 |
Supplemental cash flow information: | | | |
Cash paid for amounts included in measurement of lease liabilities: | | | |
Operating cash flows for operating lease liabilities | 8,459 | | | 8,419 | |
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
Weighted average remaining lease term (years) | 3.23 | | 3.40 |
Weighted average discount rate | 13.79 | % | | 13.76 | % |
Maturities of lease liabilities as of March 31, 2023 were as follows:
| | | | | | | | |
Year | | Operating Leases |
Remainder of 2023 | | $ | 24,386 | |
2024 | | 28,220 | |
2025 | | 25,616 | |
2026 | | 13,044 | |
2027 | | 2,706 | |
Thereafter | | 1,331 | |
Total lease payments | | 95,303 | |
Less: imputed interest | | (18,367) | |
Total | | $ | 76,936 | |
Sublease receipts to be received in the future under noncancelable subleases as of March 31, 2023 were as follows:
| | | | | | | | |
Year | | Amount |
Remainder of 2023 | | $ | 11,737 | |
2024 | | 15,538 | |
2025 | | 15,538 | |
2026 | | 4,886 | |
2027 | | 178 | |
Thereafter | | — | |
Total | | $ | 47,877 | |
15. Commitments and Contingencies
Guarantees
In September 2018, at the time of its equity investment in a private company, the Company agreed to guarantee the lease of such company’s premises in New York. In October 2020, the investee renewed its lease agreement, and the Company’s prior guarantee was replaced with a new guarantee of up to $5.4 million. The amount of the guarantee is reduced as the investee makes payments under the lease. As of March 31, 2023, the maximum amount of the guarantee was $0.7 million, and no liability was recognized with respect to the guarantee.
In the course of its business, the Company both provides and receives indemnities which are intended to allocate certain risks associated with business transactions. Similarly, the Company may remain contingently liable for various obligations of a business that has been divested in the event that a third party does not fulfill its obligations under an indemnification obligation. The Company records a liability for indemnification obligations and other contingent liabilities when probable and reasonably estimable.
Legal Matters
The Company is party to various lawsuits and claims in the ordinary course of business.
Two mass arbitrations (the “Arbitrations”) were initiated before the American Arbitration Association on March 15, 2022 against the Company and certain of its executive officers and directors (together, the “BuzzFeed Defendants”) and Continental Stock Transfer Corporation by 91 individuals previously employed by Legacy BuzzFeed (the “Claimants”). The Claimants alleged that they were harmed when they were allegedly unable to convert their shares of Class B common stock to Class A common stock and sell those shares on December 6, 2021, the first day of trading following the Business Combination, and asserted claims for negligence, misrepresentation, breach of fiduciary duty, and violation of Section 11
of the Securities Act. The Claimants sought to recover unspecified compensatory damages, an award of costs, and any further appropriate relief.
On April 21, 2022, the BuzzFeed Defendants filed a complaint in the Delaware Court of Chancery seeking to enjoin the Arbitrations on the grounds that, inter alia, the Claimants’ purported causes of action arise from their rights as shareholders of the Company, are governed by the Company’s charter, including its forum selection provision, and are therefore not arbitrable (the “Delaware Action”). The complaint sought declaratory and injunctive relief. A hearing on the merits of the Delaware Action was held on July 26, 2022. On October 28, 2022, the Court of Chancery granted the Company’s motion to permanently enjoin the Claimants’ arbitration claims.
On January 17, 2023, the Claimants filed amended statements of claim in the Arbitrations against BuzzFeed Media Enterprises, Inc., a wholly-owned subsidiary of the Company, and Continental Stock Transfer & Trust Corporation, the transfer agent for 890 and later the Company. The amended statements of claim likewise allege that the Claimants were harmed when they were allegedly unable to convert their shares of Class B common stock to Class A common stock and sell those shares on the first day of trading following the Business Combination. The Claimants allege claims for breach of contract and the covenant of good faith and fair dealing, misrepresentation, and negligence, and seek to recover unspecified compensatory damages, an award of costs, and any further appropriate relief.
On March 29, 2023, BuzzFeed Media Enterprises, Inc., filed a complaint in the Delaware Court of Chancery seeking to enjoin the Arbitrations on the grounds that, inter alia, the Claimants’ purported causes of action arise from their rights as shareholders of the Company, are governed by the Company’s charter, including its forum selection provision, and are therefore not arbitrable. The complaint seeks declaratory and injunctive relief.
Although the outcome of such matters cannot be predicted with certainty and the impact that the final resolution of such matters will ultimately have on the Company’s condensed consolidated financial statements is not known, the Company does not believe that the resolution of these matters will have a material adverse effect on the Company’s future results of operations or cash flows.
The Company settled or resolved certain legal matters during the three months ended March 31, 2023 and 2022 that did not individually or in the aggregate have a material impact on the Company’s business or its condensed consolidated balance sheets, results of operations or cash flows.
16. Segment Information
Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”), in deciding how to allocate resources and in assessing performance.
The Company has determined that its chief executive officer is its CODM who makes resource allocation decisions and assesses performance based upon financial information at the consolidated level. The Company manages its operations as a single segment for the purpose of assessing and making operating decisions. Since the Company operates in one operating segment, all required financial segment information can be found in the condensed consolidated financial statements.
17. Related Party Transactions
The Company recognized revenue from NBCUniversal Media, LLC (“NBCU”) of $0.5 million and $0.5 million for the three months ended March 31, 2023 and 2022, respectively. The Company recognized expenses under contractual obligations from NBCU of $nil and $0.2 million for the three months ended March 31, 2023 and 2022, respectively. The Company had outstanding receivable balances of $1.0 million and $2.2 million from NBCU as of March 31, 2023 and December 31, 2022, respectively. The Company had an outstanding payable balance of $0.2 million to NBCU as of March 31, 2023 (none as of December 31, 2022).
On March 15, 2023, Verizon Ventures LLC (“Verizon”) converted all 6,478,031 shares of Class C common stock into Class A common stock, resulting in Verizon and its affiliates holding more than 5% of our Class A common stock. Verizon is the landlord for the Company’s corporate headquarters (assumed from the acquisition of Complex Networks), and we transact with Verizon in the normal course of business, such as with agency advertising deals and for certain utilities. The Company recognized revenue from Verizon of $0.1 million for the three months ended March 31, 2023 (none
for the three months ended March 31, 2022). The Company recognized expenses under contractual obligations from Verizon of $1.5 million for the three months ended March 31, 2023 and 2022. The Company had no outstanding receivables or payables from or to Verizon as of March 31, 2023 or December 31, 2022.
18. Supplemental Disclosures
Film Costs
The Company had no material capitalized film costs as of March 31, 2023 or December 31, 2022 and had no material amortization of film costs for the three months ended March 31, 2023 or 2022.
Governmental Assistance
Production tax incentives reduced capitalized film costs by $1.5 million as of December 31, 2022 (none as of March 31, 2023). The Company had receivables related to our production tax credits of $3.0 million as of March 31, 2023 and December 31, 2022, included in Prepaid and other current assets in our condensed consolidated balance sheet.
Supplemental Cash Flow Disclosures
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2023 | | 2022 |
Cash paid for income taxes, net | $ | 98 | | | $ | 218 | |
Cash paid for interest | 970 | | | 331 | |
Non-cash investing and financing activities: | | | |
Accounts payable and accrued expenses related to property and equipment | 20 | | | 402 | |
19. Subsequent Events
On April 20, 2023, the Company announced plans to reduce expenses by implementing an approximately 15% reduction in the current workforce. The reduction in workforce plan is part of a broader strategic reprioritization across the Company in order to accelerate revenue growth and improve upon profitability and cash flow. The Company expects to incur between $7 million to $11 million of restructuring charges, comprised mainly of severance and related benefit costs. The restructuring actions associated with this charge are expected to be substantially complete and paid by June 30, 2023, with any remaining cash expenditures to be paid by the end of the third quarter 2023.