RUM Group Inc.: Form 10-Q for the period ended Sep 30, 2024

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated interim financial statements and the related notes included in Item 1 of Part I of this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from such forward-looking statements. Factors that could cause or contribute to those differences include, but are not limited to, those identified below and those discussed in the sections titled “1A. Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” included elsewhere in this Quarterly Report and those discussed in our other filings with the SEC. Additionally, our historical results are not necessarily indicative of the results that may be expected in any future period. Amounts are presented in U.S. dollars.

Overview

We are a high growth, video sharing and cloud services provider platform designed to help content creators manage, distribute, and monetize their content by connecting them with brands, publishers, and directly to their subscribers and followers. Our registered office is 444 Gulf of Mexico Drive, Longboat Key, Florida, 34228. Our shares of Class A common stock and warrants are traded on The Nasdaq Global Market (“Nasdaq”) under the symbols “RUM” and “RUMBW”, respectively.

Revenues

We generate revenues primarily from Audience Monetization and Other Initiatives.

Audience Monetization includes: advertising fees on the Rumble platform; subscription fees earned primarily from consumer product offerings such as Rumble Premium; Locals and badges; revenues generated from content that is licensed by third-parties; pay-per-view; and fees from tipping and platform hosting fees. Advertising fees are generated by delivering digital video and display advertisements as well as cost-per-message-read advertisements. Digital video and display advertisements are placed on Rumble websites or mobile applications. Customers pay for advertisements either directly or through relationships with advertising agencies or resellers, based on the number of impressions delivered or the number of actions such as clicks, or purchases taken, by our users.

Other Initiatives includes: digital advertisements that are placed on Rumble’s network of third-party publisher websites or mobile applications; and cloud. Cloud includes consumption-based fees, subscriptions for infrastructure and professional services.

Refer to Note 2, Summary of Significant Accounting Policies, to the Company’s annual consolidated financial statements for the year ended December 31, 2023 (“Annual Financial Statements”)

Expenses

Expenses primarily include cost of services, general and administrative, research and development, sales and marketing, acquisition-related transaction costs, amortization and depreciation, and changes in fair value of contingent consideration. The most significant component of our expenses on an ongoing basis are programming and content, service provider costs, and staffing-related costs.

We expect to continue to invest substantial resources to support our growth and anticipate that each of the following categories of expenses will increase in absolute dollar amounts for the foreseeable future.

Cost of Services (Exclusive of Amortization and Depreciation)

Cost of services consists of costs related to obtaining, supporting and hosting the Company’s product offerings. These costs primarily include:

• Programming and content costs related to compensation to content providers, including share-based compensation, from whom video and other content are licensed. These costs are paid to these providers based on revenues generated, or in fixed amounts. In certain circumstances, we incur additional costs related to incentivizing top content creators to promote and join our platform; and
• Other cost of services such as third-party service provider costs, including data center and networking, as well as payment processing fees and costs paid to publishers.

General and Administrative Expenses

General and administrative expenses consist primarily of payroll and related expenses, which include bonuses and share-based compensation for our executives and certain other employees. General and administrative expenses also include legal and professional fees, business insurance costs, operating lease costs and other costs. As a public company, we expect to continue to incur material costs related to compliance with applicable laws and regulations, including audit and accounting fees, legal, insurance, investor relations and other costs.

Research and Development Expenses

Research and development expenses consist primarily of payroll and related expenses, which include bonuses and share-based compensation for our employees on our engineering and development teams. Research and development expenses also include consultant fees related to our development activities to originate, develop and enhance our platforms.

Sales and Marketing Expenses

Sales and marketing expenses consist primarily of payroll and related expenses, which include bonuses and share-based compensation for our employees associated with our sales and marketing functions. Sales and marketing expenses also include consultant fees and direct marketing costs related to the promotion of our platforms and solutions. We expect our sales and marketing expenses to increase over time as we promote our platform and brand, increase marketing activities, and grow domestic and international operations.

Acquisition-related Transaction Costs

Acquisition-related transaction costs consist of transaction expenses related to the Callin acquisition.

Amortization and Depreciation

Amortization and depreciation represent the recognition of costs of assets used in operations, including property and equipment and intangible assets, over their estimated service lives.

Change in Fair Value of Contingent Consideration

Certain contingent consideration associated with the Callin acquisition does not meet the criteria for equity classification, and must be recorded as a liability in accordance with guidance contained in ASC 815-40, *Derivatives and Hedging Contracts in Entity’s Own Equity (“*ASC 815-40”). Because the contingent consideration meets the definition of a liability under ASC 815, *Derivatives and Hedging (“*ASC 815”), it is measured at fair value at inception and at each reporting date in accordance with the guidance in ASC 820, *Fair Value Measurement (“*ASC 820”), with any subsequent changes in fair value recognized in the consolidated statement of operations in the applicable period of change.

Non-Operating Income and Other Items

Interest Income

Interest income consists of interest earned on our cash, cash equivalents, and marketable securities. We invest in highly liquid securities such as money market funds, treasury bills and term deposits.

Other Income (Expense)

Other income (expense) consists of miscellaneous income earned outside of normal company revenue as well as foreign exchange gains and losses related to gains and losses on transactions denominated in currencies other than the U.S. dollar.

Change in Fair Value of Warrant Liability

We account for our outstanding warrants in accordance with ASC 815-40, under which the warrants issued in connection with Business Combination do not meet the criteria for equity classification, and must be recorded as liabilities. As these warrants meet the definition of a liability under ASC 815, they are measured at fair value at inception and at each reporting date in accordance with the guidance in ASC 820, with any subsequent changes in fair value recognized in the consolidated statement of operations in the applicable period of change.

Income Tax Benefit (Expense)

Income tax benefit (expense) consists of the estimated federal, state, and foreign income taxes incurred in the U.S. and other jurisdictions in which we operate.

Key Business Metrics

To analyze our business performance, determine financial forecasts and help develop long-term strategic plans, we review the key business metrics described below.

Monthly Active Users (“MAUs”)

We use MAUs as a measure of audience engagement to help us understand the volume of users engaged with our content on a monthly basis. MAUs represent the total web, mobile app, and connected TV users of Rumble for each month, which allows us to measure our total user base calculated from data provided by Google, a third-party analytics provider. Google defines “active users” as the “[n]umber of distinct users who visited your website or application.”1 We have used the Google analytics systems since we first began publicly reporting MAU statistics, and the resulting data have not been independently verified.

As of July 1, 2023, Universal Analytics (“UA”), Google’s analytics platform on which we historically relied for calculating MAUs using company-set parameters, was phased out by Google and ceased processing data. At that time, Google Analytics 4 (“GA4”) succeeded UA as Google’s next-generation analytics platform, which has been used to determine MAUs since the third quarter of 2023 and which we expect to continue to use to determine MAUs in future periods. Although Google has disclosed certain information regarding the transition to GA4,2 Google does not currently make available sufficient information relating to its new GA4 algorithm for us to determine the full effect of the switch from UA to GA4 on our reported MAUs. Because Google has publicly stated that metrics in UA “may be more or less similar” to metrics in GA4, and that “[i]t is not unusual for there to be apparent discrepancies” between the two systems,3 we are unable to determine whether the transition from UA to GA4 has had a positive or negative effect, or the magnitude of such effect, if any, on our reported MAUs. It is therefore possible that MAUs that we reported based on the UA methodology (“MAUs (UA)”) for periods prior to July 1, 2023, cannot be meaningfully compared to MAUs based on the GA4 methodology (“MAUs (GA4)”) in subsequent periods.

1 Google, “[UA→GA4] Comparing Metrics: Google Analytics 4 vs. Universal Analytics, https://support.google.com/analytics/answer/11986666#zippy=%2Cin-this-article (last accessed Mar. 15, 2024) [hereinafter: “Google, Comparing Metrics.”] (providing the technical criteria Google uses to calculate active users).

2 Id.

3 Id.

MAUs (GA4) represent the total web, mobile app, and connected TV users of Rumble for each month,4 which allows us to measure our total user base calculated from data provided by Google.5 Connected TV users were not counted within MAUs within MAUs (UA) for periods prior to July 1, 2023, and we believe the number of such users was immaterial in those prior periods. We also believe that fewer than 1 million MAUs in the current period are from connected TV, making them similarly immaterial. Google’s parameters for measuring “active users” appear to exclude many, but not all, users who access content on Rumble through “embedded” videos on domains other than rumble.com, and we are unable to determine the exact number of users who access “embedded” content within our total number of MAUs. In addition, MAUs (GA4) may rely on statistical sampling and may be based on estimates of data that Google is missing “due to factors such as cookie consent.”6

As with our earlier MAU reporting, there is a potential for minor overlap in the resulting data due to users who access Rumble’s content through the web, our mobile apps, and connected TVs in a given measurement period; however, given that we believe this minor overlap to be immaterial, we do not separately track or report “unique users” as distinct from MAUs. Our reported MAUs have not historically included users of Locals, however, starting in mid-May 2024, Locals users began using Rumble’s single sign-on technology to access their account, which we expect will reduce the number of Locals users not included in our Rumble MAU reporting. We also do not separately report the number of users who register for accounts in any given period, which is different from MAUs.

Like many other major social media companies, we rely on significant paid advertising in order to attract users to our platform; however, we cannot be certain that all or substantially all activity that results from such advertising is genuine. Spam activity, including inauthentic and fraudulent user activity, if undetected, may contribute to some amount of overstatement of our performance indicators, including reporting of MAUs by Google. We continually seek to improve our ability to estimate the total number of spam-generated users, and we eliminate material activity that is substantially likely to be spam from the calculation of our MAUs. We will not, however, succeed in identifying and removing all spam.

MAUs (GA4) were 67 million on average in the third quarter of 2024, an increase of 26% from the second quarter of 2024. We believe that this increase is attributable to an increased interest in political news in the third quarter of 2024, including the lead-up to the United States presidential election.

4 During the measurement period, Rumble was available on the following connected TV systems: Roku, Android TV, Amazon Fire, LG, and Samsung TVs.

5 Google provides additional information on its definition of an “active user,” see Google, Comparing Metrics.

6 According to the GA4 dashboard, “[a]s of August 26, 2023, Analytics is estimating data that’s missing due to factors such as cookie consent.”

Average Revenue Per User (“ARPU”)

We use ARPU as a measure of our ability to monetize our user base. Quarterly ARPU is calculated as quarterly Audience Monetization revenue divided by MAUs for the relevant quarter (as reported by Google Analytics). ARPU does not include Other Initiatives revenue.

ARPU was $0.33 in the third quarter of 2024, a decrease of 11% from the second quarter of 2024. Given that we are currently in the early stages of monetizing our user base, we expect to see some lag in revenue relative to our users, particularly during periods of high user growth. As a result, in the third quarter we saw a decrease in ARPU as revenue growth slightly lagged our strong MAU growth from the lead-up to the United States presidential election.

We regularly review, have adjusted in the past, and may in the future adjust our processes for calculating our key business metrics to improve their accuracy, including through the application of new data or technologies or product changes that may allow us to identify previously undetected spam activity. As a result of such adjustments, our key business metrics may not be comparable period-over-period.

Results of Operations

The following table sets forth our results of operations data for the periods presented:

Comparisons for three months ended September 30, 2024 and 2023:

The following table sets forth our unaudited condensed consolidated interim statements of operations for the three months ended September 30, 2024 and 2023 and the dollar and percentage change between the two periods:

Revenues

Revenues increased by $7.1 million to $25.1 million in the three months ended September 30, 2024 compared to the three months ended September 30, 2023, of which $5.9 million was attributable to an increase in Audience Monetization revenues and $1.2 million was attributable to higher Other Initiatives. The increase in Audience Monetization revenues was mainly due to higher advertising and subscription revenue. The increase in revenue from Other Initiatives was mostly due to more advertising inventory being monetized by our publisher network and an increase in cloud services offered.

Cost of Services

Cost of services decreased by $3.3 million to $36.4 million in the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The decrease was due to a decrease in programming and content costs of $5.4 million, offset by an increase of $1.7 million in share-based compensation and $0.4 million in other cost of services. The decrease in programming and content costs was primarily due to a reduction of $7.9 million in guaranteed creator commitment costs, which was partially offset by a $2.5 million increase in the creators’ share of revenue.

General and Administrative Expenses

General and administrative expenses increased by $23.0 thousand to $9.7 million in the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The increase was mainly due to payroll and related expenses offset by a decrease in other administrative expenses such as public company-related costs, including legal, insurance, and other administrative services.

Research and Development Expenses

Research and development expenses decreased by $0.5 million to $4.7 million in the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The decrease was mainly due to a decrease in payroll and related expenses of $0.5 million.

Sales and Marketing Expenses

Sales and marketing expenses increased by $0.8 million to $4.0 million in the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The increase was due to an increase in payroll and related expenses of $0.8 million.

Acquisition-related Transaction Costs

Acquisition-related transaction costs decreased by $0.4 million to $nil in the three months ended September 30, 2024 compared to the three months ended September 30, 2023. Acquisition-related transaction costs for the three months ended September 30, 2023 consisted of transaction costs incurred related to acquisitions completed in 2023.

Amortization and Depreciation

Amortization and depreciation increased by $1.8 million to $3.1 million in the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The increase was due to an increase of $0.6 million from depreciation on our property and equipment as we continue to build out our infrastructure as well as an increase in amortization from intangible assets of $1.2 million.

Change in Fair Value of Contingent Consideration

Change in fair value of contingent consideration increased by $1.3 million to $nil for the three months ended September 30, 2024. The contingent consideration liability arose in connection with the Callin acquisition and the fair value of this contingent consideration was measured using the fair value of the expected number of shares to be issued and the Company’s share price at closing. The gain from the change in fair value of contingent consideration in 2023 was directly attributable to changes in the Company’s share price since the closing and the probability of contingencies being met. On May 15, 2024, the contingent consideration was derecognized and reclassified to equity.

Interest Income

Interest income decreased by $1.7 million to $1.9 million in the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The decrease was due to the fact that the Company invested less in money market funds, treasury bills, and term deposits.

Other Income (Expense)

Other income (expense) decreased by $0.1 million to an immaterial amount for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The decrease was primarily due to lower foreign currency rate fluctuation as we maintained the majority of our cash balance in U.S. dollars, which is our functional currency, as of September 30, 2024.

Change in Fair Value of Warrant Liability

Change in fair value of warrant liability decreased by $8.2 million resulting in a loss of $0.8 million in the three months ended September 30, 2024. The warrant liability arose in connection with the warrants offered as part of the Business Combination. As these warrants meet the classification of a financial liability in accordance with ASC 815-40, the related warrant liability is measured at its fair value, determined in accordance with ASC 820, at each reporting period. The fair value of this warrant liability was measured using the fair value of the Company’s warrants listed on the Nasdaq. The decrease in the change in fair value of warrant liability is directly attributable to changes in the trading price of Rumble’s warrants.

Income Tax Benefit (Expense)

Income tax benefit (expense) increased by $0.1 million to $0.1 million in the three months ended September 30, 2024 compared to the three months ended September 30, 2023.

Comparisons for nine months ended September 30, 2024 and 2023:

The following table sets forth our unaudited condensed consolidated interim statements of operations for the nine months ended September 30, 2024 and 2023 and the dollar and percentage change between the two periods:

Revenues

Revenues increased by $4.7 million to $65.3 million in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, of which $2.4 million was attributable to an increase in Audience Monetization revenues and higher Other Initiatives revenues of $2.3 million. The increase in Audience Monetization was mainly due to increases in subscription, platform hosting fees and tipping fees, offset by decreases in advertising fees. The increase in revenue from Other Initiatives was mostly due to more advertising inventory being monetized by our publisher network and cloud services offered.

Cost of Services

Cost of services decreased by $2.7 million to $103.9 million in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The decrease was due to a decrease in programming and content costs of $7.6 million, offset by an increase of $1.5 million in other cost of services and $3.4 million in share-based compensation. The decrease in programming and content costs was primarily due to a reduction of $9.0 million in guaranteed creator commitment costs, which was partially offset by a $1.4 million increase in the creators’ share of revenue.

General and Administrative Expenses

General and administrative expenses increased by $2.0 million to $29.4 million in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The increase was due to increases in payroll and related expenses of $1.2 million and share-based compensation of $2.6 million, offset by a decrease in other administrative expenses of $1.8 million. The $2.6 million increase in share-based compensation was related to the recognition of contingent shares issued in connection with the Callin acquisition that was accounted for as a post-combination expense as well as the expense of previously and newly granted restricted stock units and stock options for certain employees and executives. The $1.8 million decrease in other administrative expenses was mainly driven by public company-related costs, including legal, insurance, and other administrative services.

Research and Development Expenses

Research and development expenses increased by $2.4 million to $14.5 million in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The increase was due to an increase in payroll and related expenses of $2.1 million, as well as a $0.3 million increase in costs related to computer software and hardware, and other expenses used in research and development-related activity.

Sales and Marketing Expenses

Sales and marketing expenses increased by $3.3 million to $13.5 million in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The increase was due to an increase of $2.3 million in payroll and related expenses, $0.5 million in consulting services, and $0.5 million due to other marketing and public relations activities.

Acquisition-related Transaction Costs

Acquisition-related transaction costs decreased by $1.2 million to $nil in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. Acquisition-related transaction costs for the nine months ended September 30, 2023 consisted of transaction costs incurred related to acquisitions completed in 2023.

Amortization and Depreciation

Amortization and depreciation increased by $6.0 million to $9.1 million in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The increase was due to an increase of $1.9 million from depreciation on our property and equipment as we continue to build out our infrastructure as well as an increase in amortization from intangible assets of $4.1 million.

Change in Fair Value of Contingent Consideration

Change in fair value of contingent consideration increased by $3.1 million resulting in a loss of $1.4 million for the nine months ended September 30, 2024. The contingent consideration liability arose in connection with the Callin acquisition and the fair value of this contingent consideration was measured using the fair value of the expected number of shares to be issued and the Company’s share price at closing. The gain/loss from the change in fair value of contingent consideration can be directly attributable to changes in the Company’s share price since the closing and the probability of contingencies being met.

Interest Income

Interest income decreased by $3.9 million to $6.6 million in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The decrease was due to the fact that the Company invested less in money market funds, treasury bills, and term deposits.

Other Income (Expense)

Other income (expense) decreased by $0.2 million to $0.1 million for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The decrease was primarily due to lower foreign currency rate fluctuation as we maintained the majority of our cash balance in U.S. dollars, which is our functional currency, as of September 30, 2024.

Change in Fair Value of Warrant Liability

Change in fair value of warrant liability decreased by $2.1 million resulting in a loss of $1.5 million in the nine months ended September 30, 2024. The warrant liability arose in connection with the warrants offered as part of the Business Combination. As these warrants meet the classification of a financial liability in accordance with ASC 815-40, the related warrant liability is measured at its fair value, determined in accordance with ASC 820, at each reporting period. The fair value of this warrant liability was measured using the fair value of the Company’s warrants listed on the Nasdaq. The decrease in the change in fair value of warrant liability is directly attributable to changes in the trading price of Rumble’s warrants.

Income Tax Expense

Income tax expense decreased by an immaterial amount in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023.

Liquidity and Capital Resources

Since the completion of our Business Combination in September 2022, we have financed operations primarily through cash generated from operating activities and the funds raised from our Business Combination. The primary short-term requirements for liquidity and capital are to fund general working capital and capital expenditures.

As of September 30, 2024, our cash, cash equivalents, and marketable securities balance was $132.0 million. Cash, cash equivalents, and marketable securities consist of cash on deposit with banks and amounts held in money market funds, treasury bills, and term deposits.

As we have consistently stated, we are using a substantial portion of funds to acquire content by providing economic incentives to a small number of content creators, including sports leagues. As of September 30, 2024, we had entered into programming and content agreements with a minimum contractual cash commitment of $38 million. A significant amount of these minimum contractual cash commitments will be paid over 12 to 24 months, commencing in 2024.

The following table presents a summary of the unaudited condensed consolidated interim statement of cash flows for the nine months ended September 30, 2024 and 2023:

36

Operating Activities

Net cash used in operating activities for the nine months ended September 30, 2024 primarily consisted of net loss adjusted for certain non-cash items, including a $2.8 million loss on the change in fair value of warrants and contingent consideration, $14.7 million change in share-based compensation, $9.9 million changes in amortization and depreciation, $1.3 million changes in trade and barter revenue and expense, as well as changes in operating assets and liabilities. The increase in net cash used in operating activities during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 was mostly due to an increase in operating assets and liabilities offset by changes in net loss adjusted for certain non-cash items.

Investing Activities

Net cash used in investing activities for the nine months ended September 30, 2024 consisted of $7.3 million in purchases of property, equipment, and intangible assets, $3.9 million in cash paid in connection with the acquisitions of Callin and North River, and $0.1 million in purchase of marketable securities, net of sales and maturities of marketable securities. The increase in net cash used in investing activities during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 was due to an increase in purchases of intangible assets and marketable securities, which were partially offset by reduced spending on property and equipment. Additionally, the increase in net cash used was related to cash paid to non-accredited investors related to the Callin acquisition and cash paid in connection with the North River acquisition in the nine months ended September 30, 2024 as well as cash acquired in connection with the Callin acquisition in the nine months ended September 30, 2023.

Financing Activities

Net cash used in financing activities for the nine months ended September 30, 2024 consisted of $1.9 million in taxes paid from the net share settlement of share-based compensation, offset by $0.3 million from proceeds related to stock options exercised. The increase in net cash used in financing activities was due to the taxes paid from the net share settlement of share-based compensation, offset by proceeds from stock options exercised in the nine months ended September 30, 2024 compared to net cash used related to share issuance costs incurred in the nine months ended September 30, 2023.

Summary of Quarterly Results

Information for the most recent quarters presented are as follows:

37

Non-GAAP Financial Measures

To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we use certain non-GAAP financial measures, as described below, to understand and evaluate our core operating performance. These non-GAAP financial measures, which may be different than similarly titled measures used by other companies, are presented to enhance investors’ overall understanding of our financial performance and should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. We use the non-GAAP financial measure of: Adjusted EBITDA, which is defined as net income (loss) excluding interest income (expense), net, other income (expense), net; provision for income taxes, depreciation and amortization, share-based compensation expense, acquisition-related expense, change in fair value of warrants, and change in fair value of contingent consideration. The Company’s management believes that it is important to consider Adjusted EBITDA, in addition to net income (loss), as it helps identify trends in our business that could otherwise be masked by the effect of the gains and losses that are included in net income (loss) but excluded from Adjusted EBITDA.

Adjusted EBITDA should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. There are a number of limitations related to the use of Adjusted EBITDA rather than net income (loss), the nearest GAAP equivalent. As a result of these limitations, you should consider Adjusted EBITDA alongside other financial performance measures, including net income (loss) and our other financial results presented in accordance with GAAP. The following table presents a reconciliation of net income (loss), the most directly comparable financial measure calculated and presented in accordance with GAAP, to Adjusted EBITDA:

Reconciliation of Adjusted EBITDA

38

Critical Accounting Policies and Estimates

We prepare our unaudited condensed consolidated interim financial statements in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). The preparation of condensed consolidated interim financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses and related disclosures. We evaluate our estimates on a continuous basis. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates made by our management. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected.

We believe the following key accounting policies require significant judgments and estimates used in the preparation of our condensed consolidated interim financial statements. Critical accounting policies and estimates are those that we consider the most important to the portrayal of our financial condition and results of operations because they require our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain. Accordingly, we believe that these are the most critical to aid in fully understanding and evaluating our financial condition and results of operations.

For further information on the summary of significant accounting policies and the effect on our condensed consolidated interim financial statements, see Note 2, Summary of Significant Accounting Policies, to the Annual Financial Statements.

Acquisitions (Business Combination vs Asset Acquisition)

The Company evaluates whether acquired net assets should be accounted for as a business combination or an asset acquisition by first applying a screen test to determine whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. If so, the transaction is accounted for as an asset acquisition. If not, the Company applies its judgment to determine whether the acquired net assets meet the definition of a business by considering if the set includes an acquired input, process, and the ability to create outputs.

Valuation of Intangible Assets

The Company acquired intangible assets in connection with the acquisitions of Callin and North River. A valuation was performed to determine the estimated fair value of identifiable intangible assets related to the acquisition. Judgment is required to estimate the fair value of these identifiable intangible assets. We may use quoted market prices, prices for similar assets, present value techniques, and other valuation techniques such as the depreciated replacement cost and relief from royalty methods to prepare these estimates. We may need to make estimates of future cash flows and discount rates as well as other assumptions in order to implement these valuation techniques. Due to the degree of judgment involved in our estimation techniques, our estimate may result in a significant difference in the estimation of fair value.

Share-based Compensation

The Company issues equity awards such as stock options and restricted stock units to certain of its employees, directors, officers and consultants. We account for equity awards by recognizing the fair value of share-based compensation expense on a straight-line basis over the service period of the award.

For equity awards with a service condition, the fair value is estimated on the grant date using the Black-Scholes option pricing model which takes into account the following inputs: stock price, expected term, volatility, and risk-free interest rate. For equity awards with a market condition, the fair value is estimated on the grant date using a Monte Carlo simulation methodology that includes simulating the stock price using a risk-neutral Geometric Brownian Motion-based pricing model. Changes in the estimated inputs or using other option valuation methods may result in materially different option values and share-based compensation expense.

For equity awards with a performance condition, the Company assesses the likelihood of the performance condition underlying an award being met and recognizes a share-based compensation expense associated with that award only if it is probable the performance condition will be met. Where the performance condition underlying an award is a change in control, the Company considers the performance condition to be probable only when it occurs.

Income Taxes

The Company is subject to income taxes in the United States and other foreign jurisdictions. Significant judgment is required in determining our provision for income taxes and income tax assets and liabilities, including evaluating uncertainties in the application of accounting principles and complex tax laws.

Uncertain tax positions are accounted for using a comprehensive model for the manner in which a company should recognize, measure, present and disclose in its financial statements all material uncertain income tax positions. The Company reviews its nexus in various tax jurisdictions and the Company’s tax positions related to all open tax years for events that could change the status of its tax liability, if any, or require an additional liability to be recorded. Such events may be the resolution of issues raised by a taxing authority, expiration of the statute of limitations for a prior open tax year or new transactions for which a tax position may be deemed to be uncertain. Those positions, for which management’s assessment is that there is more than a 50 percent probability of sustaining the position upon challenge by a taxing authority based upon its technical merits, are subjected to the measurement criteria.

Trade and Barter Transactions

The Company engages in trade and barter transactions whereby the Company and its counterparty exchange media campaigns or other promotional services. The Company reviews each transaction to ensure the advertising it receives has economic substance and records revenue in an amount equal to the fair value of the products and services received unless this is not reasonable to estimate, in which case the consideration is measured based on the standalone selling price of the advertising inventory promised or delivered to the customer. Trade and barter revenue is recognized when the performance obligation is fulfilled and follows the same pattern of recognition as the Company’s normal advertising revenue. Trade and barter expense is recorded when goods or services are consumed. The trade and barter expense is recorded in sales and marketing expense in the condensed consolidated interim statement of operations.

New Accounting Pronouncements

See Note 2, Summary of Significant Accounting Policies, to our Annual Financial Statements for the years ended December 31, 2023 and 2022.

JOBS Act Accounting Election

We are an emerging growth company, as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We intend to elect to adopt new or revised accounting standards under private company adoption timelines. Accordingly, the timing of our adoption of new or revised accounting standards will not be the same as other public companies that are not emerging growth companies or that have opted out of using such extended transition period and our financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards.

We are exposed to certain market risks as part of our ongoing business operations.

Credit and Concentration Risk

We are exposed to credit risk on our cash, cash equivalents, marketable securities, and accounts receivable. We place cash, cash equivalents, and marketable securities with financial institutions with high credit standing, and we place excess cash in money market funds, treasury bills, and deposits. We are exposed to credit risk on our accounts receivable in the event of default by a customer. We bill our customers under customary payment terms and review customers for their creditworthiness. The term between invoicing and payment due date is not significant. A meaningful portion of our revenue is attributable to service agreements with one customer. For the three months ended September 30, 2024 and 2023, one customer accounted for $3,192,053 and $5,751,157 or 13% and 32% of revenue, respectively. For the nine months ended September 30, 2024 and 2023, one customer accounted for $11,671,470 and $29,762,071 or 18% and 49% of revenue, respectively. As of September 30, 2024, one customer accounted for 11% of accounts receivable. As of December 31, 2023, one customer accounted for 35% of accounts receivable.

Interest Rate Risk

We are exposed to interest rate risk on our cash, cash equivalents and marketable securities. As of September 30, 2024, we had cash, cash equivalents and marketable securities of $132.0 million, consisting of investments in money market funds, treasury bills, and term deposits for which the fair market value would be affected by changes in the general level of interest rates. However, due to the short-term maturities and the low-risk profile of our investments, an immediate 10% change in interest rates would not have a material effect on the fair market value of our cash, cash equivalents and marketable securities.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and principal financial officer, have reviewed and evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Quarterly Report. Based on this review and evaluation, our principal executive officer and principal financial officer concluded that, as of such date, our disclosure controls and procedures were effective to ensure that information required by us in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and (ii) accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Controls over Financial Reporting

There were no changes in our internal control over financial reporting during the period covered by this Quarterly Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Except as set forth below, there have been no material changes to the risk factors described under the caption “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023. You should carefully consider the risks, uncertainties and cautionary statements described therein, together with the other disclosures in this Quarterly Report on Form 10-Q and in our other public filings with the SEC. Any such risks and uncertainties, as well as risks and uncertainties not currently known to us or that we currently deem to be immaterial, may materially adversely affect our business, financial condition and operating results.

Risks Relating to Our Business

We have offered and intend to continue to offer incentives, including economic incentives, to content creators to join our platform, and these arrangements may involve fixed payment obligations that are not contingent on actual revenue or performance metrics generated by the applicable content creator but rather are based on our modeled financial projections for that creator, which if not satisfied may adversely impact our financial performance, results of operations and liquidity.

Our user base and user engagement growth are directly driven by the content available on our platform. We have acquired and expect to continue to acquire content by providing economic incentives, including minimum guaranteed earnings, to a limited number of content creators, including sports leagues. These incentives have included and may continue to include equity grants and cash payments. This content acquisition strategy is intended to allow us to enter key content verticals and secure top content creators in those verticals before we have full monetization capabilities in place. Our present focus is to grow users and usage consumption and experiment with monetization levers, which may not maximize profitability in the immediate term, but which we believe positions our business for the long term. As of September 30, 2024, we had entered into programming and content agreements with a minimum contractual cash commitment of $38 million. In addition to the minimum contractual cash commitments, we have programming and content agreements that have variable cost arrangements. These future costs are dependent upon many factors and are difficult to anticipate, however, these costs may be substantial. To the extent our revenue and/or user growth assumptions associated with any particular creator do not meet our expectations, our financial performance, results of operations and liquidity may be negative impacted, since a failure to achieve these expectations is not expected to reduce our fixed payment obligations to any such creator.

In addition, when these programming and content agreements expire, content creators may choose to leave the Rumble video platform in favor of competing platforms, especially if competing platforms offer superior monetization opportunities. Creators may choose to leave our platform for other monetization-related reasons. For example, we currently do not apportion revenues related to Rumble Premium, our subscription service that provides users ad-free access to our content, among content creators. The loss of a material portion of our existing content creators could result in reductions to our user base and material harm to our business and results of operations.

Our recently launched cloud services business may not achieve success, and, as a result, our business, financial condition and results of operations could be adversely affected.

Our recent expansion into the cloud service business may not be successful and involves various risks relating to this business that may negatively affect our operating results, including:

• our ability to derive an optimal pricing model that enables us to derive sufficient value from our customers while attracting new customers and retaining existing customers;
• our reliance on third-party providers for data center space and colocation services and on public cloud providers to prevent service disruptions;
• the intense competition that we face, including from companies with longer operating histories, greater name recognition, larger customer bases and significantly greater financial, technical, sales, marketing and other resources than we have;
• our ability to attract and retain highly qualified personnel, particularly software and cloud engineers and sales and customer experience personnel;
• the possibility that we may be unable to maintain and improve our platform performance, especially during peak usage times;
• the possibility that we may underestimate or overestimate our data center capacity requirements and our capital expenditures on data centers, servers and equipment;
• our ability to obtain or retain standard industry security certifications for our platform and products;
• our exposure to possible liability and harm to our reputation if the security of our cloud is breached, resulting in the exposure of our customers’ data, including personal information, to cyber criminals and other nefarious actors;
• the possibility that we may be unable to maintain the compatibility of our platform with third-party applications that our customers use in their businesses; and
• our ability to respond to rapid technological changes with new solutions and services offerings.

The occurrence of any of these factors, or our inability to successfully mitigate the results of the associated impact, could also damage our reputation, negatively impact our relationship with our customers, and otherwise materially harm our business, results of operations, and financial condition.

Risks related to our e-commerce business may result in our broader business, financial condition and results of operations being adversely affected.

We recently launched partnerships through which we sell Rumble-branded products through our online store, and we plan to expand such product partnerships in the future. This expansion involves various risks that may negatively affect our operating results, including:

• expansion into new brands, products, services, and technologies will subject us to additional reputational, business, legal, regulatory and financial risks;
• inability to build and maintain strong brands, including due to unfavorable customer feedback and negative publicity;
• notwithstanding agreements by our partners to assume liability for the Rumble-branded products they place in our online store, we may be subject to product liability and similar claims and regulatory actions if products sold through our store result in harm, personal injury, death, or environmental or property damage;
• risks related to additional tax liabilities and collection obligations;
• market competition could adversely affect prices and demand for the Rumble-branded products we distribute;
• disruptions in our supply chain and other factors affecting the availability and distribution of our products could adversely impact our business; and
• risks related to online transactions and payment methods.

The occurrence of any of these factors, or our inability to successfully mitigate the results of the associated impact, could also damage our reputation, negatively impact our relationships with our customers, and otherwise materially harm our business, results of operations, and financial condition.

We derive the majority of our revenue from advertising. The failure to attract new advertisers, the loss of existing advertisers, or the reduction of or failure by existing advertisers to maintain or increase their advertising budgets may adversely affect our business and operating results.

For the years ended December 31, 2023 and 2022, advertising revenue represents 74% and 79% of total revenue. In addition, a substantial portion of our revenue is derived one advertiser accounting for approximately 46% and 45% of our revenue for the years ended December 31, 2023 and 2022, respectively. As is common in our industry, our advertisers do not have long-term advertising commitments with us. In addition, many of our advertisers purchase advertising services through one of several large advertising agency holding companies. Our revenue could be harmed by the loss of, or a deterioration in our relationship with, any of our largest advertisers or with any advertising agencies or the holding companies that control them. Advertising agencies and potential new advertisers may view our advertising products and services as experimental and unproven, and we may need to devote additional time and resources to educate them about our products and services. Advertisers may cease doing business with us, or they may reduce the prices they are willing to pay to advertise with us, if we do not deliver ads in an effective manner, or if they do not believe that their investment in advertising with us will generate a competitive return relative to alternatives, including online, mobile, and traditional advertising platforms. Advertisers may refuse to advertise on our platform due to a perceived risk to their brand safety standards, especially given the concentration of news and political content on our platform. We believe that our access to certain advertisers has been, and may continue to be, inhibited by the apparent political bias of these companies, some of whom we believe may exercise near monopolistic control over the advertising industry. In response, we recently filed an antitrust lawsuit alleging a conspiracy to withhold advertising revenue from Rumble and other digital media platforms. Our actions to counter these efforts, whether through litigation or publicity campaigns, may not be successful. Any of the foregoing developments may adversely affect our business and operating results.

Negative media campaigns may adversely impact our financial performance, results of operations, and relationships with our business partners, including content creators and advertisers.

Our commitment to diversity of opinion and refusal to censor content on our platforms has in the past resulted and is likely to continue to result in malicious media campaigns and advertiser boycotts directed against us. For example, in August 2024, we filed a lawsuit against the World Federation of Advertisers, as well as the advertising agency WPP and its subsidiary GroupM. Our lawsuit alleges that an initiative called the Global Alliance for Responsible Media (GARM), created by the WFA, established arbitrary standards for the content on digital platforms where its members may want to advertise. GARM used those one-size-fits-all standards to perpetrate an advertiser boycott against Rumble and other platforms. The suit also notes that GARM has vast reach since it counts the six largest ad agency holding companies among its members, including defendant WPP. We subsequently amended our complaint to add Diageo plc as a defendant.

Media campaigns and advertising boycotts against us may be intended to interfere with our relationships with streaming partners and advertisers, and these campaigns and boycotts may intensify if political polarization increases in the United States and Canada.

We expect that the proliferation of alternative media, including on our platform, will continue to be viewed as a growing competitive threat by established news organizations, and may result in an escalation, both in frequency and intensity, of negative publicity campaigns against us and our creators. Such campaigns, even if groundless in nature, may result in negative public perception and damage to relationships with our business partners, including additional or more intense advertiser boycotts, which may negatively impact our operating results and future growth potential.