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 endedMarch 31, 2021 contained in the Current Report on Form 8-K filed with theSEC onJune 7, 2021 . 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 our Annual Report on Form 10-K for the year endedMarch 31, 2021 , as amended, and 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 TheOriginal BARK Company and its condensed consolidated subsidiaries. The unaudited condensed consolidated financial statements for the three and six months endedSeptember 30, 2021 and 2020, respectively, present the financial position and results of operations of TheOriginal BARK Company and its wholly-owned subsidiaries. Overview Founded in 2012, BARK is one of the largest digitally native, and vertically integrated dog brands in the world today. Our dog-obsessed team is devoted to making all dogs happy through innovative products across the Play, Food, Health, and Home categories. We foster lifelong relationships with our customers and their pups, which drives 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 and Amazon; its highly-personalized nutrition and meal plans withBARK Eats ; and health and wellness products 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 highly personalized experiences and product offerings for dog parents nationwide. At BARK, we want to make dogs as happy as they make us because dogs and humans are better together. Impact of COVID-19 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 inthe 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 with certainty. 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 what the ultimate impact of the COVID-19 pandemic will be on the broader economy or our operating results, financial condition and cash flows. As such, risks still remain. Please refer to the "Special Note Regarding Forward-Looking Statements" and the "Risk Factors" in this Quarterly Report on Form 10-Q. BARK continued to experience increases in inbound freight costs due to the challenges in the current 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. BARK also began to experience supply chain disruptions, including increased demurrage fees related to freight, during the second quarter of fiscal year 2022. 25 -------------------------------------------------------------------------------- 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 Six Months Ended September 30, September 30, 2021 2020 2021 2020 Subscription Shipments (in thousands) 3,593 2,675 7,201 5,043 Average Monthly Subscription Shipment Churn 7.1% 5.3% 7.2 % 5.7 % Active Subscriptions (in thousands) 2,089 1,499 2,089 1,499 New Subscriptions (in thousands) 271 252 551 555 CAC $ 51.71 $ 43.98 $ 50.01$ 36.80 LTV:CAC 4.9x 7.4x 5.0x 8.4x Average Order Value $ 29.73 $ 28.18 $ 29.47$ 28.25 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. Average Monthly Subscription Shipment Churn Average Monthly Subscription Shipment Churn is calculated as the average number of subscription shipments that have been cancelled in the last three months, divided by the average monthly active subscription shipments in the last three months. The number of cancellations used to calculate Average Monthly Subscription Shipment Churn is net of the number of subscriptions reactivated during the last three months. 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. 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. 26 -------------------------------------------------------------------------------- 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 in two reportable segments: Direct to Consumer and Commerce, to reflect the way our 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 ourBarkBox 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 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 upon delivery of goods.BARK Eats-BARK Eats revenue consists of sales of personalized and nutritious meals for dogs sold at a meal per day price. Revenue is recognized at a point in time, as control is transferred to the customer upon delivery of goods. 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 BARK toys, treats, and BARK Bright health and wellness solutions, mainly through major retailers. Revenue is recognized upon delivery to retailer. Online Marketplaces-Online marketplaces revenue consists of sales of 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. 27 -------------------------------------------------------------------------------- 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 consists 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 fixed and intangible assets, account management support teams, and commissions. General and administrative expenses also includes 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. We expect to incur additional general and administrative expenses as a result of becoming a public company, including expenses related to compliance and reporting obligations of public companies, and increased costs for insurance, investor relations expenses, and professional services. As a result, we expect that our general and administrative expenses will increase in absolute dollars in future periods and vary from period to period as a percentage of revenue. 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. 28 -------------------------------------------------------------------------------- Results of Operations We operate in two reportable segments to reflect the way our chief operating decision maker ("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 endedSeptember 30, 2021 and 2020 included elsewhere in this Quarterly Report on Form 10-Q. Three Months Ended Six Months Ended September 30, September 30, 2021 2020 % Change 2021 2020 % Change (in thousands) Condensed Consolidated Statement of Operation Data: Revenue Direct to Consumer$106,817 $75,368 41.7%$212,193 $142,468 48.9 % Commerce 13,345 11,045 20.8% 25,575 18,753 36.4 % Total revenue 120,162 86,413 39.1% 237,768 161,221 47.5 % Cost of revenue Direct to Consumer 42,499 29,052 46.3% 83,319 53,168 56.7 % Commerce 7,777 5,807 33.9% 14,772 9,579 54.2 % Total cost of revenue 50,276 34,859 44.2% 98,091 62,747 56.3 % Gross profit 69,886 51,554 35.6% 139,677 98,474 41.8 % Operating expenses: General and administrative 68,235 39,279 73.7% 137,734 71,315 93.1 % Advertising and marketing 17,075 12,958 31.8% 34,225 24,533 39.5 % Total operating expenses 85,310 52,237 63.3% 171,959 95,848 79.4 % Income (Loss) from operations (15,424) (683) N/M (32,282) 2,626 N/M Interest expense (1,296) (1,906) -32.0% (2,857) (3,420) -16.5% Other income (expense), net 23,175 1,211 N/M 16,790 1,432
N/M
Net Income (Loss) before income taxes 6,455 (1,378) N/M (18,349) 638 N/M Provision for income taxes - - 0.0% - - 0.0% Net Income (Loss)$6,455 $(1,378) N/M$(18,349) $638 0.0% N/M means not meaningful. 29 -------------------------------------------------------------------------------- Comparison of the Three Months EndedSeptember 30, 2021 andSeptember 30, 2020 Revenue Three Months Ended September 30, 2021 2020 $ Change % Change ( in thousands) Revenue Direct to Consumer$ 106,817 $ 75,368 $ 31,449 41.7 % Commerce 13,345 11,045 2,300 20.8 % Total revenue$ 120,162 $ 86,413 $ 33,749 39.1 % Percentage of Revenue Direct to Consumer 88.9 % 87.2 % Commerce 11.1 % 12.8 % Direct to Consumer revenue increased by$31.4 million , or 41.7%, for the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 . This increase was primarily driven by the 34.3% or 0.9 million increase in Subscription Shipments, in addition to a 5.5% increase in average order value. Commerce revenue increased by$2.3 million for the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 . This increase was primarily driven by the addition of new retail partners sinceSeptember 30, 2020 , as well as volume increases amongst existing retailer partners. Gross Profit Three Months Ended September 30, 2021 2020 $ Change % Change ( in thousands) Gross Profit Direct to Consumer 64,318 46,316 18,002 38.9
%
Commerce 5,568 5,238 330 6.3
%
Total gross profit
%
Percentage of revenue 58.2 % 59.7 %
Direct to Consumer and Commerce gross profit increased by$18.0 million and$0.3 million , respectively, for the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 , driven by the$33.7 million increase in revenue during the period. Gross profit as a percentage of revenue decreased 1.5% for the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 . This decrease was primarily due to increased costs related to inbound freight, partially offset by lower product costs during the period. 30 -------------------------------------------------------------------------------- Operating Expenses General and Administrative Expense Three Months Ended September 30, 2021 2020 $ Change % Change ( in thousands) General and administrative$ 68,235 $ 39,279 $ 28,956 73.7% Percentage of revenue 56.8 % 45.5 % General and administrative expense increased by$29.0 million , or 73.7%, for the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 . This increase during the period was primarily due to: increased fulfillment and shipping costs of$15.6 million ; increased compensation expense of$8.4 million , including$3.7 million of stock-based compensation; and increased other general and administrative expenses of$5.0 million primarily related to increased insurance, audit, professional, and legal fees due to growth of operations and requirements as a new publicly traded company. Advertising and Marketing Three Months Ended September 30, 2021 2020 $ Change % Change ( in thousands) Advertising and marketing$ 17,075 $ 12,958 $ 4,117 31.8% Percentage of revenue 14.2 % 15.0 % Advertising and marketing expense increased by$4.1 million , or 31.8%, for the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 . This increase was primarily due to additional media advertising spend to acquire New Subscriptions during the period, as well as the increase in CAC of$7.73 due to media rates exceeding pre-COVID levels during the period. Interest Expense Three Months Ended September 30, 2021 2020
$ Change % Change
( in thousands) Interest expense$ (1,296) $ (1,906) $ 610 -32.0% Percentage of revenue (1.1) % (2.2) % Interest expense decreased by$0.6 million , or -32.0%, for the three months endedSeptember 30, 2021 compared to the three monthsSeptember 30, 2020 . This decrease was due primarily to lower non-cash interest in connection with our convertible promissory notes during the period. 31 --------------------------------------------------------------------------------
Other Income (Expense), Net
Three Months Ended September 30, 2021 2020 $ Change % Change ( in thousands) Other income (expense), net $ 23,175$ 1,211 $ 21,964 N/M Percentage of revenue 19.3 % 1.4 % N/M means not meaningful. Other income (expense) increased by$22.0 million for the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 . This increase in other income (expense), net, was primarily due to the$23.4 million of income related to the changes in fair value of our warrant liabilities during the period. Comparison of the Six Months EndedSeptember 30, 2021 andSeptember 30, 2020 Revenue Six Months Ended September 30, 2021 2020 $ Change % Change ( in thousands) Revenue Direct to Consumer$ 212,193 $ 142,468 $ 69,725 48.9% Commerce$ 25,575 $ 18,753 $ 6,822 36.4% Total revenue$ 237,768 $ 161,221 $ 76,547 47.5% Percentage of Revenue Direct to Consumer 89.2 % 88.4 % Commerce 10.8 % 11.6 % Direct to Consumer revenue increased by$69.7 million , or 48.9%, for the six months endedSeptember 30, 2021 compared to the six months endedSeptember 30, 2020 . This increase was primarily driven by the 42.8% or 2.2 million increase in Subscription Shipments, in addition to a 4.3% increase in average order value during the period. Commerce revenue increased by$6.8 million for the six months endedSeptember 30, 2021 compared to the six months endedSeptember 30, 2020 . This increase was primarily driven by the addition of new retail partners sinceSeptember 30, 2020 , as well as volume increases amongst existing retailer partners during the period. 32 --------------------------------------------------------------------------------
Gross Profit Six Months Ended September 30, 2021 2020 $ Change % Change ( in thousands) Gross Profit Direct to Consumer$ 128,874 $ 89,300 $ 39,574 44.3% Commerce$ 10,803 $ 9,174 $ 1,629 17.8%
Total gross profit
Direct to Consumer and Commerce gross profit increased by$39.6 million and$1.6 million , respectively, for the six months endedSeptember 30, 2021 compared to the six months endedSeptember 30, 2020 , driven by the$76.5 million increase in revenue during the period. Gross profit as a percentage of revenue decreased 2.3% for the six months endedSeptember 30, 2021 compared to the six months endedSeptember 30, 2020 . This decrease was primarily due to increased costs related to inbound freight during the period. Operating Expenses General and Administrative Expense Six Months Ended September 30, 2021 2020 $ Change % Change ( in thousands) General and administrative$ 137,734 $ 71,315 $ 66,419 93.1% Percentage of revenue 57.9 % 44.2 % General and administrative expense increased by$66.4 million , or 93.1%, for the six months endedSeptember 30, 2021 compared to the six months endedSeptember 30, 2020 . This increase during the period was primarily due to: increased fulfillment and shipping costs of$32.9 million ; increased compensation expense of$18.4 million , including$6.8 million of stock-based compensation; and increased other general and administrative expenses of$9.9 million primarily related to increased insurance, audit, professional, and legal fees due to growth of operations and requirements as a new publicly traded company. Advertising and Marketing Six Months Ended September 30, 2021 2020 $ Change % Change ( in thousands) Advertising and marketing$ 34,225 $ 24,533 $ 9,692 39.5% Percentage of revenue 14.4 % 15.2 %
Advertising and marketing expense increased by
33 -------------------------------------------------------------------------------- additional media advertising spend to acquire New Subscriptions during the period, as well as the increase in CAC of$13.21 due to media rates exceeding pre-COVID levels during the period. Interest Expense Six Months Ended September 30, 2021 2020 $ Change % Change ( in thousands) Interest expense$ (2,857) $ (3,420) $ 563 -16.5% Percentage of revenue (1.2) % (2.1) % Interest expense decreased by$0.6 million , or -16.5%, for the six months endedSeptember 30, 2021 compared to the six monthsSeptember 30, 2020 . This decrease was due primarily to lower non-cash interest in connection with our convertible promissory notes during the period. Other Income (Expense), Net Six Months Ended September 30, 2021 2020 $ Change % Change ( in thousands) Other income (expense), net$ 16,790 $ 1,432 $ 15,358 N/M Percentage of revenue 7.1 % 0.9 % N/M means not meaningful. Other income (expense), net increased by$15.4 million for the six months endedSeptember 30, 2021 compared to the six months endedSeptember 30, 2020 . This increase in other income (expense), net, was primarily due to the$19.5 million of other income related to the changes in fair value of our warrant liabilities, offset by$2.6 million of expense related to the loss on extinguishment of debt incurred from conversion of the 2019 and 2020 Notes in connection with the Merger. Non-GAAP Financial Measures We report our financial results in accordance with 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 financing and merger, (5) demurrage fees related to freight and (6) 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. 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 financing and merger, (7) demurrage fees related to freight and (8) other one-time items. 34 -------------------------------------------------------------------------------- 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 GAAP. We believe that the Non-GAAP Measures, when taken together with our financial results presented in accordance with 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 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 its 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 GAAP. 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 GAAP, and the calculation of net income (loss) 35 -------------------------------------------------------------------------------- margin, Adjusted Net Income (Loss) Margin and Adjusted Net Income (Loss) Per Common Share for the periods presented: Adjusted Net Income (Loss) Three months ended September 30,
Six months ended
2021 2020 2021 2020 (in thousands, except per share data) Net income (loss)$ 6,455 $ (1,378) $ (18,349) $ 638 Stock-based compensation expense 3,729 1,004 6,827 1,392 Change in fair value of warrants and derivatives (23,407) (1,229) (19,508) (1,263) Sales and use tax expense (1) - 243 - 841 Transaction costs (2) 442 - 5,640 - Demurrage fees 735 - 735 - Other one-time items (3) 1,014 - 3,612 - Adjusted net income (loss)$ (11,032) $ (1,360) $ (21,043) $ 1,608 Less: Earnings attributable to participating securities - - - (1,608) Net income (loss) attributable to common stockholders-basic and diluted$ (11,032) $ (1,360) $ (21,043) $ - Net income (loss) margin 5.37 % (1.59) % (7.72) % 0.40 % Adjusted net income (loss) margin (9.18) % (1.57) % (8.85) % 1.00 % Adjusted net income (loss) per common share - basic and diluted$ (0.07) $ (0.03) $ (0.15) $ - Weighted average common shares used to compute net loss per share attributable to common stockholders - basic and diluted 169,173,509 45,889,103
139,133,082 45,704,365
36 -------------------------------------------------------------------------------- The following table presents a reconciliation of Adjusted EBITDA to net loss, the most directly comparable financial measure stated in accordance with 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, 2021 2020 2021 2020 (in thousands) (in thousands) Net income (loss)$ 6,455 $ (1,378) $ (18,349) $ 638 Interest expense 1,296 1,906 2,857 3,420 Depreciation and amortization expense 957 528 1,801 1,036 Stock-based compensation expense 3,729 1,004 6,827 1,392 Change in fair value of warrants and derivatives (23,407) (1,229) (19,508) (1,263) Sales and use tax expense (1) - 243 - 841 Transaction costs (2) 442 - 5,640 - Demurrage fees 735 - 735 - Other one-time items (3) 1,014 - 3,612 - Adjusted EBITDA$ (8,778) $ 1,074 $ (16,385) $ 6,064 Net loss margin 5.37 % (1.59) % (7.72) % 0.40 % Adjusted EBITDA margin (7.31) % 1.24 % (6.89) % 3.76 % (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. OnJune 21, 2018 , theU.S. Supreme Court decided, inSouth 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 withNorthern Star Acquisition Corp. onDecember 16, 2020 . (3)For the three months endedSeptember 30, 2021 , other one-time items is comprised of SOX implementation fees of$0.3 million , executive transition costs, including recruiting, bonus and relocation related expense 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 endedSeptember 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 , executive transition costs, including recruiting, bonus and relocation related expenses 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 ofSeptember 30, 2021 , we had cash and cash equivalents of approximately$272.6 million . We expect that our cash and cash equivalents, together with cash 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. 37 -------------------------------------------------------------------------------- Western Alliance Bank-Line of Credit and Term Loan InOctober 2017 , we entered into a new loan and security agreement (the "Western Alliance Agreement") and issued a warrant to purchase preferred stock toWestern Alliance Bank ("Western Alliance "), which provides 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 ofOctober 12, 2020 . OnDecember 7, 2018 , we amended the Western Alliance Agreement, which included the issuance of a warrant to purchase common stock toWestern Alliance . The modification to the 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 onMarch 31, 2020 . OnJuly 31, 2020 , we amended the Western Alliance Agreement, and extended the expiration of the warrants toJuly 31, 2030 . The modification to the Western Alliance Agreement amended the maturity date of the Credit Facility toAugust 12, 2021 . OnNovember 27, 2020 , we repaid the outstanding$10.0 million principal of the term loan withWestern Alliance Bank , as well as$0.2 million of early repayment fees, using proceeds from the issuance of the 2025 Convertible Notes (the "2025 Convertible Notes"). See further discussion of the 2025 Convertible Notes issuance below. In conjunction with the 2025 Convertible Notes issuance, the Company amended the Western Alliance Agreement to extend the Credit Facility repayment date fromAugust 12, 2021 toDecember 31, 2021 . OnJanuary 22, 2021 , we amended the Western Alliance Agreement to extend the Credit Facility maturity date toMay 31, 2022 . OnJune 15, 2021 , in connection with the Merger, the Company repaid the outstanding balance on the Credit Facility, and as ofSeptember 30, 2021 there are no outstanding borrowings under the Credit Facility. The full amount of the Credit Facility of$35.0 million remains available to be borrowed by the Company if or when needed through the termination date of the agreement ofMay 31, 2022 . OnOctober 29, 2021 , the Company andWestern 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 withWestern Alliance to$2.7 million 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 ofThe Wall Street Journal from time to time (the "Prime Rate") and 5.25%, plus (ii) half of one percent (0.50%), per annum. As ofMarch 31, 2021 and 2020 the weighted-average interest rate for the Western Alliance Credit Facility and term loans was 5.75% and 6.09%, respectively. The Credit Facility has a borrowing base subject to an amount equal to eighty percent (80%) of our trailing three months of subscription revenue.Western Alliance has a first lien perfected security interest in substantially all of our assets, including our rights to our intellectual property. Under the terms of this Credit Facility, we are required to comply with certain financial and nonfinancial covenants, including covenants to maintain certain liquidity amounts, as defined in the Western Alliance Agreement, as amended. Convertible Promissory Notes OnDecember 19, 2019 , we entered into a note purchase agreement and issued individual convertible promissory notes thereunder, with an option for subsequent closings throughMay 1, 2020 for up to$10.0 million in aggregate principal. We received gross proceeds of$3.9 million in twoDecember 2019 closings. The notes bore interest at a rate of 7% per year, capitalized quarterly, and payable in kind. The notes have a maturity date ofDecember 19, 2024 , unless previously converted into equity securities pursuant to the terms of the note purchase agreement. 38 -------------------------------------------------------------------------------- OnMarch 31, 2020 , we entered into a note purchase agreement and issued individual convertible promissory notes thereunder, with an option for subsequent closings throughMay 1, 2020 for up to$10.0 million in aggregate principal. We received gross proceeds of$1.5 million from the initial closing of the note purchase agreement onMarch 31, 2020 with employees, founders, and existing investors, representing a related party transaction. The agreement consisted of both Pro Rata Notes and Super Pro Rata Notes. Pro-Rata Notes are defined as one or more promissory notes issued to each lender with respect to the amount of the lender's consideration, up to the lender's pro rata amount as set forth in the note purchase agreement. Super Pro-Rata Notes are defined as one or more promissory notes issued to each lender with respect to the lender's amount of consideration paid in excess of their pro rata amount. The Super Pro Rata Notes bore interest at a rate of 10% per year, capitalized quarterly, and payable in kind, while the Pro Rata Notes bear interest at a rate of 8% per year, capitalized quarterly, and payable in kind. Both the Pro Rata and Super Pro Rata notes have a maturity date ofMarch 30, 2023 , unless previously converted into equity securities pursuant to the terms of the note purchase agreement. OnMay 1, 2020 , we received gross proceeds of$1.0 million from the second closing of theMarch 31, 2020 note purchase agreement with existing investors. OnJune 18, 2020 , we amended a previously existing term loan agreement, which extended the initial principal repayment period. In consideration of the modification, we issued to the lender convertible promissory notes under theMarch 31, 2020 note purchase agreement of$0.8 million from the third closing of theMarch 31, 2020 note purchase agreement. OnDecember 16, 2020 , in connection with the execution of the Merger Agreement, we amended the note purchase agreements associated with the convertible notes issued in 2019 and 2020 to amend the conversion terms of the notes. OnJune 1, 2021 , in connection with the closing of the Merger, the outstanding principal and interest of the 2019 Notes and 2020 Notes were converted to 1,135,713 shares of our common stock, with a fair value of$12.7 million . The conversion of the notes resulted in a loss on extinguishment of$2.6 million recorded to other expense included in other income, net on the condensed consolidated statement of operations and comprehensive loss, as well as a capital contribution of$0.7 million recorded to additional paid-in-capital on the condensed consolidated balance sheet for the portion of the loss associated with the 2020 Notes which were with related parties. Paycheck Protection Program OnApril 24, 2020 , we received funds of$5.2 million under the Paycheck Protection Program ("PPP"), a part of the CARES Act. The loan was serviced byWestern Alliance Bank , and the application for these funds required us to, in good faith, certify that the current economic uncertainty made the loan necessary to support ongoing operations. OnJune 11, 2021 , we voluntarily repaid the outstanding principal and interest amounts outstanding of the PPP loan. 2025 Convertible Notes OnNovember 27, 2020 , we issued$75.0 million aggregate principal amount of 2025 Convertible Notes toMagnetar Capital, LLC ("Magnetar"). We 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 . We used approximately$27.6 million of the net proceeds from the sale of the 2025 Convertible Notes to repay the outstanding term loans withWestern Alliance Bank andPinnacle Ventures, LLC ("Pinnacle"), which included$2.0 million of early repayment fees related to the Pinnacle loan. The 2025 Convertible Notes are governed by an indenture, dated as ofNovember 27, 2020 , between us andU.S. Bank National Association , as trustee and collateral agent. The 2025 Convertible Notes will bear interest at the annual rate of 5.50%, payable annually onDecember 1st commencingDecember 1, 2021 , compounded annually. The 2025 Convertible Notes will mature onDecember 1, 2025 , unless earlier converted, redeemed or repurchased. 39 -------------------------------------------------------------------------------- Cash Flows Comparison of the Six Months EndedSeptember 30, 2021 and 2020. The following table summarizes our cash flows for the six months endedSeptember 30, 2021 and 2020: Six Months Ended September 30, 2021 2020 (in thousands)
Net cash (used in) provided by operating activities
(11,003) (2,838) Net cash provided by financing activities 354,168 6,253 Net increase in cash and restricted cash $ 235,146
Cash flows provided by/used in Operating Activities Net cash flows 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; •changes in operating assets and liabilities reflect timing differences between the receipt and payment of cash associated with transactions. For the six months endedSeptember 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 . For the six months endedSeptember 30, 2020 , net cash provided by operating activities was$8.5 million . The$8.5 million of net cash used in operating activities consisted of net income of$0.6 million adjusted for non-cash charges totaling$2.2 million and a net increase of$5.7 million in our net operating assets and liabilities. The non-cash charges primarily consisted of$1.0 million for depreciation and amortization,$1.4 million for stock based compensation and$1.0 million for amortization of debt discount and deferred issuance costs. The decrease in our net operating assets and liabilities was driven by the changes in inventory of$23.0 million to support demand and accounts payable and accrued expenses of$17.4 million related to expenditures to support general business operations, as well as the timing of payments. The decrease in our net operating assets and liabilities was partially offset by the change in deferred revenue of$5.5 million and other liabilities of$8.2 million . Cash flows used in Investing Activities For the six months endedSeptember 30, 2021 and 2020, net cash used in investing activities was$11.0 million and$2.8 million , respectively, primarily due to capital expenditures. 40 -------------------------------------------------------------------------------- Cash flows provided by Financing Activities For the six months endedSeptember 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 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 PPP loan of$5.2 million . For the six months endedSeptember 30, 2020 , net cash provided by financing activities was$6.3 million , primarily due to proceeds from debt of$5.2 million , proceeds from convertible notes of$1.0 million and proceeds from the exercise of stock options of$0.4 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 withU.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 Pronouncement Issued but Not Yet Adopted," 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 endedMarch 31, 2021 contained in the Current Report on Form 8-K filed with theSEC onJune 7, 2021 . Recent Accounting Pronouncements A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 in our condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q. JOBS Act Accounting Election InApril 2012 , the JOBS Act was enacted. Section 107 of the JOBS Act provides that an "emerging growth company" may take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Therefore, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to use the extended transition period under the JOBS Act. Accordingly, our financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards. 41
--------------------------------------------------------------------------------
© Edgar Online, source