BLUE APRON HOLDINGS A You should read the following discussion of our financial condition and results of operations together with our consolidated financial statements and the related notes and other financial information included elsewhere in this Annual Report on Form 10-K. The following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in the section titled "Risk Factors." In this discussion, we use financial measures that are considered non-GAAP financial measures underSecurities and Exchange Commission rules. These rules require supplemental explanation and reconciliation, which is included elsewhere in this Annual Report on Form 10-K. Investors should not consider non-GAAP financial measures in isolation from or in substitution for, financial information presented in compliance withU.S. generally accepted accounting principles. In the below discussion, we use the term basis points to refer to units of one-hundredth of one percent.
Overview
Blue Apron's vision is "better living through better food." Founded in 2012, we are on a mission to spark discovery, connection, and joy through cooking. We offer fresh, chef-designed recipes that empower our customers to embrace their culinary curiosity and challenge their abilities to see what a difference cooking quality food can make in their lives. Our core product is the meal experience we help our customers create. These experiences extend from discovering new recipes, ingredients, and cooking techniques to preparing meals with families and loved ones to sharing photos and stories of culinary triumphs. Central to these experiences are the original recipes we design with fresh, seasonally inspired produce and high quality ingredients sent directly to our customers. We do this by employing technology and expertise across many disciplines - demand planning, recipe creation, procurement, recipe merchandising, fulfillment operations, distribution, customer service, and marketing - to drive our end-to-end value chain. We offer our customers three weekly meal plans-a Two-Serving Plan, a Four-Serving Plan, and Meal Prep Plan. We also sell wine, which can be paired with our meals, through Blue Apron Wine, our direct-to-consumer wine delivery service. Through Blue Apron Market, our e-commerce market, we sell a curated selection of cooking tools, utensils, pantry items, add-on products for different culinary occasions, which are tested and recommended by our culinary team, and à la carte wine offerings.
Key Financial and Operating Metrics
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. You
should read the key financial and operating metrics in conjunction with the
following discussion of our results of operations and financial condition
together with our consolidated financial statements and the related notes and
other financial information included elsewhere in this Annual Report on Form
10-K.
Year Ended December 31,
2020 2019 2018
(In thousands)
Net revenue $ 460,608 $ 454,868 $ 667,600
Adjusted EBITDA $ (1,037) $ (8,355) $ (61,371) Net cash from (used in) operating activities$ (5,372) $ (16,466)
$ (76,900) Free cash flow$ (11,369) $ (21,686) $ (91,922) 55 Table of Contents Three Months Ended March 31, June 30, September 30, December 31, 2020 Orders (in thousands) 1,763 2,152 1,917 1,879 Customers (in thousands) 376 396 357 353 Average Order Value$ 57.68 $ 60.88 $ 58.56$ 61.43 Orders per Customer 4.7 5.4 5.4 5.3 Average Revenue per Customer$ 271 $ 331 $ 314 $ 327 2019 Orders (in thousands) 2,482 2,048 1,726 1,622 Customers (in thousands) 550 449 386 351 Average Order Value$ 57.15 $ 58.16 $ 57.60$ 58.14 Orders per Customer 4.5 4.6 4.5 4.6 Average Revenue per Customer$ 258 $ 265 $ 258 $ 269 2018 Orders (in thousands) 3,474 3,122 2,647 2,418 Customers (in thousands) 786 717 646 557 Average Order Value$ 56.58 $ 57.34 $ 56.79$ 58.12 Orders per Customer 4.4 4.4 4.1 4.3 Average Revenue per Customer$ 250 $ 250 $ 233 $ 252 Orders We define Orders as the number of paid orders by our Customers across our meal, wine, and market products sold on our e-commerce platforms in any reporting period, inclusive of orders that may have eventually been refunded or credited to customers. Orders, together with Average Order Value, is an indicator of the net revenue we expect to recognize in a given period. We view Orders delivered as a key indicator of our scale and financial performance. Orders has limitations as a financial and operating metric as it does not reflect the product mix chosen by our customers or the purchasing behavior of our customers. Because of these and other limitations, we consider, and you should consider, Orders in conjunction with our other metrics, including net revenue, net income (loss), adjusted EBITDA, net cash from (used in) operating activities, free cash flow, Average Order Value, and Orders per Customer.
Customers
We determine our number of Customers by counting the total number of individual customers who have paid for at least one Order fromBlue Apron across our meal, wine, or market products sold on our e-commerce platforms in a given reporting period. For example, the number of Customers in the quarter endedDecember 31, 2020 was determined based on the total number of individual customers who paid for at least one Order across our meal, wine or market products in the quarter endedDecember 31, 2020 . We view the number of Customers as a key indicator of our scale and financial performance. Customers has limitations as a financial and operating metric as it does not reflect the product mix chosen by our customers, Order frequency, or the purchasing behavior of our customers. Because of these and other limitations, we consider, and you should consider, Customers in conjunction with our other metrics, including net revenue, net income (loss), adjusted EBITDA, net cash from (used in) operating activities, free cash flow, Orders per Customer, and Average Revenue per Customer.
Average Order Value
We define Average Order Value as our net revenue from our meal, wine, and market
products sold on our e-commerce platforms in a given reporting period divided by
the number of Orders in that period. We view Average Order Value as a key
indicator of the mix of our product offerings chosen by our customers, the mix
of promotional discounts, and the purchasing behavior of our customers.
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Orders per Customer
We define Orders per Customer as the number of Orders in a given reporting period divided by the number of Customers in that period. We view Orders per Customer as a key indicator of our customers' purchasing patterns, including their repeat purchase behavior.
Average Revenue per Customer
We define Average Revenue per Customer as our net revenue from our meal, wine, and market products sold on our e-commerce platforms in a given reporting period divided by the number of Customers in that period. We view Average Revenue per Customer as a key indicator of our customers' purchasing patterns, including their repeat purchase behavior.
Adjusted EBITDA
Adjusted EBITDA is a non-GAAP financial measure defined by us as net income (loss) before interest income (expense), net, other operating expense, other income (expense), net, benefit (provision) for income taxes, depreciation, amortization and share-based compensation expense. We have presented adjusted EBITDA in this Annual Report on Form 10-K because it is a key measure used by our management and board of directors to understand and evaluate our operating performance, generate future operating plans and make strategic decisions regarding the allocation of capital. In particular, we believe that the exclusion of certain items in calculating adjusted EBITDA can produce a useful measure for period-to-period comparisons of our business. Accordingly, we believe that adjusted EBITDA provides useful information in understanding and evaluating our operating results. Please see "Non-GAAP Financial Measures" for a discussion of the use of non-GAAP financial measures and for a reconciliation of adjusted EBITDA to net income (loss), the most directly comparable measure calculated in accordance with GAAP.
Free Cash Flow
Free cash flow is a non-GAAP financial measure that is calculated as net cash from (used in) operating activities less purchases of property and equipment. We have presented free cash flow in this Annual Report on Form 10-K because it is used by our management and board of directors as an indicator of the amount of cash we generate or use and to evaluate our ability to satisfy current and future obligations and to fund future business opportunities. Accordingly, we believe that free cash flow provides useful information to investors and others in understanding and evaluating our operating results, enhancing the overall understanding of our ability to satisfy our financial obligations and pursue business opportunities, and allowing for greater transparency with respect to a key financial metric used by our management in their financial and operational decision-making. Free cash flow is not a measure of cash available for discretionary expenditures since we have certain non-discretionary obligations such as debt repayments or capital lease obligations that are not deducted from the measure. Additionally, other companies, including companies in our industry, may calculate free cash flow differently, which reduces its usefulness as a comparative measure. Please see "Non-GAAP Financial Measures" for a discussion of the use of non-GAAP financial measures and for a reconciliation of free cash flow to net cash from (used in) operating activities, the most directly comparable measure calculated in accordance with GAAP.
Impact of COVID-19 on our Business
The COVID-19 pandemic had a material impact on our consolidated financial statements for the year endedDecember 31, 2020 . It has resulted, and is expected to continue to result for at least the near and intermediate term, in significant economic disruptions and changes to consumer behaviors inthe United States , which has impacted and is expected to continue to impact our business. Since lateMarch 2020 , we have experienced a significant increase in demand primarily, in part, as a result of changes to consumer behaviors resulting from the various restrictions that have been enacted throughout much ofthe United States in response to the COVID-19 pandemic, which continue to be in effect to varying levels acrossthe United States . This increased demand may not be sustained as the pandemic's impact on consumer behaviors tapers, particularly 57 Table of Contents as a result of fewer restrictions on dining options, and as a COVID-19 vaccine becomes widely available inthe United States , or if consumer spending habits are negatively impacted by worsening economic conditions. In response to increased demand, we took action to increase capacity at our fulfillment centers, including continuing to hire new personnel, temporarily reducing variety in menu options, which limits the need to change production lines and allows for more time to pack meal kits, and announced our plan to temporarily reopen our fulfillment center inArlington, Texas inJanuary 2021 . During the COVID-19 pandemic, we have also seen higher than normal rates of absenteeism among our fulfillment center workforce and, at times, we have experienced difficulty in hiring a sufficient number of employees to adequately staff our fulfillment centers. As a result, we have also closed, and may again in the future close, some weekly offering cycles early to cap orders as we continue to increase headcount to meet demand. At the same time, we have taken a variety of safety measures following federal, state and local guidelines at our fulfillment centers' operations. These safety measures include enhanced daily cleaning and disinfection policies, enhanced personal hygiene efforts and implementing social distancing efforts and awareness throughout the fulfillment centers. To date, while we have held production at times in order to implement some of our enhanced sanitation measures, we have not experienced significant disruptions in our fulfillment centers and we have not experienced any significant disruptions in our supply chain or any significant carrier interruptions or delays. Furthermore, in response to the increased demand, we intentionally reduced marketing spend for portions of 2020 to manage capacity, but we increased our marketing spend at the end of the second quarter and we have reengaged, and expect to continue to reengage, in additional marketing spend as part of our growth strategy to retain existing and attract new customers. As a result of the challenges we have seen from time to time in hiring a sufficient workforce to adequately staff our fulfillment centers and in order to manage increased demand, we also made a decision to delay certain new product offerings that are part of our growth strategy, which may negatively impact net revenue in future periods. The COVID-19 pandemic may have other adverse effects on our business, operations, and financial results and condition, including, among other things, as a result of adverse impacts on labor availability, our fulfillment center operations, consumer behaviors and on the overall economy. Significant uncertainty exists regarding the magnitude and duration of the economic and social effects of the COVID-19 pandemic and therefore we cannot predict the full extent of the positive or negative impacts this will have on our business, operations, and financial results and condition in future periods. In particular, the positive trends on our operating results that we saw in the year endedDecember 31, 2020 may not continue at current levels, and could decline in future periods.
Please see "Risk Factors" under Part I, Item 1A for further discussion regarding risks associated with the COVID-19 pandemic.
Key Factors Affecting Our Performance
We believe that our performance and future success depend on a number of factors that present significant opportunities but also pose risks and challenges, including those discussed below and under "Risk Factors."
Marketing and Customer Lifecycle Management
Our performance and future success depend in large part on our ongoing ability
to invest in marketing to sufficiently support our growth strategy and
cost-effectively launch marketing campaigns that attract, retain, and engage
customers. We use various online paid advertising channels (such as digital and
social media and email), strategic brand partnerships, and offline paid
advertising channels (such as television, radio and podcasts, and direct mail).
We typically complement our paid advertising channels by offering promotional
discounts to new customers for use on their first Order. We also attract new
customers by word of mouth, including through our customer referral program,
through which certain existing customers may invite others to receive a single
complimentary meal kit box. We intend to continue investing in marketing and
offering promotional discounts to drive customer acquisition with a deliberate
focus on the marketing channels we believe to be the most efficient and customer
segments that demonstrate stronger affinity and retention. By prioritizing
customer segments that demonstrate stronger affinity and retention, we believe
we will strengthen our customer base and improve our ability to achieve
profitable revenue. We also intend to continue using marketing to drive customer
retention, customer engagement and brand awareness.
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In addition to marketing, we continue to invest in our products, brand and overall customer experience, each of which further drives customer acquisition, customer retention and customer engagement and encourages repeat purchases. We also engage with our customers through social media, our website, blog, in-box content and mobile application, including through how-to videos and visual imagery, to deepen our customers' connection with our brand. Our flexible platform allows customers to interact with us by either actively managing or passively receiving orders, and we believe this flexibility drives higher customer engagement, loyalty and retention over the long term. Our ability to efficiently acquire new customers, retain existing customers and drive customer engagement through marketing investment and other business initiatives significantly impacts our revenue and results of operations. For example, to the extent that we reduce marketing expenses or other costs to help manage our liquidity and remain in compliance with the minimum liquidity covenant in our senior secured term loan, there is a risk that such reductions will result in a lower subscription count, which itself could present a risk that we will not be able to comply with the minimum subscription count covenant in our senior secured term loan, which could lead to an event of default under our existing senior secured term loan. See "Liquidity and Capital Resources" below for further discussion.
Product Offerings
Our ability to enhance our existing products and introduce new products impacts our revenue and results of operations. We make ongoing changes to our products intended to enhance the customer experience and strive to offer our customers a balanced mix of ingredients, cuisines, familiarity, discovery, and preparation times. To accommodate various customer lifestyles, we offer three weekly meal plans: a Two-Serving Plan, a Four-Serving Plan, and a Meal Prep Plan for our meals, each with flexibility in recipe selection. We are focused on offering a variety of choices every week, including a range of recipes designed for a healthy lifestyle so that customers can make selections based on their individual household needs and preferences, as well as Premium recipes that introduce our customers to specialty protein combinations, advanced culinary techniques, and unique flavor twists. Beginning in the fourth quarter of 2020, customers also have the option to customize some of their recipe selections, such as the ability to upgrade a protein with a more premium protein, replace a meat with a plant protein, swap a vegetable for a starch, or increase the portion size by adding more protein or vegetables. We are also focused on brand extensions that are complementary to our meal experience, such as Blue Apron Wine and Blue Apron Market. We sell occasion-based offerings from time to time, which we have sold both on our subscription meal plan and the Blue Apron Market platform. We believe that by introducing new products and by increasing the choices available, we will better attract, engage and retain customers. Our customers' choices from among our product offerings will impact our revenue and results of operations, and as we introduce additional products and increase flexibility in our existing products, our customers' behavior and engagement with us may change.
Operational Execution
Our ability to effectively coordinate supply and demand and execute across our end-to-end value chain impacts our customer experience and our operating results. We begin by working with our suppliers, often months in advance of creating our menus. We then continue to forecast demand as well as monitor and evaluate our expected supply of ingredients, retaining flexibility to finalize recipes in the weeks leading up to fulfillment. As ofJanuary 31, 2021 , we operated three technology-enabled, refrigerated fulfillment centers that collectively employed approximately 1,738 employees. Each fulfillment center includes an operation that portions ingredients into exact quantities for each week's recipes using a combination of automated methods, manual labor, and warehousing, packaging, and shipping operations. We utilize a company-managed, third party delivery network that optimizes outbound logistics, including packing materials and the choice of carrier, on a ZIP code by ZIP code basis to ensure cost-effective, timely, and safe delivery of our orders. InFebruary 2020 , we announced the planned closure of ourArlington, Texas fulfillment center and the consolidation of production volume from ourArlington, Texas fulfillment center into ourLinden, New Jersey andRichmond, California fulfillment centers in order to more efficiently continue to service our national footprint while also enabling us to redirect financial resources into other parts of the business, including growth initiatives. InNovember 2020 , we announced a plan to temporarily reopen our fulfillment center inArlington, Texas beginning inJanuary 2021 . This temporary reopening is designed to allow us to focus on utilizing existing assets to help address some of the 59 Table of Contents capacity constraints we have experienced during the COVID-19 pandemic in order to supplement labor while we continue to implement operating efficiencies at our other fulfillment centers. See Note 16 to the Consolidated Financial Statements of this Annual Report on Form 10-K for additional information.
Our strategic investments in our fulfillment center operations will continue to significantly impact our ability to successfully execute on our growth strategy, introduce new products, increase variety to customers, and create efficiencies in our cost structure. We made significant investments to scale our operations and support the expansion of our business, including the build-out of our fulfillment center inLinden, New Jersey which we completed in 2017, which have contributed to meaningful efficiencies in our fulfillment operations. In the future, we plan to further invest in capital expenditures primarily related to implementing our growth strategy and to further optimize and drive efficiency in our operations. However, in order to maintain compliance with the financial covenants under our senior secured term loan, we may be required to reduce capital expenditures, which could negatively impact revenue, our growth strategy, and our business. See "Liquidity and Capital Resources" below for further discussion.
Seasonality
We experience seasonality in our business that impacts the level at which customers engage with our products and brand and our quarterly results of operations. We anticipate that the first quarter of each year will generally represent our strongest quarter in terms of customer engagement. Conversely, during the summer months and the end of year holidays, when people are vacationing more often or have less predictable weekly routines, we generally anticipate lower customer engagement. In 2020, the economic and social impact of the COVID-19 pandemic masked, in part, the seasonal fluctuations in our operating results. We believe that these trends have affected and will continue to affect our quarterly results in the future; however, we cannot predict the ongoing impact that the COVID-19 pandemic may have on seasonality. Our marketing strategies, which may be informed by these seasonal trends, will also impact our quarterly results of operations.
Components of Our Results of Operations
Net Revenue
We generate net revenue primarily from the sale of meals to customers through our Two-Serving, Four-Serving, and Meal Prep Plans. We also generate net revenue through sales of Blue Apron Wine, and through sales on Blue Apron Market. For each of the years endingDecember 31, 2020 , 2019 and 2018, we derived substantially all of our net revenue from sales of our meals through our direct-to-consumer platform. We deduct promotional discounts, actual customer credits and refunds as well as customer credits and refunds expected to be issued to determine net revenue. Customers who receive a damaged meal or wine order or are dissatisfied with a meal or wine order and contact us within seven days of receipt of the order may receive a full or partial refund, full or partial credit against future purchase, or replacement, at our sole discretion. Credits only remain available for customers who maintain a valid account with us. Customers who return an unused, undamaged Blue Apron Market product within 30 days of receipt receive a full refund. Our business is seasonal in nature and, as a result, our revenue and expenses and associated revenue trends fluctuate from quarter to quarter. We anticipate that the first quarter of each year will generally represent our strongest quarter in terms of customer engagement. Conversely, during the summer months and the end of year holidays, when people are vacationing more often or have less predictable weekly routines, we generally anticipate lower customer engagement. In 2020, the economic and social impact of the COVID-19 pandemic masked, in part, the seasonal fluctuations in our operating results. We believe that these trends have affected and will continue to affect our quarterly results in the future, however, we cannot predict the ongoing impact that the COVID-19 pandemic may have on seasonality. We also anticipate that our net revenue will be impacted by the timing and success of our ongoing product expansion initiatives. In addition, our net revenue is impacted by our marketing strategies, including the timing and amount of paid advertising and promotional activity. For example, prior to the impact of the COVID-19 pandemic on demand for our 60
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products, our deliberate reduction in marketing expenses to focus on the marketing channels we believe to be the most efficient and target consumers that we believe will exhibit higher affinity and retention negatively impacted our net revenue. In addition, in order to manage heightened demand, we made a decision to temporarily cut back on certain existing product offerings and delay certain future new product offerings to meet increased demand relating to the COVID-19 pandemic, which may impact net revenue in future periods. Credit card charges are recorded in deferred revenue until the criteria for revenue recognition have been met. Because we generally charge credit cards in advance of shipment and, historically, customers have most frequently requested delivery of their meals earlier in the week, our deferred revenue balance at the end of a financial reporting period may fluctuate significantly based on the day of the week on which that period ends. Consequently, large changes in deferred revenue at any particular time are not meaningful indicators of our financial results or future revenue trends.
Cost of Goods Sold, excluding Depreciation and Amortization
Cost of goods sold, excluding depreciation and amortization, consists of product
and fulfillment costs. Product costs include the cost of food, packaging for
food that is portioned prior to delivery to customers, labor and related
personnel costs incurred to portion food for our meals, inbound shipping costs,
and cost of products sold through Blue Apron Wine and Blue Apron Market.
Fulfillment costs consist of costs incurred in the shipping and handling of
inventory including the shipping costs to our customers, labor and related
personnel costs related to receiving, inspecting, warehousing, picking
inventory, and preparing customer orders for shipment, and the cost of packaging
materials and shipping supplies. In the near-term we expect that these expenses
will be higher because of the various actions taken to increase capacity and
implement safety measures in our fulfillment centers in response to the COVID-19
pandemic, as well as due to ongoing investments in product innovation to provide
product variety, flexibility, and additional choice for our customers. Over
time, we expect such expenses to decrease as a percentage of net revenue as we
continue to focus on operational improvements and optimizing our fulfillment
center operations.
Marketing
Our marketing expenses consist primarily of costs incurred to acquire new
customers, retain existing customers and build our brand awareness through
various online and offline paid channels, including digital and social media,
television, direct mail, radio and podcasts, email, brand activations, and
certain variable and fixed payments to strategic brand partnerships. Also
included in marketing expenses are the costs of orders through our customer
referral program, in which certain existing customers may invite others to
receive a complimentary meal kit, as well as costs paid to third parties to
market our products. The cost of the customer referral program is based on our
costs incurred for fulfilling a complimentary meal delivery, including product
and fulfillment costs.
We expect marketing expenses to continue to comprise a significant portion of
our operating expenses in support of our growth strategy, while also continuing
to focus on efficiency and our customer acquisition strategy to target consumers
that we believe will exhibit high affinity and retention through marketing
channels we believe to be the most efficient. We anticipate that our marketing
strategies, including the timing and extent of our marketing investments, will
be informed by our strategic priorities, including our ability to implement our
growth strategy, the sufficiency of our cash resources, the seasonal trends in
our business, and the competitive landscape of our market, and will fluctuate
from quarter-to-quarter and have a significant impact on our quarterly results
of operations. We currently expect that the first quarter of 2021 will be our
largest quarterly marketing investment in 2021, as a percentage of net revenue
and on an absolute basis. Our quarterly marketing expense for each of the
remaining three quarters of 2021 is expected to be slightly lower than the
seasonally high level in the first quarter of 2021, but higher than in each of
the quarters in 2020. We also anticipate that our near-term marketing strategies
and investments may continue to be impacted by the COVID-19 pandemic, and we may
reduce or increase marketing expenditures in future periods to continue to help
us manage demand to alleviate future capacity constraints. Additionally, we may
reduce or adjust our marketing investments, as needed, to manage liquidity and
remain in compliance with the minimum liquidity covenant in our senior secured
term loan, or to further increase customer acquisition in order to maintain
compliance with the minimum subscription count covenant. See Note 9 to the
Consolidated Financial Statements on Form 10-K for further discussion on the
senior secured term loan.
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Product, Technology, General and Administrative
Product, technology, general and administrative expenses consist of costs related to the development of our products and technology, general and administrative expenses, and overhead expenses, which include: payroll and related expenses for employees involved in the application, production, and maintenance of our platform and other technology infrastructure costs; payroll and related expenses for employees performing corporate and other managerial functions; facilities' costs such as occupancy and rent costs for our corporate offices and fulfillment centers; and payment processing fees, professional fees, and other general corporate and administrative costs. Over time, we expect such expenses to decrease as a percentage of net revenue reflecting our continued focus on expense management.
Depreciation and Amortization
Depreciation and amortization consists of depreciation expense for our property and equipment and amortization expense for capitalized software development costs.
Other Operating Expense
Other operating expense consists of a non-cash gain, net of a termination fee,
on the
Interest Income (Expense), Net
Interest income and expense consists primarily of interest expense associated with our senior secured term loan and the terminated revolving credit facility, capital lease financings, and build-to-suit lease financings offset by interest income on cash and cash equivalents balances.
Benefit (Provision) for Income Taxes
Our benefit (provision) for income taxes and our effective tax rates are affected by permanent differences between GAAP and statutory tax laws, certain one-time items, and the impact of valuation allowances. For each of the years endingDecember 31, 2020 , 2019 and 2018, our benefit (provision) for income taxes was$(0.0) million ,$(0.0) million , and$(0.1) million , respectively, resulting in an effective tax rate of (0.09)%, (0.07)% and (0.07)%, respectively. We continue to maintain a valuation allowance for federal and state tax jurisdictions. Our tax provision results from state taxes in a jurisdiction in which net operating losses were not available to offset our tax obligation. As ofDecember 31, 2020 , we hadU.S. federal and state net operating loss carryforwards of$397.5 million and$153.2 million , respectively. Of the$397.5 million of federal net operating loss carryforwards,$221.5 million was generated beforeJanuary 1, 2018 and is subject to a 20-year carryforward period. The remaining$176.0 million can be carried forward indefinitely, but is subject to an 80% taxable income limitation in any future taxable year. The pre-2018 federal and all state net operating losses will begin to expire in 2032 and 2033, respectively, if not utilized. 62 Table of Contents Results of Operations The following sets forth our consolidated statements of operations data for each of the periods indicated: Year Ended December 31, 2020 2019 2018 (In thousands) Net revenue$ 460,608 $ 454,868 $ 667,600 Operating expenses: Cost of goods sold, excluding depreciation and amortization 282,924 279,135
433,496
Marketing 49,934 48,133
117,455
Product, technology, general and administrative 137,244 144,925
194,340
Depreciation and amortization 24,503 31,200
34,517
Other operating expense 4,567 3,571 2,170
Total operating expenses 499,172 506,964 781,978Income (loss) from operations (38,564) (52,096)
(114,378)
Interest income (expense), net (7,548) (8,943)
(7,683)
Income (loss) before income taxes (46,112) (61,039)
(122,061)
Benefit (provision) for income taxes (42) (42)
(88)
Net income (loss) $ (46,154) $ (61,081) $ (122,149) The following table sets forth our consolidated statements of operations data as a percentage of net revenue for each of the periods indicated:
Year Ended December 31,
2020 2019 2018
(as a percentage of net revenue)
Net revenue 100.0 % 100.0 % 100.0 %
Operating expenses:
Cost of goods sold, excluding depreciation and
amortization 61.4 % 61.4 % 64.9 %
Marketing 10.8 % 10.6 % 17.6 %
Product, technology, general and administrative 29.8 % 31.9 % 29.1 %
Depreciation and amortization 5.3 % 6.9% 5.2 % Other operating expense 1.0 % 0.8 % 0.3 % Total operating expenses 108.4 % 111.5 % 117.1 %
Income (loss) from operations (8.4) % (11.5) % (17.1) % Interest income (expense), net (1.6) % (2.0) % (1.2) % Income (loss) before income taxes (10.0) % (13.4) % (18.3) % Benefit (provision) for income taxes (0.0) % (0.0)
% (0.0) % Net income (loss) (10.0) % (13.4) % (18.3) %
Year Ended
Net Revenue
Year Ended
December 31,
2020 2019 % Change
(In thousands)
Net revenue $ 460,608 $ 454,868 1 %
Net revenue increased by $5.7 million , or 1%, to $460.6 million for 2020 from
$454.9 million for 2019. The increase in net revenue was primarily due to an
increase in Orders per Customer and Average Order Value during the year ended
December 31, 2020 as customers chose to order more frequently and more meals per
order both as a result of
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the changes in consumer behaviors relating to the COVID-19 pandemic, and the continued execution of our growth strategy, including through product innovation.
Operating Expenses
Cost of Goods Sold, excluding Depreciation and Amortization
Year Ended
December 31,
2020 2019 % Change
(In thousands)
Cost of goods sold, excluding depreciation and
amortization $ 282,924 $ 279,135 1 %
% of net revenue 61.4 % 61.4 %
Cost of goods sold, excluding depreciation and amortization, increased by
Marketing
Year Ended
December 31,
2020 2019 % Change
(In thousands)
Marketing $ 49,934 $ 48,133 4 %% of net revenue 10.8 % 10.6 %
Marketing expenses increased by$1.8 million , or 4%, to$49.9 million for 2020 from$48.1 million for 2019. The increase was seen across various offline and online paid channels, partially offset by a decrease in our customer referral program. As a percentage of net revenue, marketing expenses increased to 10.8% for 2020 from 10.6% for 2019. This increase, as a percentage of net revenue, included an increase of 30 basis points in online paid channels, an increase of 30 basis points in offline paid channels, partially offset by a decrease of 40 basis points in our customer referral program primarily driven by a decrease in the mix of customer referral orders versus total Orders.
Product, Technology, General and Administrative
Year Ended
December 31,
2020 2019 % Change
(In thousands)Product, technology, general and administrative$ 137,244 $ 144,925 (5) % % of net revenue 29.8 % 31.9 %
Product, technology, general and administrative expenses decreased by
? a decrease of
? a decrease of
fulfillment centers, including occupancy and rent; partially offset by ? an increase of$1.4 million in personnel costs primarily driven by an increase in bonuses. 64 Table of Contents
As a percentage of net revenue, product, technology, general and administrative expenses decreased to 29.8% for 2020 from 31.9% for 2019 primarily due to continued focus on expense management and optimization of our cost structure.
Depreciation and Amortization
Year Ended
December 31,
2020 2019 % Change
(In thousands)
Depreciation and amortization
5.3 % 6.9 %
Depreciation and amortization decreased by $6.7 million , or 21%, to
$24.5 million for 2020 from $31.2 million for 2019. This decrease was primarily
driven by impairment charges and write-offs on long-lived assets. As a
percentage of net revenue, depreciation and amortization decreased to 5.3%in 2020 from 6.9% in 2019. Other Operating Expense Other operating expense for 2020 and 2019 was$4.6 million and$3.6 million , respectively. Other operating expense for 2020 represents charges of$8.4 million related to theArlington fulfillment center closure announced inFebruary 2020 , including$7.6 million of non-cash impairment charges on long-lived assets,$0.4 million of employee-related expenses, primarily consisting of severance payments, and$0.4 million of other exit costs, as well as a$1.1 million charge for an estimated legal settlement, partially offset by a$4.9 million non-cash gain, net of a$1.5 million termination fee, on theFairfield lease termination inMarch 2020 . Other operating expense for 2019 includes a$2.1 million charge related to an estimated legal settlement,$1.3 million of non-cash impairment charges on long-lived assets primarily related to the reprioritization of initiatives to support our growth strategy, and$0.2 million of employee-related expenses consisting of severance payments relating to theArlington fulfillment center downsizing announced inJanuary 2019 .
Income (Loss) from Operations
Year Ended
December 31,
2020 2019 % Change
(In thousands)
Income (loss) from operations
(8.4) % (11.5) %
Income (loss) from operations for 2020 and 2019 was $(38.6) million and $(52.1)
million , respectively. This improvement was due to a decrease in operating
expenses of $7.8 million and an increase in net revenue of $5.7 million . As a
percentage of net revenue, income (loss) from operations was (8.4)% and (11.5)%
for 2020 and 2019, respectively. This decrease was primarily driven by decreases
as a percentage of net revenue in product, technology, general and
administrative expenses and depreciation and amortization, partially offset by
an increase in other operating expense and marketing expenses as a percentage of
net revenue for the reasons set forth above.
Interest Income (Expense), Net
Interest income (expense), net for 2020 and 2019 was$(7.5) million and$(8.9) million , respectively. This decrease in interest income (expense), net was primarily due to a decrease of$1.8 million associated with build-to-suit lease financings as a result of theFairfield lease termination and a decrease of$1.1 million in interest expense incurred on outstanding borrowings under our senior secured loan and terminated revolving credit facility, partially offset by decreased interest income on cash and cash equivalents of$1.5 million . 65
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Benefit (Provision) for Income Taxes
The provision for income taxes recorded in 2020 and 2019 reflects state income taxes in a jurisdiction in which net operating losses were not available to offset our tax obligations.
Year Ended
Net Revenue
Year Ended
December 31,
2019 2018 % Change
(In thousands)
Net revenue $ 454,868 $ 667,600 (32) %
Net revenue decreased by$212.7 million , or 32%, to$454.9 million for 2019 from$667.6 million for 2018. The decrease in net revenue was primarily due to a decrease in Customers during the year endedDecember 31, 2019 as we deliberately reduced marketing spend while we continue to strategically invest in the marketing channels we believe to be the most efficient and target consumers that we believe will exhibit higher affinity and retention.
Operating Expenses
Cost of Goods Sold, excluding Depreciation and Amortization
Year Ended
December 31,
2019 2018 % Change
(In thousands)
Cost of goods sold, excluding depreciation and
amortization $ 279,135 $ 433,496 (36) %
% of net revenue 61.4 % 64.9 %
Cost of goods sold, excluding depreciation and amortization, decreased by
$154.4 million , or 36%, to $279.1 million for 2019 from $433.5 million for 2018.
This decrease was primarily driven by a decrease in Orders and improvements in
operational efficiencies. As a percentage of net revenue, cost of goods sold,
excluding depreciation and amortization, decreased to 61.4% for 2019 from 64.9%
in 2018. The decrease in cost of goods sold, excluding depreciation and
amortization, as a percentage of net revenue was primarily due to:
a decrease of 280 basis points in food and product packaging costs driven by
? enhanced planning and procurement strategies, as well as improvements in our
fulfillment center operations;
? a decrease of 140 basis points in labor largely due to process improvements in
our fulfillment center operations; partially offset by
? an increase of 70 basis points in shipping and fulfillment packaging costs
largely due to rate increases from shipping carriers.
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Marketing
Year Ended
December 31,
2019 2018 % Change
(In thousands)
Marketing $ 48,133 $ 117,455 (59) %
% of net revenue 10.6 % 17.6 %
Marketing expenses decreased by$69.3 million , or 59%, to$48.1 million for 2019 from$117.5 million for 2018. The decrease was seen across various offline and online paid channels as well as in our customer referral program. As a percentage of net revenue, marketing expenses decreased to 10.6% for 2019 from 17.6% for 2018. This decrease as a percentage of net revenue included a decrease of 430 basis points in offline paid channels, a decrease of 180 basis points in online paid channels and a decrease of 90 basis points in our customer referral program primarily driven by a decrease in the mix of customer referral orders versus total Orders. The deliberate reduction in marketing expenses was consistent with our strategy to invest in the marketing channels we believe to be the most efficient and target consumers that we believe will exhibit higher affinity and retention.
Product, Technology, General and Administrative
Year Ended
December 31,
2019 2018 % Change
(In thousands)Product, technology, general and administrative$ 144,925 $ 194,340 (25) % % of net revenue 31.9 % 29.1 %
Product, technology, general and administrative expenses decreased by
a decrease of
? headcount in corporate and other managerial positions reflecting in part the
workforce reduction implemented in
a decrease of
? which includes a decrease of
lower net revenue; and
? a decrease of
fulfillment centers, including occupancy and rent.
As a percentage of net revenue, product, technology, general and administrative expenses increased to 31.9% for 2019 from 29.1% for 2018 primarily driven by investments to support our business and execute on key business initiatives.
Depreciation and Amortization
Year Ended
December 31,
2019 2018 % Change
(In thousands)
Depreciation and amortization
6.9 % 5.2 %
Depreciation and amortization decreased by $3.3 million , or 10%, to
$31.2 million for 2019 from $34.5 million for 2018. This decrease was primarily
driven by lower investments as well as impairment charges and write-offs on
long-lived assets. As a percentage of net revenue, depreciation and amortization
increased to 6.9% in 2019 from 5.2% in 2018.
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Other Operating Expense
Other operating expense for 2019 and 2018 was $3.6 million and $2.2 million ,
respectively. Other operating expense for 2019 includes a $2.1 million charge
related to an estimated legal settlement, $1.3 million of non-cash impairment
charges on long-lived assets primarily related to the reprioritization of
initiatives to support our growth strategy, and $0.2 million of employee-related
expenses consisting of severance payments relating to the Arlington fulfillment
center downsizing announced in January 2019 . Other operating expense for 2018
includes restructuring costs of $2.2 million associated with the workforce
reduction in November 2018 to support our strategic priorities.
Income (Loss) from Operations
Year Ended
December 31,
2019 2018 % Change
(In thousands)
Income (loss) from operations
(11.5) % (17.1) %
Income (loss) from operations for 2019 and 2018 was $(52.1) million and $(114.4)
million , respectively. This change was due to a decrease in operating expenses
of $275.0 million , partially offset by the decrease in net revenue of $212.7
million . As a percentage of net revenue, income (loss) from operations was
(11.5)% and (17.1)% for 2019 and 2018, respectively. This improvement was
primarily driven by decreases as a percentage of net revenue in marketing
expense and cost of goods sold, excluding depreciation and amortization,
partially offset by an increase in product, technology, general and
administrative expense, depreciation and amortization, and other operating
expense as a percentage of net revenue.
Interest Income (Expense), Net
Interest income (expense), net for 2019 and 2018 was$(8.9) million and$(7.7) million , respectively. This increase in interest income (expense), net was primarily due to a decrease in interest income on cash and cash equivalents of$1.2 million .
Benefit (Provision) for Income Taxes
The provision for income taxes recorded in 2019 and 2018 reflects state income taxes in a jurisdiction in which net operating losses were not available to offset our tax obligations.
Non-GAAP Financial Measures
To provide additional information regarding our financial results, we monitor and have presented within this Annual Report on Form 10-K adjusted EBITDA and free cash flow, which are non-GAAP financial measures. These non-GAAP financial measures are not based on any standardized methodology prescribed byU.S. generally accepted accounting principles, or GAAP, and are not necessarily comparable to similarly-titled measures presented by other companies. We define adjusted EBITDA as net income (loss) before interest income (expense), net, other operating expense, other income (expense), net, benefit (provision) for income taxes, depreciation and amortization and share-based compensation expense. We have presented adjusted EBITDA in this Annual Report on Form 10-K because it is a key measure used by our management and board of directors to understand and evaluate our operating performance, generate future operating plans and make strategic decisions regarding the allocation of capital. In particular, we believe that the exclusion of certain items in calculating adjusted EBITDA can produce a useful measure for period-to-period comparisons of our business. 68 Table of Contents
We use adjusted EBITDA to evaluate our operating performance and trends and make planning decisions. We believe adjusted EBITDA helps identify underlying trends in our business that could otherwise be masked by the effect of the expenses that we exclude. Accordingly, we believe that adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results, enhancing the overall understanding of our past performance and future prospects, and allowing for greater transparency with respect to key financial metrics used by our management in its financial and operational decision-making. Our adjusted EBITDA is not prepared in accordance with GAAP, and should not be considered in isolation of, or as an alternative to, measures prepared in accordance with GAAP. There are a number of limitations related to the use of adjusted EBITDA rather than net income (loss), which is the most directly comparable GAAP equivalent. Some of these limitations are:
adjusted EBITDA excludes share-based compensation expense, as share-based
? compensation expense has recently been, and will continue to be for the
foreseeable future, a significant recurring expense for our business and an
important part of our compensation strategy;
adjusted EBITDA excludes depreciation and amortization expense and, although
? these are non-cash expenses, the assets being depreciated may have to be
replaced in the future;
adjusted EBITDA excludes other operating expense, as other operating expense
? represents charges for estimated legal settlements, non-cash impairment charges
on long-lived assets, a non-cash gain, net of a termination fee, on a lease
termination, and restructuring costs;
? adjusted EBITDA does not reflect interest expense, or the cash requirements
necessary to service interest, which reduces cash available to us;
? adjusted EBITDA excludes other expense, as other expense represents a one-time
loss on the extinguishment of convertible notes;
? adjusted EBITDA does not reflect income tax payments that reduce cash available
to us; and
? other companies, including companies in our industry, may calculate adjusted
EBITDA differently, which reduces its usefulness as a comparative measure.
We define free cash flow as net cash from (used in) operating activities less purchases of property and equipment. We have presented free cash flow in this Annual Report on Form 10-K because it is used by our management and board of directors as an indicator of the amount of cash we generate or use and to evaluate our ability to satisfy current and future obligations and to fund future business opportunities. Accordingly, we believe that free cash flow provides useful information to investors and others in understanding and evaluating our operating results, enhancing the overall understanding of our ability to satisfy our financial obligations and pursue business opportunities, and allowing for greater transparency with respect to a key financial metric used by our management in their financial and operational decision-making. Our free cash flow is not prepared in accordance with GAAP, and should not be considered in isolation of, or as an alternative to, measures prepared in accordance with GAAP. There are a number of limitations related to the use of free cash flow rather than net cash from (used in) operating activities, which is the most directly comparable GAAP equivalent. Some of these limitations are:
free cash flow is not a measure of cash available for discretionary
? expenditures since we have certain non-discretionary obligations such as debt
repayments or capital lease obligations that are not deducted from the measure;
and
? other companies, including companies in our industry, may calculate free cash
flow differently, which reduces its usefulness as a comparative measure.
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Because of these limitations, we consider, and you should consider, adjusted
EBITDA and free cash flow together with other financial information presented in
accordance with GAAP. The following tables present a reconciliation of these
non-GAAP measures to the most directly comparable measure calculated in
accordance with GAAP, for each of the periods presented:
Year Ended December 31,
2020 2019 2018 2017 2016
(In thousands)
Reconciliation of net income (loss)
to adjusted EBITDA
Net income (loss) $ (46,154) $ (61,081) $ (122,149) $ (210,143) $ (54,886)
Share-based compensation 8,457 8,970 16,320 11,270 2,965
Depreciation and amortization 24,503 31,200 34,517 26,838 8,217
Other operating expense 4,567 3,571 2,170 12,713 -
Interest (income) expense, net 7,548 8,943 7,683 6,384 (25)
Other (income) expense, net - - - 14,984 -
Provision (benefit) for income taxes 42 42 88 15 108 Adjusted EBITDA$ (1,037) $ (8,355) $ (61,371) $ (137,939) $ (43,621) Year Ended December 31, 2020 2019 2018 (In thousands) Reconciliation of net cash from (used in) operating activities to free cash flow Net cash from (used in) operating activities$ (5,372) $ (16,466) $ (76,900) Purchases of property and equipment (5,997) (5,220)
(15,022) Free cash flow$ (11,369) $ (21,686) $ (91,922)
Quarterly Results of Operations and Other Financial and Operations Data
The following tables set forth selected unaudited quarterly consolidated statements of operations data and other financial and operating data for each of the eight quarters beginning with the three months endedMarch 31, 2019 , as well as, where applicable, the percentage of net revenue for each line item shown. The information for each of these quarters has been prepared on the same basis as the audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K and in the opinion of our management, reflects all normal recurring adjustments necessary for the fair statement of our consolidated results of operations for these periods. This data should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. 70
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These quarterly results of operations are not necessarily indicative of our results of operations to be expected for any future period.
Three Months Ended
March 31, June 30, September 30, December 31, March 31, June 30, September 30, December 31,
2020 2020 2020 2020 2019 2019 2019 2019
(In thousands)
Consolidated Statements of Operations
Data:
Net revenue $ 101,857 $ 131,040 $
112,253
99,490$ 94,322 Operating expenses: Cost of goods sold, excluding depreciation and amortization 60,638 77,868
74,499 69,919 82,704 71,473 67,393 57,565
Marketing 15,032 11,561 10,862 12,479 14,234 9,713 12,127 12,059
Product, technology, general and
administrative 34,217 32,493 33,687 36,847 39,148 35,118 35,333 35,326
Depreciation and amortization 6,753 6,175 5,871 5,704 8,604 8,372 7,303 6,921
Other operating expense 3,198 269 1,100 - 230 - 1,261 2,080
Total operating expenses: 119,838 128,366 126,019 124,949 144,920 124,676 123,417 113,951
Income (loss) from operations (17,981) 2,674 (13,766) (9,491) (3,030) (5,510) (23,927) (19,629)
Interest income (expense), net (2,155) (1,541) (1,482) (2,370) (2,232) (2,226) (2,260) (2,225)
Income (loss) before income taxes (20,136) 1,133 (15,248) (11,861) (5,262) (7,736) (26,187) (21,854)
Benefit (provision) for income taxes (9) (19) (14) - (13) (12) (9) (8)
Net income (loss) $ (20,145) $ 1,114 $ (15,262) $ (11,861) $ (5,275) $ (7,748) $ (26,196) $ (21,862)
Net income (loss) per share
attributable to Class A and Class B
common stockholders:
Basic $ (1.51) $ 0.08 $ (0.96) $ (0.67) $ (0.41) $ (0.59) $ (1.99) $ (1.66)
Diluted $ (1.51) $ 0.08 $ (0.96) $ (0.67) $ (0.41) $ (0.59) $ (1.99) $ (1.66)
(As a percentage of net revenue)
Net revenue 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
Operating expenses:
Cost of goods sold, excluding
depreciation and amortization 59.5 % 59.4 %
66.4 % 60.6 % 58.3 % 60.0 % 67.7 % 61.0 %
Marketing 14.8 % 8.8 % 9.7 % 10.8 % 10.0 % 8.2 % 12.2 % 12.8 %
Product, technology, general and
administrative 33.6 % 24.8 % 30.0 % 31.9 % 27.6 % 29.5 % 35.5 % 37.5 %
Depreciation and amortization 6.6 % 4.7 % 5.2 % 4.9 % 6.1 % 7.0 % 7.3 % 7.3 %
Other operating expense 3.1 % 0.2 % 1.0 % - % 0.2 % - % 1.3 % 2.2 %
Total operating expenses: 117.7 % 98.0 % 112.3 % 108.2 % 102.1 % 104.6 % 124.0 % 120.8 %
Income (loss) from operations (17.7) % 2.0 % (12.3) % (8.2) % (2.1) % (4.6) % (24.0) % (20.8) %
Interest income (expense) and other
income (expense), net (2.1) % (1.2) % (1.3) % (2.1) % (1.6) % (1.9) % (2.3) % (2.4) %
Income (loss) before income taxes (19.8) % 0.9 % (13.6) % (10.3) % (3.7) % (6.5) % (26.3) % (23.2) %
Benefit (provision) for income taxes (0.0) % (0.0) %
(0.0) % - % (0.0) % (0.0) % (0.0) % (0.0) %
Net income (loss) (19.8) % 0.9 % (13.6) % (10.3) % (3.7) % (6.5) % (26.3) % (23.2) %
Other Financial and Operations Data:
Orders (in thousands) 1,763 2,152 1,917 1,879 2,482 2,048 1,726 1,622
Customers (in thousands) 376 396
357 353 550 449 386 351
Average Order Value $ 57.68 $ 60.88 $ 58.56 $ 61.43 $ 57.15 $ 58.16 $ 57.60 $ 58.14
Orders per Customer 4.7 5.4 5.4 5.3 4.5 4.6 4.5 4.6Average Revenue per Customer$ 271 $ 331 $ 314 $ 327$ 258 $ 265 $ 258 $ 269
Adjusted EBITDA (in thousands) (1)
(4,706)
(9,058)
Adjusted EBITDA is a non-GAAP financial measure defined by us as net income
(loss) before interest income (expense), net, other operating expense, other
income (expense), net, benefit (provision) for income taxes, depreciation,
amortization and share-based compensation expense. Please see "Management's
(1) Discussion and Analysis of Financial Condition and Results of
Operations-Non-GAAP Financial Measures" for a discussion of the use of
non-GAAP financial measures. The following table presents a reconciliation of
adjusted EBITDA to net income (loss), the most directly comparable measure
calculated in accordance with GAAP.
Free cash flow is a non-GAAP financial measure that is calculated as net cash
from (used in) operating activities less purchases of property and equipment.
Please see "Management's Discussion and Analysis of Financial Condition and
(2) Results of Operations-Non-GAAP Financial Measures" for a discussion of the
use of non-GAAP financial measures. The following table presents a
reconciliation of free cash flow to net cash from (used in) operating
activities, the most directly comparable measure calculated in accordance
with GAAP.
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Three Months Ended
March 31, June 30, September 30, December 31, March 31, June 30, September 30, December 31,
2020 2020 2020 2020 2019 2019 2019 2019
(In thousands)
Reconciliation of net income (loss) to
adjusted EBITDA
Net income (loss) $ (20,145) $ 1,114 $ (15,262) $ (11,861) $ (5,275) $ (7,748) $ (26,196) $ (21,862)
Share-based compensation 2,240 2,009 2,089 2,119 2,835 1,622 2,212 2,301
Depreciation and amortization 6,753 6,175 5,871 5,704 8,604 8,372 7,303 6,921
Other operating expense 3,198 269 1,100 - 230 - 1,261 2,080
Interest (income) expense, net 2,155 1,541 1,482 2,370 2,232 2,226 2,260 2,225
Provision (benefit) for income taxes 9 19 14 0 13 12 9 8
Adjusted EBITDA $ (5,790) $ 11,127 (13,151)$ (8,327) Three Months Ended March 31, June 30, September 30, December 31, March 31, June 30, September 30, December 31, 2020 2020 2020 2020 2019 2019 2019 2019 (In thousands) Reconciliation of net cash from (used in) operating activities to free cash flow Net cash from (used in) operating activities$ (12,604) $ 15,673 $ (7,121) $ (1,320) $ 5,138 $ (2,921) $ (7,790) $ (10,893) Purchases of property and equipment (1,611) (1,229)
(1,937) (1,220) (1,734) (1,090) (1,076) (1,320)
Free cash flow $ (14,215) $ 14,444 $ (9,058) $ (2,540) $ 3,404 $ (4,011) $ (8,866) $ (12,213)
Our business is seasonal in nature and, as a result, our revenue and expenses
and associated revenue trends fluctuate from quarter to quarter. We anticipate
that the first quarter of each year will generally represent our strongest
quarter in terms of customer engagement and marketing investment. Conversely,
during the summer months and the end of year holidays, when people are
vacationing more often or have less predictable weekly routines, we generally
anticipate lower customer engagement and marketing investment. In 2020, the
economic and social impact of the COVID-19 pandemic masked, in part, the
seasonal fluctuations in our operating results. We believe that these trends
have affected and will continue to affect our quarterly results in the future,
however, we cannot predict the ongoing impact that the COVID-19 pandemic may
have on seasonality. In addition to the seasonal trends impacting our net
revenue and marketing expenses, the higher outside temperatures of the summer
months impact cost of goods sold as more expensive fulfillment packaging for our
meals is required in order to maintain the proper temperature during delivery to
the customer. In the summer months, we also have increased access to seasonal
produce for use in our recipes, including specialty ingredients, which is
expected to result in increased food and product packaging costs during such
period.
Liquidity and Capital Resources
The following table shows our cash and cash equivalents, accounts receivable, net, restricted cash, and working capital as of the dates indicated:
Year Ended December 31,
2020 2019
(In thousands)
Cash and cash equivalents $ 44,122 $ 43,531
Accounts receivable, net $ 116 $ 248
Restricted cash included in Prepaid expenses and
other assets $ 610 $ -
Restricted cash included in Other noncurrent
assets $ 1,110 $ 2,912
Working capital (1) $ (29,640) $ (26,240) We define working capital as the difference between our current assets
(1) (excluding cash and cash equivalents) and current liabilities (excluding
current portion of long-term debt).
Total outstanding debt, net of debt issuance costs, was$34.1 million as ofDecember 31, 2020 and$53.5 million as ofDecember 31, 2019 . Issued letters of credit outstanding were$1.6 million as ofDecember 31, 2020 and$2.2 million as ofDecember 31, 2019 . Our cash requirements are principally for working capital and capital expenditures to support our business, including investments at our fulfillment centers and to support our growth strategy. Our primary sources of liquidity are cash and cash equivalents, cash flows from the operations of our business, and cash generated through financing activities, as discussed below. 72
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OnApril 29, 2020 , we filed a universal shelf registration statement on Form S-3 with theSecurities and Exchange Commission ("SEC"), or the 2020 Shelf, to register for sale from time to time up to$75.0 million of Class A common stock, preferred stock, debt securities and/or warrants in one or more offerings, which became effective onJuly 23, 2020 . OnAugust 10, 2020 , we completed an underwritten public offering (the "offering") of 4,000,000 shares of our Class A common stock under the 2020 Shelf, resulting in$32.9 million of proceeds, net of underwriting discounts and commissions and offering costs. The net proceeds from the offering were subject to the mandatory prepayment provisions of the revolving credit facility, and a portion of the proceeds was consequently used to make a repayment of$10.8 million of the borrowings that were then outstanding under our revolving credit facility. OnOctober 16, 2020 , we entered into a financing agreement which provides for a senior secured term loan in the aggregate principal amount of$35.0 million that matures inMarch 2023 . The proceeds of the senior secured term loan were used, together with cash on hand, to repay in full the outstanding indebtedness under the revolving credit facility and to pay fees and expenses in connection with the transactions contemplated by the senior secured term loan. We terminated the revolving credit facility effective as of the closing of the senior secured term loan. The senior secured term loan bears interest at a rate equal to LIBOR (subject to a 1.50% floor) plus 8.00% per annum. The principal amount of the senior secured term loan will be repayable in equal quarterly installments of$875,000 throughDecember 31, 2022 , with the remaining unpaid principal amount of the senior secured term loan repayable onMarch 31, 2023 . The senior secured term loan contains restrictive covenants, financial covenants, and affirmative and financial reporting covenants restricting our and our subsidiaries' activities. The financial covenants include a requirement to maintain a minimum aggregate liquidity balance of$20.0 million at all times and a minimum subscription count (defined in the senior secured term loan as the number of all active customers on our internal account list) of 300,000 on any determination date occurring between the effective date andDecember 31, 2021 , and 320,000 on any determination date occurring thereafter. We have a history of net losses and negative operating cash flows. In addition, we have experienced significant negative trends in our net revenue. While trends in net revenue, net losses, and operating cash flows improved during the year endedDecember 31, 2020 , that improvement is, in part, due to heightened demand driven by the various restrictions on consumers that have been enacted, and remain in effect to varying degrees, throughout much ofthe United States in response to the COVID-19 pandemic, and by the continued execution of our growth strategy. These positive trends on our operating results may not continue at current levels, and could decline in future periods, depending on the duration and severity of the COVID-19 pandemic and the timing of wide-spread vaccinations inthe United States . We are currently continuing to pursue our strategy to drive customer and revenue growth through product innovation alongside managing heightened demand resulting from the COVID-19 pandemic and our growth strategy. In light of the offering and the senior secured term loan in the second half of 2020, as well as improvements in our business from the execution of our growth strategy, our board of directors has concluded its review of a broad range of strategic alternatives inOctober 2020 , however, our board of directors will continue to evaluate and look for opportunities to maximize stockholder value as part of regular strategic reviews. Our ability, including the timing and extent, to successfully execute our growth strategy is inherently uncertain and is dependent on continued sufficiency of cash resources, and our ability to implement the initiatives and deliver the results as forecasted, among other factors. Due to this uncertainty, if we are unable to sufficiently deliver results from our growth strategy, manage liquidity, and/or to cost effectively attract new customers and retain existing customers, we may not be able to maintain compliance with the minimum liquidity and minimum subscription count covenants which may result in an event of default under our senior secured term loan. In the event we do not have sufficient cash resources upon an event of default, if we were unable to obtain a waiver or successfully renegotiate the terms of our senior secured term loan with our lenders, and the lenders enforced one or more of their rights upon default, we could be unable to meet our current obligations. If we are unable to sufficiently execute our growth strategy, we believe we have plans to effectively manage liquidity and customer acquisition and retention in order to maintain compliance with our debt covenants. This includes potential significant expense reductions in areas that we have identified in product, technology, general and administrative costs to achieve savings and reinvest in the business, which includes modifying and balancing our 73
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marketing investments, as needed, to maintain the minimum subscription covenant, while also maintaining sufficient cash to meet the minimum liquidity covenant.
A significant portion of our costs are discretionary in nature and, if needed, we have the ability to reduce or delay spending in order to reduce expenses and improve liquidity. We have also previously demonstrated an ability to implement various cost reduction initiatives, including workforce reductions and other cost optimizing initiatives. As a result of these initiatives, our year-over-year product, technology, general and administrative expenses were reduced by approximately 5%, or$7.7 million , 25%, or$49.4 million , and 22%, or$53.6 million , respectively, for the years endedDecember 31, 2020 , 2019, and 2018. Based on the current facts and circumstances, the financial flexibility provided through the financing transactions discussed above, our financial planning process and our historical ability to implement cost reductions and adjust marketing strategies, we believe we can effectively manage liquidity and subscription count in order to maintain compliance with the financial covenants under our senior secured term loan for at least the next 12 months. As a result, we believe that our existing cash and cash equivalents, together with cash generated from operations, will be sufficient to meet our anticipated cash needs for at least the next 12 months. Our future capital requirements and the availability and accessibility to additional funds will depend on many factors, including our ability to remain compliant with the covenants of our senior secured term loan and those described in the section titled "Risk Factors" under Part I, Item 1A. The following table presents the major components of net cash flows from and used in operating, investing, and financing activities for the periods indicated: Year Ended December 31, 2020 2019 2018 (In thousands) Net cash from (used in) operating activities$ (5,372) $ (16,466) $ (76,900) Net cash from (used in) investing activities (5,777) (4,481) (14,289) Net cash from (used in) financing activities 10,548
(29,917) (42,389) Net increase (decrease) in cash, cash equivalents, and restricted cash
(601) (50,864) (133,578) Cash, cash equivalents, and restricted cash-beginning of period
46,443 97,307 230,885 Cash, cash equivalents, and restricted cash-end of period
$ 45,842 $
46,443
Net cash from (used in) operating activities consists of net income adjusted for certain non-cash items and changes in operating assets and liabilities.
In 2020, net cash from (used in) operating activities was$(5.4) million and consisted of net income (loss) of$(46.2) million , primarily non-cash items of$36.3 million , and a net change in operating assets and liabilities of$4.5 million . Changes in operating assets and liabilities were primarily driven by increases in accrued expenses and other current liabilities, deferred revenue, and other noncurrent assets and liabilities of$11.2 million and decreases in inventory and receivables of$8.2 million , partially offset by an increase in prepaid expenses and other current assets of$14.4 million and a decrease in accounts payable of$0.5 million . In 2019, net cash from (used in) operating activities was$(16.5) million and consisted of net income (loss) of$(61.1) million , non-cash items of$42.2 million and a net change in operating assets and liabilities of$2.5 million . Changes in operating assets and liabilities were primarily driven by decreases in inventory, prepaid expenses and other current assets, and receivables of$11.9 million and an increase in accounts payable of$1.7 million , partially offset by decreases in accrued expenses and other current liabilities, deferred revenue, and other noncurrent assets and liabilities of$11.2 million . In 2018, net cash from (used in) operating activities was$(76.9) million and consisted of net income (loss) of$(122.1) million , noncash items of$52.8 million and a net change in operating assets and liabilities of$(7.6) million . Changes in operating assets and liabilities were primarily driven by decreases in receivables and inventory of$11.1 74
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million and an increase in other noncurrent assets and liabilities of
Net cash from (used in) investing activities primarily relates to capital expenditures to support our business initiatives and drive efficiency in fulfillment center operations and investment in software development.
In 2020, net cash from (used in) investing activities was$(5.8) million and consisted primarily of$(6.0) million for purchases of property and equipment, of which approximately$(2.9) million relates to capitalized software costs, to support business initiatives and ongoing product expansion. Cash paid for capital expenditures in 2020 was primarily driven by acquisition of fixed assets and development of software to support business initiatives and ongoing product expansion. In the future we expect to incur capital expenditures primarily related to implementing our growth strategy and to further optimize and drive efficiency in our operations and capitalized software costs. As ofDecember 31, 2020 , our projected capital expenditures are expected to amount to approximately$8.0 million to$12.0 million in the aggregate for 2021. The timing and amount of our projected expenditures is dependent upon a number of factors, including our ability to successfully execute our growth strategy, and may vary significantly from our estimates. In 2019, net cash from (used in) investing activities was$(4.5) million and consisted primarily of$(5.2) million for purchases of property and equipment, of which approximately$(2.6) million relates to capitalized software costs, partially offset by$0.7 million of proceeds from the sale of fixed assets. In 2018, net cash from (used in) investing activities was$(14.3) million and consisted primarily of$(15.0) million for purchases of property and equipment, including capitalized software costs, and a$(0.3) million payment for an acquisition holdback, partially offset by$1.0 million of proceeds from the sale of fixed assets. Cash paid for capital expenditures in 2018 was driven by the continued investments in automation equipment at our fulfillment centers, the acquisition of fixed assets to support business initiatives and ongoing product expansion and software capitalization.
Net cash from (used in) financing activities primarily relates to proceeds from the offering of Class A common stock, net borrowings under our senior secured term loan and terminated revolving credit facility, proceeds from exercises of stock options, and principal payments on capital lease obligations. In 2020, net cash from (used in) financing activities was$10.5 million and consisted primarily of$33.0 million of proceeds from our senior secured term loan, net of debt issuance costs,$32.9 million of proceeds from the public offering of Class A common stock, net of offering costs, and$0.5 million of proceeds from the exercise of stock options, partially offset by$55.6 million of repayments of all outstanding indebtedness under our revolving credit facility, and principal payments on capital lease obligations. The proceeds of the senior secured term loan were used, together with cash on hand, to repay in full all outstanding indebtedness under the revolving credit facility and to pay fees and expenses in connection with the transactions contemplated by the senior secured term loan. See "Senior Secured Term Loan" below for further discussion. In 2019, net cash from (used in) financing activities was$(29.9) million and consisted primarily of a$(28.9) million repayment of debt under our revolving credit facility,$(0.8) million in payments of debt issuance costs, and$(0.3) million in principal payments on capital lease obligations, slightly offset by proceeds from the exercise of stock options. In 2018, net cash from (used in) financing activities was$(42.4) million and consisted primarily of a$(41.4) million repayment of debt under our revolving credit facility,$(0.9) million in payments of debt issuance costs, and$(0.3) million in principal payments on capital lease obligations, slightly offset by proceeds from the exercise of stock options and vesting of restricted stock
units.
Free Cash Flow
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We define free cash flow as net cash from (used in) operating activities less
purchases of property and equipment. Our free cash flow was $(11.4) million ,
$(21.7) million , and $(91.9) million for the years ended December 31, 2020 ,
2019, and 2018, respectively. In 2020, free cash flow consisted of $(5.4)
million of net cash from (used in) operating activities and $(6.0) million for
purchases of property and equipment, of which approximately $(2.9) million
relates to capitalized software costs. In 2019, free cash flow consisted of
$(16.5) million of net cash from (used in) operating activities and $(5.2)
million for purchases of property and equipment, of which approximately $(2.6)
million relates to capitalized software costs. In 2018, free cash flow consisted
of $(76.9) million of net cash from (used in) operating activities and $(15.0)
million for purchases of property and equipment, including capitalized software
costs. Please see "Non-GAAP Financial Measures" for a discussion of the use of
non-GAAP financial measures and for a reconciliation of free cash flow to net
cash from (used in) operating activities, the most directly comparable measure
calculated in accordance with GAAP.
Senior Secured Term Loan
As discussed above, onOctober 16, 2020 (the "effective date"), we entered into a financing agreement which provides for a senior secured term loan in the aggregate principal amount of$35.0 million . The proceeds of the senior secured term loan were used, together with cash on hand, to repay in full all outstanding indebtedness under the revolving credit facility and to pay fees and expenses in connection with the transactions contemplated by the senior secured term loan. We terminated the revolving credit facility effective as of the closing of the senior secured term loan. The senior secured term loan bears interest at a rate equal to LIBOR (subject to a 1.50% floor) plus 8.00% per annum. The principal amount of the senior secured term loan will be repayable in equal quarterly installments of$875,000 throughDecember 31, 2022 , with the remaining unpaid principal amount of the senior secured term loan repayable onMarch 31, 2023 . We are also obligated under the senior secured term loan to pay customary fees, including an anniversary fee equal to 1.00% of the average daily principal amount of the senior secured term loan outstanding over the past 12 months. As ofDecember 31, 2020 , we had$34.1 million in outstanding borrowings under the senior secured term loan, of which$30.6 million is classified as long-term debt and$3.5 million is classified as the current portion of long-term debt. The borrower under the senior secured term loan is our wholly-owned subsidiary,Blue Apron, LLC . The obligations under the senior secured term loan are guaranteed byBlue Apron Holdings, Inc. and its subsidiaries other than the borrower, and secured by substantially all of the assets of the borrower and the guarantors. The senior secured term loan contains certain restrictive covenants, financial covenants, and affirmative and financial reporting covenants restricting our and our subsidiaries' activities. Restrictive covenants include limitations on the incurrence of indebtedness and liens, restrictions on affiliate transactions, restrictions on the sale or other disposition of collateral, and limitations on dividends and stock repurchases. We will be required to make mandatory prepayments under certain circumstances, and will have the option to make prepayments under the senior secured term loan subject to certain prepayment premiums through the first anniversary of the effective date. The financial covenants include a requirement to maintain a minimum aggregate liquidity balance of$20.0 million at all times and a minimum subscription count (defined in the senior secured term loan as the number of all active customers on our account list) of 300,000 on any determination date occurring between the effective date andDecember 31, 2021 , and 320,000 on any determination date occurring thereafter. Any such failure to comply with such covenants may result in an event of default under our senior secured term loan, upon which the lenders could declare all outstanding principal and interest to be due and payable immediately and foreclose against the assets securing the borrowings. Failure to comply with any covenants under the senior secured term loan could have a material adverse effect on our business, financial condition, and results of operation. See "Risk Factors" under Part I, Item 1A. 76 Table of Contents Contractual Obligations AtDecember 31, 2020 , our debt and certain other significant contractual financial obligations that will affect our future liquidity were as follows: 2021 2022 2023 2024 2025 Thereafter Total (In thousands) Senior secured term loan (1)$ 7,270 $ 6,897 $ 28,331 $ - $ - $ -$ 42,498 Operating lease obligations (2) 10,461 6,474 5,236 4,754 1,777 1,154 29,856 Capital lease obligations (3) 55 25 4 - - - 84 Build-to-suit lease obligations (4) 2,479 2,528 2,579 2,631 2,683 1,812 14,712 Total$ 20,265 $ 15,924 $ 36,150 $ 7,385 $ 4,460 $ 2,966 $ 87,150
Includes estimated interest payments based on currently effective interest
rates as of
to change due to the variable nature of the interest rates under our senior
secured term loan as described in "Senior Secured Term Loan" above.
Includes non-cancelable operating leases for office space in
and
Jersey,
fulfillment center in
non-cancelable operating leases for certain equipment. We have entered into (2) agreements to sublease portions of our corporate offices and fulfillment
centers, as well as the remainder of our
continue through the duration of the existing leases for each location and
entitle us to future minimum sublease payments of approximately
as of
table.
Includes lease payments for capital lease obligations, including estimated (3) interest payments attributable to our capital lease obligations, all of which
have fixed interest rates.
Includes lease payments for our fulfillment center in
deemed to be the owner for accounting purposes under build-to-suit
accounting, and capitalized the fair value of the buildings and direct
construction costs incurred along with a corresponding facility financing
liability. In
amount of
all future minimum lease payments related to this facility of
which otherwise would have expired in 2028. For further information on the
Statements of this Annual Report on Form 10-K.
Off-Balance Sheet Arrangements
As ofDecember 31, 2020 , andDecember 31, 2019 , we did not have any off-balance sheet arrangements, except for operating leases and letters of credit entered into in the normal course of business as discussed above.
Critical Accounting Policies and Significant Estimates
In preparing our consolidated financial statements in accordance with GAAP, we
are required to make estimates and assumptions that affect the amounts of
assets, liabilities, revenue, costs and expenses, and disclosure of contingent
assets and liabilities that are reported in the consolidated financial
statements and accompanying disclosures. We believe that the estimates,
assumptions and judgments involved in the accounting policies described below
have the greatest potential impact on our financial statements because they
involve the most difficult, subjective or complex judgments about the effect of
matters that are inherently uncertain. Therefore, we consider these to be our
critical accounting policies. Accordingly, we evaluate our estimates and
assumptions on an ongoing basis. Our actual results may differ from these
estimates and assumptions. See Note 2 to the Consolidated Financial Statements
of this Annual Report on
77
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Form 10-K for information about these critical accounting policies, as well as a description of our other accounting policies.
Revenue Recognition
We primarily generate revenue from the sale of our products to customers, including meals, wine and kitchen tools. For the years endedDecember 31, 2020 , 2019, and 2018, we derived substantially all of our Net revenue from sales of our meals. Our revenue contracts represent a single performance obligation to sell our products to our customers. We recognize revenue upon transfer of control, including passage of title to the customer and transfer of risk of loss related to the products, in an amount that reflects the consideration we expect to be entitled to. In general, we charge credit cards in advance of shipment. Transfer of control generally passes upon delivery to the customer. Sales taxes imposed on our sales are presented on a net basis in the Consolidated Statements of Operations, and therefore do not impact Net revenue or Cost of goods sold, excluding depreciation and amortization. We deduct promotional discounts, actual customer credits and refunds as well as credits and refunds expected to be issued to determine Net revenue. Customers who receive a damaged meal or wine order or are dissatisfied with an order and contact us within seven days of receipt of the order may receive a full or partial refund, full or partial credit against future purchase, or replacement, at our sole discretion. Credits only remain available for customers who maintain a valid account with us. Customers who return an unused, undamagedBlue Apron Market product within 30 days of receipt receive a full refund. We estimate and record expected credits and refunds based on prior history, recent trends, and projections for credits and refunds on sales in the current period. Reserves for credits and refunds are included within Accrued expenses and other current liabilities on the Consolidated Balance Sheets. We periodically enter into agreements with third parties to market our products. We record revenue from such arrangements at the gross amount as we are the principal in these arrangements as we are primarily responsible for fulfilling the goods to customers, provide primary customer service for such products sold on its website, have latitude in establishing price and selecting such products sold on our website, and maintain inventory risk. We have two types of contractual liabilities: (i) cash collections from our customers prior to delivery of products purchased, which are included in Deferred revenue on the Consolidated Balance Sheets, and are recognized as revenue upon transfer of control of our products, and (ii) unredeemed gift cards and other prepaid orders, which are included in Deferred revenue on the Consolidated Balance Sheets, and are recognized as revenue when gift cards are redeemed and the products are delivered. Certain gift cards are not expected to be redeemed, also known as breakage, and are recognized as revenue over the expected redemption period, subject to requirements to remit balances to governmental agencies. We adopted ASU 2014-09 using a modified retrospective approach and recognized$0.3 million cumulative-effect adjustment to reduce Accumulated deficit as ofJanuary 1, 2019 . The cumulative-effect adjustment to Accumulated deficit was due to breakage of gift cards to the extent there is no requirement for remitting balances to governmental agencies. Under the modified retrospective approach, prior period balances are not retrospectively adjusted.
Inventories, Net
Inventories, net consist primarily of bulk and prepped food, products available
for resale, packaging, containers, and wine products which are stated at the
lower of cost or net realizable value. Inventory costs consist of product costs,
inbound shipping and handling costs, and applicable direct labor costs.
Inventories are valued on a first-in, first-out cost basis. We record an
inventory valuation reserve when applicable, based on currently available
information, about the likely method of disposition, such as through sales to
individual customers, donations or liquidations, and expected recoverable values
of each inventory category.
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Leases
We categorize lease agreements at their inception as either operating or capital
leases. For operating leases, we recognize rent expense on a straight-line basis
over the term of the lease. For capital leases, we record a leased asset with a
corresponding liability. Payments are recorded as reductions to the liability
with an interest charge recorded based on the remaining liability.
We review leases for which we are involved in construction to determine if we
are considered to be the owner for accounting purposes during the construction
period. If we are determined to be the owner for accounting purposes, we follow
build-to-suit accounting and capitalize the fair value of the building and
direct construction costs incurred along with a corresponding facility financing
liability. At the end of the construction period we assess whether these
arrangements qualify for sales recognition under sale-leaseback accounting
guidance. If upon completion of construction, the arrangement does not meet the
sale-leaseback criteria, we will continue to be considered the owner of the
building for accounting purposes.
Upon substantial completion of the construction phase of the facilities we lease
in Linden and Fairfield in June 2017 and December 2017 , respectively, we
performed a sale-leaseback analysis pursuant to Accounting Standards
Codification ("ASC") 840 - Leases, to determine the appropriateness of removing
the previously capitalized assets from the consolidated balance sheets. We
concluded that components of "continuing involvement" were evident as a result
of this analysis, thereby failing the sale-leaseback tests which precludes the
derecognition of the related assets from the consolidated balance sheets. In
conjunction with the leases, we also recorded a facility financing obligation
equal to the fair market value of the assets received from the landlord. At the
end of the lease terms, including exercise of any renewal options, the
difference between the remaining facility financing obligation and the net
carrying value of the fixed assets will be recognized as a non-cash gain or loss
on sale of the properties. We do not report rent expense for the leases. Rather,
rental payments under the leases are recognized as a reduction of the financing
obligation and interest expense and the associated assets capitalized throughout
the construction projects are depreciated over the determined useful life.
In March 2020 , we terminated the lease for our Fairfield facility. Accordingly,
we derecognized the net carrying value of the build-to-suit assets and
liabilities and the deferred rent balance. As a result, we recorded a non-cash
gain of $4.9 million , net of the lease termination fee, in Other operating
expense during the first quarter of 2020. See Note 10 to the Consolidated
Financial Statements of this Annual Report on Form 10-K for further discussion.
Recoverability of Long-Lived Assets
Our long-lived assets consist of property and equipment and capitalized software development costs. We periodically evaluate whether events and circumstances have occurred that indicate the remaining estimated useful life of long-lived assets may warrant revision or that the remaining balance may not be recoverable. These factors may include a significant deterioration of operating results, changes in business plans, or changes in anticipated cash flows. Recoverability is measured by comparing the carrying amount of an asset group to future undiscounted net cash flows expected to be generated from the use of the asset and its eventual disposition, where applicable. If future undiscounted cash flows are less than the carrying value, an impairment is recognized in earnings to the extent that the carrying value exceeds fair value. In determining future cash flows, we use industry accepted valuation models and engage third party valuation specialists, as needed. When multiple valuation methodologies are used, the results are weighted appropriately. In addition to the recoverability assessment, we routinely review the remaining estimated useful lives of our long-lived assets. If we reduce the estimated useful life assumption for any asset, the remaining balance would be depreciated over the revised estimated useful life. For the year endedDecember 31, 2020 , we recorded impairment charges of$7.6 million in Other operating expense on long-lived assets related to ourArlington fulfillment center. For the year endedDecember 31, 2019 , we recorded impairment charges of$1.3 million on long-lived assets primarily related to the reprioritization of initiatives to support our growth strategy. For the year endedDecember 31, 2018 , there were no impairments of long-lived assets. See Note 6 to the Consolidated Financial Statements of this Annual Report on Form 10-K for further discussion. 79 Table of Contents Contingencies We record accruals for loss contingencies when it is probable that a liability will be incurred and the amount of the loss can be reasonably estimated. If the reasonable estimate of the loss is a range and no amount within the range is a better estimate, the minimum amount of the range is recorded as a liability. If a probable loss is not reasonably estimable, or we determine that a loss is reasonably possible, but not probable, we disclose the matter, and the amount or range of the possible losses, if estimable, in the notes to the Consolidated Financial Statements.
Emerging Growth Company Status
We are an "emerging growth company," as defined in the Jumpstart Our Business Startups Act (the "JOBS Act"), and may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. We may take advantage of these exemptions until we are no longer an emerging growth company. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards. We have elected to use the extended transition period for complying with new or revised accounting standards and as a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates. We may take advantage of these exemptions up untilDecember 31, 2022 (the last day of the fiscal year following the fifth anniversary of the IPO), or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than$1.07 billion in annual revenue, we have more than$700.0 million in market value of our stock held by non-affiliates, or we issue more than$1.0 billion of non-convertible debt securities over a three-year period.
Recent Accounting Pronouncements
For information about recent accounting pronouncements, see Note 2 to the Consolidated Financial Statements of this Annual Report on Form 10-K.
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