The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of our condensed
consolidated results of operations and financial condition. The discussion
should be read in conjunction with the unaudited condensed consolidated
financial statements and notes thereto contained in this Quarterly Report on
Form 10-Q and the audited consolidated financial statements and notes thereto
for the year ended March 31, 2022 contained in the Annual Report on Form 10-K
filed with the SEC on May 31, 2022. This discussion contains forward-looking
statements and involves numerous risks and uncertainties, including, but not
limited to, those described in the "Risk Factors" sections of this Quarterly
Report on Form 10-Q. Actual results may differ materially from those contained
in any forward-looking statements. Unless the context otherwise requires,
references to "we", "us", "our", "the Company" and "BARK" are intended to mean
the business and operations of BARK, Inc. and its subsidiaries. The unaudited
condensed consolidated financial statements for the three and six months ended
September 30, 2022 and 2021, respectively, present the financial position and
results of operations of BARK, Inc. and its wholly-owned subsidiaries.
Overview
Founded in 2011, BARK is the world's most dog-centric company, devoted to making
dogs happy with the best products, services and content. Our dog-obsessed team
applies its data-driven understanding of what makes each dog special by
designing playstyle-specific toys, satisfying treats, great food for your dog's
breed, effective and easy to use dental care, and dog-first experiences that
foster the health and happiness of dogs everywhere. We aim to build lifelong
relationships with our customers and their pups in order to drive strong
customer retention and lifetime value. BARK loyally serves dogs with themed toys
and treats subscriptions, BarkBox and BARK Super Chewer; custom product
collections through retail partners, including Target, Costco, and Walmart;
high-quality, nutritious meals made for your breed with BARK Food; and products
that meet dogs' dental needs with BARK Bright. As a direct to consumer-first
company, our growing data and machine-learning capabilities inform future
product development and enable BARK to provide personalized experiences and
product offerings for dog parents nationwide.
Impact of COVID-19 and other Global Conditions
The extent to which the COVID-19 pandemic will continue to impact our business
will depend on future developments related to the geographic spread of the
disease, the duration and severity of the outbreak, travel restrictions,
required social distancing, governmental mandates, business closures or
governmental or business disruptions, and the effectiveness of actions taken in
the United States and other countries to prevent, contain and treat the virus
and any additional government stimulus programs. These impacts are highly
uncertain and cannot be predicted.
As this crisis unfolded, we monitored conditions closely and adapted our
operations to meet federal, state and local standards, while continuing to meet
the needs of the dogs and dog parents we serve and to ensure the safety and
well-being of our team members. While conditions appear to be improving, we are
still unable to predict the duration of the COVID-19 pandemic, including the
emergence and spread of variants of COVID-19, and therefore the ultimate impact
of the COVID-19 pandemic on our operating results, financial condition and cash
flows. As such, risks still remain. In addition, the COVID-19 pandemic has had,
and continues to have, an unprecedented and unexpected effect on the global
economy, civil society, labor markets, and certain industries. As a result, it
is difficult to predict the magnitude or scope of the impact these effects will
or may have directly, or indirectly, on our business, operating results and
financial condition.
In the past, we have experienced increases in inbound freight costs due to the
challenges in the import market, as transpacific ships and trade lanes continue
to be overburdened with volume and experience a significant shortage of
equipment and capacity due to the COVID-19 pandemic. Increases in freight costs
and supply chain disruptions may continue and could impact our business, in
particular as a result of global conditions that are created or driven by market
factors or international events, such as increased inflation and the war in the
Ukraine.
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In 2022, various central banks around the world (including the Federal Reserve
in the United States) raised interest rates. While these rate increases have not
had a significant adverse impact on our financial condition to date, the impact
of such rate increases on the overall financial markets and the economy may
adversely impact us in the future. In addition, the global economy has
experienced and is continuing to experience high levels of inflation and global
supply chain disruptions. We continue to monitor these supply chain, inflation
and interest rate factors, as well as the uncertainty resulting from the overall
economic environment.
In addition, although we have no operations in or direct exposure to Russia,
Belarus and Ukraine, we have experienced limited constraints in availability and
increasing costs required to obtain some materials and supplies due, in part, to
the negative impact of the Russia-Ukraine military conflict on the global
economy. To date, our business has not been materially impacted by the conflict,
however, as the conflict continues or worsens, it may impact our business,
financial condition or results of operations.
We cannot predict the duration or magnitude of such impacts. Please refer to the
"Special Note Regarding Forward-Looking Statements" and the "Risk Factors" in
this Quarterly Report on Form 10-Q.
Key Performance Indicators
We use the following key financial and operating metrics to evaluate our
business and operations, measure our performance, identify trends affecting our
business, project our future performance, and make strategic decisions. These
key financial and operating metrics should be read in conjunction with the
following discussion of our results of operations and financial condition
together with our condensed consolidated financial statements and the related
notes and other financial information included elsewhere in this Quarterly
Report on Form 10-Q.
Three Months Ended
September 30, Six Months Ended September 30,
2022 2021 2022 2021
Subscription Shipments (in thousands) 3,653 3,593 7,464 7,201
Active Subscriptions (in thousands) 2,241 2,089 2,241 2,089
New Subscriptions (in thousands) 218 271 477 551
CAC $ 53.19 $ 51.71 $ 51.89 $ 50.01
LTV:CAC 5.5x 4.9x 5.0x 5.0x
Average Order Value $ 32.18 $ 29.73 $ 31.61 $ 29.47
Subscription Shipments
We define Subscription Shipments as the total number of subscription product
shipments shipped in a given period. Subscription Shipments does not include
gift subscriptions or one-time subscription shipments.
Active Subscriptions
Our ability to expand the number of Active Subscriptions is an indicator of our
market penetration and growth. We define Active Subscriptions as the total
number of unique product subscriptions with at least one shipment during the
last 12 months. Active Subscriptions does not include gift subscriptions or
one-time subscription purchases.
New Subscriptions
We define New Subscriptions as the number of unique subscriptions with their
first shipment occurring in a period.
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Customer Acquisition Cost
Customer Acquisition Cost ("CAC") is a measure of the cost to acquire New
Subscriptions in our Direct to Consumer business segment. This unit economic
metric indicates how effective we are at acquiring each New Subscription. CAC is
a monthly measure defined as media spend in our Direct to Consumer business
segment in the period indicated, divided by total New Subscriptions in such
period. Direct to Consumer media spend is primarily comprised of internet and
social media advertising fees.
Lifetime Value
Lifetime Value ("LTV") is the dollar value of each subscription as measured by
the cumulative Direct to Consumer Gross Profit for the average life of the
subscription.
Average Order Value
Average Order Value ("AOV") is Direct to Consumer revenue for the period divided
by Subscription Shipments for the same period.
Components of Our Results of Operations
We operate with two reportable segments: Direct to Consumer and Commerce, to
reflect the way our Chief Executive Officer, as the chief operating decision
maker ("CODM") reviews and assesses the performance of the business.
Revenue
Direct to Consumer
Direct to Consumer revenue consists of product sales through our monthly
subscription boxes, as well as sales through our website, BarkShop.com
("BarkShop"):
Toys and Treats Subscriptions-Our principal revenue generating products consist
of a tailored assortment of premium and highly durable toys and treats sold
through our BarkBox and Super Chewer monthly subscriptions. BarkBox and Super
Chewer subscription rates vary based on the type of subscription plan selected
by the customer, with Super Chewer's price point being slightly higher based on
additional costs of the more durable product, but resulting in similar gross
margins. Subscription plans are offered as monthly, six month or annual
commitments. Subscription revenue, including charges for shipping when
applicable, is recognized at a point in time as control is transferred to the
subscriber upon delivery of each monthly box.
On a monthly basis, toys and treats subscription customers have the option to
purchase additional toys, treats, or essential products to add to their
respective subscription boxes, through our add to box ("ATB") offering. ATB
revenue is recognized at a point in time as control is transferred to the
customer upon delivery of goods to the subscriber.
BARK Bright-BARK Bright revenue consists of sales of our health and wellness
solutions, with our initial product being a dental solution, sold primarily
through monthly subscriptions. Subscription revenue is recognized at a point in
time as control is transferred to the subscriber upon delivery of each monthly
box. Revenue for BARK Bright sales to retailers and through marketplaces is
recognized at a point in time as controls is transferred to the customer upon
delivery of goods.
BARK Food-BARK Food revenue consists of sales of healthy meals and accessories
tailored to the dietary needs and individuality of specific breeds to help them
lead happy and healthy lives. Customers are incentivized to subscribe to
recurring shipments, however, BARK Food can also be purchased one-time. Revenue
is recognized at a point in time, as control is transferred to the customer upon
delivery of goods.
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BarkShop-BarkShop revenue consists of sales of individual toys, treats and other
products through our website, BarkShop. Revenue relating to the sale of goods on
BarkShop is recognized at a point in time as control is transferred to the
customer upon delivery of goods.
Commerce
We also generate revenue from product sales to retailers and through
marketplaces. See below for additional information on each offering.
Retail-Retail revenue consists of sales of individual toys, BARK Bright, and
BARK Home products, mainly through major retailers. Revenue is recognized at a
point in time as control is transferred to the customer upon the delivery of
goods.
Online Marketplaces-Online marketplaces revenue consists of sales of toys, BARK
Bright health and wellness solutions and BARK Home products sold through major
marketplaces. BARK Home consists of an assortment of proprietary essential
products for daily life, including dog beds, bowls, collars, harnesses and
leashes. Online marketplaces revenue is recognized upon delivery of goods to the
end customer.
Cost of Revenue
Cost of revenue primarily consists of the purchase price of inventory sold,
inbound freight costs associated with inventory, shipping supply costs, and
inventory shrinkage costs.
Operating Expenses
Operating expenses consist of general and administrative and advertising and
marketing expenses.
General and Administrative
General and administrative expenses consist primarily of compensation and
benefits costs, including stock-based compensation expense, office expense,
including rent, insurance, professional service fees, and other general overhead
costs including depreciation and amortization of right-of-use, fixed and
intangible assets, account management support teams, and commissions. General
and administrative expenses also include fees charged by third parties that
provide payment processing services, fulfillment costs, which represent costs
incurred in operating and staffing fulfillment and customer service centers,
including costs attributable to receiving, inspecting, picking, packaging and
preparing customer orders for shipment, outbound freight costs associated with
shipping orders to customers, and responding to inquiries from customers.
Advertising and Marketing
Advertising and marketing expense consists primarily of internet advertising,
promotional items, agency fees, other marketing costs and compensation and
benefits expenses, including stock-based compensation expense, for employees
engaged in advertising and marketing.
Interest Expense
Interest expense primarily consists of interest incurred under our line of
credit, term loan and convertible promissory notes agreements, and amortization
of debt issuance costs.
Other Income (Expense), Net
Other income (expense), net, primarily consists of changes in the fair value of
our warrant liabilities and loss on extinguishment of debt.
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Results of Operations
We operate in two reportable segments to reflect the way our CODM reviews and
assesses the performance of the business. See Note 2, "Summary of Significant
Accounting Policies," in our condensed consolidated financial statements for the
three and six months ended September 30, 2022 and 2021 included elsewhere in
this Quarterly Report on Form 10-Q.
Three Months Ended
September 30, Six Months Ended September 30,
2022 2021 % Change 2022 2021 % Change
(in thousands) (in thousands)
Condensed Consolidated
Statements of Operation and
Comprehensive Income (Loss)
Data:
Revenue
Direct to Consumer $ 117,547 $ 106,817 10.0 % $ 235,944 $ 212,193 11.2 %
Commerce 26,267 13,345 96.8 % 39,020 25,575 52.6 %
Total revenue 143,814 120,162 19.7 % 274,964 237,768 15.6 %
Cost of revenue
Direct to Consumer 45,936 42,499 8.1 % 93,084 83,319 11.7 %
Commerce 17,537 7,777 125.5 % 25,725 14,772 74.1 %
Total cost of revenue 63,473 50,276 26.2 % 118,809 98,091 21.1 %
Gross profit 80,341 69,886 15.0 % 156,155 139,677 11.8 %
Operating expenses:
General and administrative 74,156 68,235 8.7 % 153,745 137,734 11.6 %
Advertising and marketing 15,331 17,075 (10.2) % 31,694 34,225 (7.4) %
Total operating expenses 89,487 85,310 4.9 % 185,439 171,959 7.8 %
Loss from operations (9,146) (15,424) (40.7) % (29,284) (32,282) N/M
Interest expense (1,340) (1,296) 3.4 % (2,728) (2,857) (4.5) %
Other income (expense), net (153) 23,175 N/M 5,965 16,790 N/M
Net Income (Loss) before income
taxes (10,639) 6,455 (264.8) % (26,047) (18,349) 42.0 %
Provision for income taxes - - 0.0 % - - 0.0 %
Net Income (Loss) and
comprehensive loss $ (10,639) $ 6,455 (264.8) % $ (26,047) $ (18,349) 42.0 %
N/M means not meaningful.
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Comparison of the Three Months Ended September 30, 2022 and September 30, 2021
Revenue
Three Months Ended
September 30,
2022 2021 $ Change % Change
( in thousands)
Revenue
Direct to Consumer $ 117,547 $ 106,817 $ 10,730 10.0 %
Commerce 26,267 13,345 12,922 96.8 %
Total revenue $ 143,814 $ 120,162 $ 23,652 19.7 %
Percentage of Revenue
Direct to Consumer 81.7 % 88.9 %
Commerce 18.3 % 11.1 %
Direct to Consumer revenue increased by $10.7 million, or 10.0%, for the three
months ended September 30, 2022 compared to the three months ended September 30,
2021. This increase was primarily driven by a 1.7% or 0.1 million increase in
Subscription Shipments, in addition to a 8.2% increase in average order value.
Commerce revenue increased by $12.9 million for the three months ended
September 30, 2022 compared to the three months ended September 30, 2021. This
increase was primarily driven by volume increases and an acceleration in timing
of seasonal product orders which in prior years shipped in our third quarter.
Gross Profit
Three Months Ended
September 30,
2022 2021 $ Change % Change
( in thousands)
Gross Profit
Direct to Consumer $ 71,611 $ 64,318 $ 7,293 11.3 %
Commerce 8,730 5,568 3,162 56.8 %
Total gross profit $ 80,341 $ 69,886 $ 10,455 15.0 %
Percentage of revenue 55.9 % 58.2 %
Direct to Consumer gross profit increased by $7.3 million while Commerce gross
profit increased by $3.2 million for the three months ended September 30, 2022
compared to the three months ended September 30, 2021. The increase in Direct to
Consumer gross profit is primarily due to increased revenue of $10.7 million.
The increase in Commerce gross profit is primarily attributable to volume
increases and shifts in timing of orders amongst existing retail partners, as
well as the addition of new retail partners since September 30, 2021.
Gross profit as a percentage of revenue decreased 230 basis points for the three
months ended September 30, 2022 compared to the three months ended September 30,
2021. This decrease is primarily attributable to the larger percent of revenue
derived from our commerce business in the most recent period. Direct to Consumer
gross margin was 60.9%, 70 basis points higher than the same period last year,
while commerce gross margin was 33.2%, as compared to 41.7% in the same period
last year. The decrease in commerce gross margin is primarily attributable to
promotions embedded within seasonal product orders that occurred during the
second quarter of the current fiscal year as opposed to the third quarter in
prior years.
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Operating Expenses
General and Administrative Expense
Three Months Ended
September 30,
2022 2021 $ Change % Change
( in thousands)
General and administrative $ 74,156 $ 68,235 $ 5,921 8.7%
Percentage of revenue 51.6 % 56.8 %
General and administrative expense increased by $5.9 million, or 8.7%, for the
three months ended September 30, 2022 compared to the three months ended
September 30, 2021. This increase during the period was primarily due to:
increased fulfillment and shipping costs of $1.9 million attributable to the
1.7% increase in Subscription Shipments; increased compensation expense of $2.7
million due to an increase in headcount; increased depreciation and amortization
expense of $1.1 million attributable to additional fulfillment centers;
increased software expense of $0.6 million attributable to an increase in
headcount. The increase in general and administrative expenses was offset by a
decrease in professional and legal fees of $1.2 million attributable to costs
incurred in the prior year associated with the merger.
Advertising and Marketing
Three Months Ended
September 30,
2022 2021 $ Change % Change
( in thousands)
Advertising and marketing $ 15,331 $ 17,075 $ (1,744) (10.2)%
Percentage of revenue 10.7 % 14.2 %
Advertising and marketing expense decreased by $1.7 million, or 10.2%, for the
three months ended September 30, 2022 compared to the three months ended
September 30, 2021. The decrease during the period is attributable to a lower
media spend in connection with acquiring approximately 53 thousand less
subscribers during the period.
Interest Expense
Three Months Ended
September 30,
2022 2021 $ Change % Change
( in thousands)
Interest expense $ (1,340) $ (1,296) $ (44) 3.4%
Percentage of revenue (0.9) % (1.1) %
Interest expense increased by less than $0.1 million, or 3.4%, for the three
months ended September 30, 2022 compared to the three months ended September 30,
2021. This increase was due primarily to higher noncash interest associated with
the Company's 2025 Convertible Notes.
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Other Income (Expense), Net
Three Months Ended
September 30,
2022 2021 $ Change % Change
( in thousands)
Other income (expense), net $ (153) $ 23,175 $ (23,328) N/M
Percentage of revenue (0.1) % 19.3 %
N/M means not meaningful.
Other income (expense), net decreased by $23.3 million for the three months
ended September 30, 2022 compared to the three months ended September 30, 2021.
This decrease in other income (expense), net, was primarily due to a decrease of
$24.4 million of other income related to the changes in fair value of our
warrant liabilities offset by an increase of approximately $0.8 million
primarily related to a state workforce incentive.
Comparison of the Six Months Ended September 30, 2022 and September 30, 2021
Revenue
Six Months Ended
September 30,
2022 2021 $ Change % Change
( in thousands)
Revenue
Direct to Consumer $ 235,944 $ 212,193 $ 23,751 11.2 %
Commerce 39,020 25,575 13,445 52.6 %
Total revenue $ 274,964 $ 237,768 $ 37,196 15.6 %
Percentage of Revenue
Direct to Consumer 85.8 % 89.2 %
Commerce 14.2 % 10.8 %
Direct to Consumer revenue increased by $23.8 million, or 11.2%, for the six
months ended September 30, 2022 compared to the six months ended September 30,
2021. This increase was primarily driven by the 3.7% or 0.3 million increase in
Subscription Shipments, in addition to a 7.3% increase in average order value
during the period.
Commerce revenue increased by $13.4 million for the six months ended September
30, 2022 compared to the six months ended September 30, 2021. This increase was
primarily driven by the addition of new retail partners since September 30,
2021, as well as volume increases amongst existing retailer partners during the
period.
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Gross Profit
Six Months Ended
September 30,
2022 2021 $ Change % Change
( in thousands)
Gross Profit
Direct to Consumer $ 142,860 $ 128,874 $ 13,986 10.9 %
Commerce 13,295 10,803 2,492 23.1 %
Total gross profit $ 156,155 $ 139,677 $ 16,478 11.8 %
Percentage of revenue 56.8 % 58.7 %
Direct to Consumer and Commerce gross profit increased by $14.0 million and $2.5
million, respectively, for the six months ended September 30, 2022 compared to
the six months ended September 30, 2021, driven by the $37.2 million increase in
revenue during the period.
Gross profit as a percentage of revenue decreased 190 basis points for the six
months ended September 30, 2022 compared to the six months ended September 30,
2021. This decrease was primarily due to the greater share of revenue derived
from our commerce business.
Operating Expenses
General and Administrative Expense
Six Months Ended
September 30,
2022 2021 $ Change % Change
( in thousands)
General and administrative $ 153,745 $ 137,734 $ 16,011 11.6 %
Percentage of revenue 55.9 % 57.9 %
General and administrative expense increased by $16.0 million, or 11.6%, for the
six months ended September 30, 2022 compared to the six months ended
September 30, 2021. This increase during the period was primarily due to:
increased fulfillment and shipping costs of $8.8 million attributable to the
3.7% increase in Subscription Shipments and increased third-party shipping
rates; increased compensation expense of $6.4 million due to an increase in
headcount; increased donation expense of $1.4 million; increased depreciation
and amortization expense of $2.2 million attributable to additional fulfillment
centers; increased software expense of $1.4 million attributable to an increase
in headcount; increased office expenses of $1.0 million. The increase in general
and administrative expenses was offset by a decrease in professional and legal
fees of $6.3 million attributable to costs incurred in the prior year associated
with the Merger.
Advertising and Marketing
Six Months Ended
September 30,
2022 2021 $ Change % Change
( in thousands)
Advertising and marketing $ 31,694 $ 34,225 $ (2,531) -7.4 %
Percentage of revenue 11.5 % 14.4 %
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Advertising and marketing expense decreased by $2.5 million, or 7.4%, for the
six months ended September 30, 2022 compared to the six months ended September
30, 2021. The decrease during the period is attributable to a lower media spend
in connection with acquiring approximately 74 thousand less subscribers during
the period, offset by increased employment costs due to an increase in
headcount.
Interest Expense
Six Months Ended
September 30,
2022 2021 $ Change % Change
( in thousands)
Interest expense $ (2,728) $ (2,857) $ 129 -4.5%
Percentage of revenue (1.0) % (1.2) %
Interest expense decreased by $0.1 million, or 4.5%, for the six months ended
September 30, 2022 compared to the six months September 30, 2021. This decrease
was due primarily to the Company not incurring non-cash interest in the current
period related to the convertible promissory notes which converted in connection
with the closing of the Merger in the prior period.
Other Income (Expense), Net
Six Months Ended
September 30,
2022 2021 $ Change % Change
( in thousands)
Other income (expense), net $ 5,965 $ 16,790 $ (10,825) N/M
Percentage of revenue 2.2 % 7.1 %
N/M means not meaningful.
Other income (expense), net decreased by $10.8 million for the six months ended
September 30, 2022 compared to the six months ended September 30, 2021. The
decrease in other income (expense), net, was primarily due to a decrease of
$14.5 million of other income related to the changes in fair value of our
warrant liabilities, offset by an increase in other income of $0.8 million.
Additionally, the Company incurred $2.6 million of expense related to the loss
on extinguishment of debt incurred from conversion of the convertible promissory
notes issued in 2019 and 2020 in connection with the Merger during the prior
period.
Non-GAAP Financial Measures
We report our financial results in accordance with U.S. GAAP. However,
management believes that Adjusted Net Income (Loss), Adjusted Net Income (Loss)
Margin, Adjusted Net Income (Loss) Per Common Share, Adjusted EBITDA and
Adjusted EBITDA Margin, all non-GAAP financial measures (together the "Non-GAAP
Measures"), provide investors with additional useful information in evaluating
our performance.
We calculate Adjusted Net Income (Loss) as net income (loss), adjusted to
exclude: (1) stock-based compensation expense, (2) change in fair value of
warrants and derivatives, (3) sales and use tax expense, (4) one-time
transaction costs associated with the Merger, (5) executive transition costs (6)
noncash duplicate rent expense incurred during the relocation of our corporate
headquarters, (7) demurrage fees related to freight, and (8) other one-time
items.
We calculate Adjusted Net Income (Loss) Margin by dividing Adjusted Net Income
(Loss) for the period by Revenue for the period.
We calculate Adjusted Net Income (Loss) Per Common Share by dividing Adjusted
Net Income (Loss) for the period by weighted average common shares used to
compute net loss per share attributable to common stockholders for the period.
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We calculate Adjusted EBITDA as net income (loss), adjusted to exclude: (1)
interest expense, (2) depreciation and amortization, (3) stock-based
compensation expense, (4) change in fair value of warrants and derivatives, (5)
sales and use tax expense, (6) one-time transaction costs associated with the
Merger, (7) executive transition costs (8) noncash duplicate rent expense
incurred during the relocation of our corporate headquarters, (9) demurrage fees
related to freight, and (10) other one-time items.
We calculate Adjusted EBITDA Margin by dividing Adjusted EBITDA for the period
by revenue for the period.
The Non-GAAP Measures are financial measures that are not required by, or
presented in accordance with U.S. GAAP. We believe that the Non-GAAP Measures,
when taken together with our financial results presented in accordance with U.S.
GAAP, provides meaningful supplemental information regarding our operating
performance and facilitates internal comparisons of our historical operating
performance on a more consistent basis by excluding certain items that may not
be indicative of our business, results of operations or outlook. In particular,
we believe that the use of the Non-GAAP Measures are helpful to our investors as
they are measures used by management in assessing the health of our business,
determining incentive compensation and evaluating our operating performance, as
well as for internal planning and forecasting purposes.
The Non-GAAP Measures are presented for supplemental informational purposes
only, have limitations as an analytical tool and should not be considered in
isolation or as a substitute for financial information presented in accordance
with U.S. GAAP. Some of the limitations of the Non-GAAP Measures include that
(1) the measures do not properly reflect capital commitments to be paid in the
future, (2) although depreciation and amortization are non-cash charges, the
underlying assets may need to be replaced and Adjusted EBITDA and Adjusted
EBITDA Margin do not reflect these capital expenditures, (3) Adjusted EBITDA and
Adjusted EBITDA Margin do not consider the impact of stock-based compensation
expense, which is an ongoing expense for our company and (4) Adjusted EBITDA and
Adjusted EBITDA Margin do not reflect other non-operating expenses, including
interest expense. In addition, our use of the Non-GAAP Measures may not be
comparable to similarly titled measures of other companies because they may not
calculate the Non-GAAP Measures in the same manner, limiting their usefulness as
a comparative measure. Because of these limitations, when evaluating our
performance, you should consider the Non-GAAP Measures alongside other financial
measures, including our net income (loss) and other results stated in accordance
with U.S. GAAP.
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The following table presents a reconciliation of Adjusted Net Income (Loss) to
Net income (loss), the most directly comparable financial measure stated in
accordance with U.S. GAAP, and the calculation of net loss margin, Adjusted Net
Loss Margin and Adjusted Net Loss Per Common Share for the periods presented:
Adjusted Net (Income) Loss
Three Months Ended Six Months Ended
September 30, September 30,
2022 2021 2022 2021
(in thousands, except per share data)
Net income (loss) $ (10,639) $ 6,455 $ (26,047) $ (18,349)
Stock-based compensation expense 3,852 3,729 8,195 6,827
Change in fair value of warrants and
derivatives 1,038 (23,407) (4,959) (19,508)
Sales and use tax expense (1) (148) - (231) -
Transaction costs (2) - 442 - 5,640
Executive transition costs (3) (56) 306 49 306
Duplicate headquarters rent (4) 603 - 1,206 -
Demurrage fees (5) - 735 - 735
Other one-time items (6) - 708 - 3,306
Adjusted net income (loss) $ (5,350) $ (11,032)
$ (21,787) $ (21,043)
Net income (loss) margin (7.40) % 5.37 % (9.47) % (7.72) %
Adjusted net loss margin (3.72) % (9.18) % (7.92) % (8.85) %
Adjusted net loss per common share -
basic and diluted $ (0.03) $ (0.07) $ (0.12) $ (0.15)
Weighted average common shares used to
compute adjusted net loss per share
attributable to common stockholders -
basic 176,463,723 169,173,509 175,980,473 139,133,082
Weighted average common shares used to
compute adjusted net loss per share
attributable to common stockholders -
diluted 176,463,723 177,011,446 175,980,473 139,133,082
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The following table presents a reconciliation of Adjusted EBITDA to net income
(loss), the most directly comparable financial measure stated in accordance with
U.S. GAAP, and the calculation of net loss margin and Adjusted EBITDA margin for
the periods presented:
Adjusted EBITDA
Three Months Ended Six Months Ended
September 30, September 30,
2022 2021 2022 2021
(in thousands) (in thousands)
Net loss $ (10,639) $ 6,455 $ (26,047) $ (18,349)
Interest expense 1,340 1,296 2,728 2,857
Depreciation and amortization
expense 2,000 957 4,017 1,801
Stock-based compensation expense 3,852 3,729 8,195 6,827
Change in fair value of warrants
and derivatives 1,038 (23,407) (4,959) (19,508)
Sales and use tax expense (1) (148) - (231) -
Transaction costs (2) - 442 - 5,640
Executive transition costs (3) (56) 306 49 306
Duplicate headquarters rent (4) 603 - 1,206 -
Demurrage fees (5) - 735 - 735
Other one-time items (6) - 708 - 3,306
Adjusted EBITDA $ (2,010) $ (8,779) $ (15,042) $ (16,385)
Net loss margin (7.40) % 5.37 % (9.47) % (7.72) %
Adjusted EBITDA margin (1.40) % (7.31) % (5.47) % (6.89) %
(1)Sales and use tax expense relates to recording a liability for sales and use
tax we did not collect from our customers. Historically, we had collected state
or local sales, use, or other similar taxes in certain jurisdictions in which we
only had physical presence. On June 21, 2018, the U.S. Supreme Court decided, in
South Dakota v. Wayfair, Inc. that state and local jurisdictions may, at least
in certain circumstances, enforce a sales and use tax collection obligation on
remote vendors that have no physical presence in such jurisdiction. A number of
states have positioned themselves to require sales and use tax collection by
remote vendors and/or by online marketplaces. The details and effective dates of
these collection requirements vary from state to state and accordingly, we
recorded a liability in those periods in which we created economic nexus based
on each state's requirements. Accordingly, we now collect, remit, and report
sales tax in all states that impose a sales tax.
(2)Transactions costs represent non-recurring consulting and advisory costs with
respect to the merger agreement entered into with Northern Star Acquisition
Corp. on December 16, 2020.
(3)Executive transition costs includes recruiting expenses incurred by the
Company.
(4)Noncash duplicate rent expense incurred during the relocation of our
corporate headquarters.
(5)Demurrage fees are raised when the full container is not moved out of the
port/terminal for unpacking within the allowed free days offered by the shipping
line. The charge is levied by the shipping line to the importer.
(6)For the three months ended September 30, 2021, other one-time items is
comprised of SOX implementation fees of $0.3 million, loss on exercise of
warrants of $0.3 million and restructuring related expenses of $0.1 million. For
the six months ended September 30, 2021, other one-time items is comprised of
loss on extinguishment of debt of $2.6 million, SOX implementation fees of $0.3
million, loss on exercise of warrants of $0.3 million and restructuring related
expenses of $0.1 million.
Liquidity and Capital Resources
Since inception, we have funded our operations with proceeds from sales of our
capital stock and proceeds from borrowings in addition to cash generated by our
operations. As of September 30, 2022, we had cash and cash equivalents of
approximately $166.3 million. We expect that our cash and cash equivalents,
together with cash
33
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provided by our operating activities and proceeds from borrowings (as defined
below), will be sufficient to fund our operations for at least the next 12
months. We are required to comply with certain financial and non-financial
covenants related to our borrowing agreements, which we expect to be in
compliance with during the next 12 months. Our future capital requirements will
depend on many factors, including our pace of new and existing customer growth
and our investments in partnerships and unexplored channels. We may be required
to seek additional equity or debt financing.
2025 Convertible Notes
On November 27, 2020, we issued $75.0 million aggregate principal amount of 2025
Convertible Notes (the "2025 Convertible Notes") to Magnetar Capital, LLC
("Magnetar"). The Company received net proceeds of approximately $74.7 million
from the sale of the 2025 Convertible Notes, after deducting fees and expenses
of approximately $0.3 million. The Company recorded the expenses as a discount
to the note and will amortize over the term of the note. The 2025 Convertible
Notes will mature on December 1, 2025, unless earlier converted, redeemed or
repurchased. For a period of one year from the issuance date of the 2025
Convertible Notes, certain funds affiliated with Magnetar Financial LLC
(collectively, "Magnetar") may request the Company issue additional notes up to
$25.0 million aggregate principal amount.
The Company used approximately $27.6 million of the net proceeds from the sale
of the 2025 Convertible Notes to repay the outstanding term loans with Western
Alliance Bank and Pinnacle.
The 2025 Convertible Notes are governed by the Indenture. The 2025 Convertible
Notes bear interest at the annual rate of 5.50%, payable entirely in
payment-in-kind annually on December 1st of each year commencing December 1,
2021, compounded annually.
If the 2025 Convertible Notes are not converted into common stock by the
maturity date, the Company must repay the outstanding principal amount plus
accrued interest.
The 2025 Convertible Notes contain call and put options to be settled in cash
contingent upon the occurrence of a change of control and a default interest
rate increase of 3.0% applicable upon the occurrence of an event of default that
when evaluated under the guidance of ASC 815, Derivatives and Hedging, are
embedded derivatives requiring bifurcation at fair value. The fair value
calculation includes Level 3 inputs including the estimated fair value of the
Company's common stock and assumptions regarding the probability that the
contingent call or put will be exercised or an event of default will occur.
Management determined that the probability that the contingent events will occur
was near zero at inception and has remained near zero as of September 30, 2022.
Therefore, the Company did not record a derivative liability related to these
features at September 30, 2022. The Company will assess the probability of
occurrence quarterly during the term of the 2025 Convertible Notes.
As of September 30, 2022 and March 31, 2022, the Company had $79.2 million of
outstanding borrowings under the note purchase agreement governing the purchase
and sale of the 2025 Convertible Notes agreement.
Western Alliance Bank-Line of Credit and Term Loan
In October 2017, the Company entered into a loan and security agreement (the
"Western Alliance Agreement") and issued a warrant to purchase preferred stock
("Initial Western Alliance Warrant") to Western Alliance Bank ("Western
Alliance"), which provided for a secured revolving line of credit (the "Credit
Facility") in an aggregate principal amount of up to $35.0 million with a
maturity date of October 12, 2020.
On December 7, 2018, the Company amended the Western Alliance Agreement, which
included the issuance of a warrant to purchase common stock ("Subsequent Western
Alliance Warrant") to Western Alliance. The modification to the Western Alliance
Agreement provided for an additional term loan of $10.0 million at issuance and
an incremental seasonal loan of $5.0 million. The seasonal loan matured and was
repaid on March 31, 2020. The term loan had a maturity date of December 31,
2021.
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On July 31, 2020, the Company amended the Western Alliance Agreement and
extended the expiration of the warrants to July 31, 2030. The modification to
the Western Alliance Agreement amended the maturity date of the Credit Facility
to August 12, 2021.
On November 27, 2020, the Company repaid the outstanding $10.0 million principal
of the term loan with Western Alliance Bank, as well as $0.2 million of early
repayment fees, using proceeds from the issuance of the 2025 Convertible Notes.
See further discussion of the 2025 Convertible Notes issuance above.
In conjunction with the 2025 Convertible Notes issuance, the Company amended the
Western Alliance Agreement to extend the Credit Facility repayment date from
August 12, 2021 to December 31, 2021.
On January 22, 2021, the Company amended the Western Alliance Agreement to
extend the Credit Facility maturity date to May 31, 2022.
On October 29, 2021, the Company and Western Alliance entered into the eleventh
loan and security modification agreement, which increased the sublimit for
foreign exchange services and export, import, and standby letters of credit
under the Company's existing loan and security agreement with Western Alliance
to $2.7 million.
On May 27, 2022, the Company and Western Alliance entered into the twelfth loan
and security modification agreement, which extended the Credit Facility maturity
date to June 30, 2022.
On June 30, 2022, the Company and Western Alliance entered into the thirteenth
loan and security modification agreement, which extended the Credit Facility
maturity date to July 15, 2022.
On August 3, 2022, the Company and Western Alliance entered into the fourteenth
loan and security modification agreement, which extended the Credit Facility
maturity date to May 31, 2023.
The interest rate for borrowings under the Credit Facility, as amended, is equal
to (i) the greater of the prime rate that is published in the Money Rates
section of The Wall Street Journal from time to time (the "Prime Rate") and
5.25%, plus (ii) half of one percent (0.50%), per annum.
The Credit Facility has a borrowing base subject to an amount equal to eighty
percent (80.00%) of the Company's trailing three months of subscription revenue
when a collateral audit is performed and (60.00%) when no such collateral audit
is performed. Western Alliance has first perfected security in substantially all
of the Company's assets, including its rights to its intellectual property.
As of September 30, 2022 and March 31, 2022, the Company had no outstanding
borrowings under the Credit Facility. The full amount of the Credit Facility of
$35.0 million is available to be borrowed by the Company if or when needed
through the termination date of the agreement of May 31, 2023.
Under the terms of this Credit Facility, the Company is required to comply with
certain financial and nonfinancial covenants, including covenants to maintain
certain liquidity amounts, as defined in the amended Western Alliance Agreement.
As of September 30, 2022 and March 31, 2022, the Company was compliant with its
financial covenants.
Cash Flows
Comparison of the Six Months Ended September 30, 2022 and 2021.
The following table summarizes our cash flows for the six months ended
September 30, 2022 and 2021:
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Six Months Ended September 30,
2022 2021
(in thousands)
Net cash used in by operating activities $ (19,563) $ (108,019)
Net cash used in investing activities (14,108) (11,003)
Net cash provided by financing activities 586 354,168
Effect of exchange rate changes on cash 2 1
Net increase (decrease) in cash and restricted cash $ (33,083)
$ 235,146
Cash flows used in Operating Activities
Net cash flows used in operating activities represent the cash receipts and
disbursements related to our activities other than investing and financing
activities.
Net cash flows used in operating activities is derived by adjusting our net loss
for:
•non-cash operating items such as depreciation and amortization, stock-based
compensation and other non-cash income or expenses; and
•changes in operating assets and liabilities reflect timing differences between
the receipt and payment of cash associated with transactions.
For the six months ended September 30, 2022, net cash used in operating
activities was $19.6 million. The $19.6 million of net cash used in operating
activities consisted of net loss of $26.0 million adjusted for non-cash charges
totaling $10.7 million and a net decrease of $4.2 million in our net operating
assets and liabilities. The non-cash charges primarily consisted of $5.0 million
for changes in fair value of warrants, $8.2 million for stock based
compensation, and $4.0 million for depreciation and amortization. The decrease
in our net operating assets and liabilities was driven by the changes in
inventory of $7.6 million to support current demand, accounts payable and
accrued expenses of $14.4 million related to increased expenditures to support
general business growth, as well as the timing of payments, other liabilities of
$0.2 million, and prepaid expenses and other current assets of $0.5 million. The
decrease in our net operating assets and liabilities was partially offset by the
change in deferred revenue of $(2.7) million, and accounts receivable of $8.1
million.
For the six months ended September 30, 2021, net cash used in operating
activities was $108.0 million. The $108.0 million of net cash used in operating
activities consisted of net loss of $18.3 million adjusted for non-cash charges
totaling $12.3 million and a net decrease of $77.3 million in our net operating
assets and liabilities. The non-cash charges primarily consisted of $24.4
million for changes in fair value of warrants, $6.8 million for stock based
compensation, $2.6 million loss on extinguishment of debt and $1.8 million for
depreciation and amortization. The decrease in our net operating assets and
liabilities was driven by the changes in inventory of $52.9 million to support
current demand, accounts payable and accrued expenses of $15.3 million related
to increased expenditures to support general business growth, as well as the
timing of payments, other liabilities of $5.9 million, and prepaid expenses and
other current assets of $2.2 million. The decrease in our net operating assets
and liabilities was partially offset by the change in deferred revenue of $1.2
million, and accounts receivable of $2.0 million.
Cash flows used in Investing Activities
For the six months ended September 30, 2022 and 2021, net cash used in investing
activities was $14.1 million and $11.0 million, respectively, primarily due to
capital expenditures.
Cash flows provided by Financing Activities
For the six months ended September 30, 2022, net cash provided by financing
activities was de minimis as the payment of capital leases of $0.3 million was
offset by proceeds from the exercise of stock options of $0.9 million.
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For the six months ended September 30, 2021, net cash provided by financing
activities was $354.2 million, primarily due to proceeds of $227.1 million
proceeds from the Merger and proceeds from the PIPE Issuance of $200.0 million.
The increase in cash provided by financing activities was partially offset by
the repayments of outstanding borrowings on our line of credit of $34.3 million,
payments of transaction costs of $24.9 million, payment of deferred underwriting
fees $8.9 million, and repayment of the outstanding Paycheck Protection Program
loan of $5.2 million.
Critical Accounting Policies and Estimates
Our management's discussion and analysis of our financial condition and results
of operations is based on our condensed consolidated financial statements, which
have been prepared in accordance with U.S. GAAP. The preparation of these
condensed consolidated financial statements requires us to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the condensed
consolidated financial statements, as well as the reported revenue generated and
expenses incurred during the reporting periods. Our estimates are based on our
historical experience and various other factors that we believe are reasonable
under the circumstances, the results of which form the basis for making
judgments about items that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or
conditions.
Except as described in Note 2, "Summary of Significant Accounting Policies -
Recent Accounting Pronouncements," to our condensed consolidated financial
statements included in this Quarterly Report on Form 10-Q, there have been no
material changes to our critical accounting policies and estimates as compared
to the critical accounting policies and estimates disclosed in our audited
consolidated financial statements and notes thereto for the year ended March 31,
2022 contained in the Annual Report on Form 10-K filed with the SEC on May 31,
2022.
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