BLUE APRON HOLDINGS A The following discussion and analysis is meant to provide material information relevant to an assessment of the financial condition and results of operations of our company, including an evaluation of the amounts and certainty of cash flows from operations and from outside resources, so as to allow investors to better view our company from management's perspective. 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 Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year endedDecember 31, 2021 , filed with theSecurities and Exchange Commission onFebruary 25, 2022 . 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 Quarterly Report on Form 10-Q, particularly in the section titled "Risk Factors" under Part II, Item 1A, below. In this discussion, we use certain 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 Quarterly Report on Form 10-Q. 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 ("GAAP"). 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 four weekly meal plans-a Two Serving Signature Plan, a Two-Serving Vegetarian Plan, a Two-Serving Wellness Plan, and a Four-Serving Signature Plan. In addition, customers can add Add-ons recipes to each box, which includes appetizers, side dishes, desserts, à la carte proteins, and/or Heat & Meat meals, which are pre-made meals ready to heat and eat in minutes. 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. Our products are available to purchase through our website and mobile app, as well as through third-party sales platforms for our meal kit products.
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
24
Table of Contents
operations and financial condition together with our consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q.
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 2022 2021
(In thousands)
Net revenue $ 124,237 $ 124,010 $ 241,988 $ 253,716
Net income (loss) $ (23,123) $ (18,587) $ (61,572) $ (34,308)
Adjusted EBITDA $ (15,503) $ (3,547) $ (46,240) $ (9,605)
Net cash from (used in) operating activities $ (18,322) $ 1,073 $ (47,120) $ (10,878)
Free cash flow $ (19,986) $ (190) $ (50,105) $ (13,887) The following chart does not reflect the impact of theFeeding America bulk sale for an aggregate net purchase price of$10.0 million during the three months endedJune 30, 2022 on the Company's Consolidated Financial Statements: Three Months Ended June 30, March 31, December 31, September 30, June 30, 2022 2022 2021 2021 2021 Orders (in thousands) 1,701 1,869 1,678 1,760 1,977 Customers (in thousands) 349 367 336 350 375 Average Order Value$ 67.14 $ 62.99 $ 63.78 $ 62.30$ 62.72 Orders per Customer 4.9 5.1 5.0 5.0 5.3 Average Revenue per Customer$ 328 $ 321 $ 319 $ 313$ 330 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 and, beginning in the second quarter of 2022, through third-party sales 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, however 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 and, beginning in the second quarter of 2022, through third-party sales platforms in a given reporting period. For example, the number of Customers in the three months endedJune 30, 2022 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 endedJune 30, 2022 , including sales made on third-party sales platforms. We view the number of Customers as a key indicator of our scale and financial performance, however 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. 25 Table of Contents 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 and, beginning in the second quarter of 2022, through third-party sales 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.
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 and, beginning in the second quarter of 2022, through third-party sales 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, gain (loss) on extinguishment of debt, other income (expense), net, benefit (provision) for income taxes, depreciation and amortization, and share-based compensation expense. We have presented adjusted EBITDA in this Quarterly Report on Form 10-Q 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 defined by us as net cash from
(used in) operating activities less purchases of property and equipment. We have
presented free cash flow in this Quarterly Report on Form 10-Q 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.
26
Table of Contents
Impact of COVID-19 on our Business
Since late in the first quarter of 2020, the COVID-19 pandemic has to varying degrees resulted in significant economic disruptions and changes to the labor market and consumer behaviors inthe United States , which has impacted and may continue to impact our business. In particular, beginning in lateMarch 2020 , we experienced an increase in demand due in part to changes in consumer behaviors resulting from the various restrictions that have been enacted throughout much ofthe United States in response to the COVID-19 pandemic. As restrictions have lifted and as vaccines have become more widely available inthe United States and people begin to resume pre-pandemic activities, such as travel and dining out, this increased demand due to the pandemic began to decline after the first quarter of 2021 and is continuing to decline. The COVID-19 pandemic or any future surges, including as a result of new variants and subvariants of the virus, 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, supply chain and logistics disruptions, consumer behaviors, and on the overall economy, including recent high inflation levels impacting consumer spending. While most areas ofthe United States have reduced most or all COVID-19 restrictions, as the pandemic continues and if new outbreaks emerge, there is uncertainty 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 the pandemic will have on our business, operations, and financial results and condition in future periods.
Please see "Risk Factors" under Part II, Item 1A for further discussion regarding risks associated with the COVID-19 pandemic.
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, as well as our Add-On,
premium, and customization up-sell offerings. We also generate net revenue
through sales of Blue Apron Wine, sales on Blue Apron Market, sales of meal kits
on third-party platforms, and through enterprise bulk sales on an ad hoc basis.
We generally derive 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. However, seasonal trends may be masked and impacted by marketing
investments. In 2020, the economic and social impact of the COVID-19 pandemic
masked, in part, the seasonal fluctuations in our operating results as we saw
our strongest quarter in the second quarter of 2020. We believe that historical
seasonal trends have affected and will continue to affect our quarterly results
in the future. However, we cannot predict the ongoing impact, if any, that the
COVID-19 pandemic or other macroeconomic factors, such as inflation, or our
marketing investments, may have on seasonality in future periods and we have
begun to see a return to normal seasonality in 2021 and 2022. We also anticipate
that our net revenue will be impacted by the timing and outcome of our growth
strategy, including ongoing product expansion initiatives, pricing updates, as
well as the timing and extent of the sale and issuance of gift cards and the
associated revenue upon the redemption of those gift cards, which generally
occurs within one year of gift card issuance. Net revenue will also be impacted
by gift card breakage revenue, which is our estimate of the portion of our gift
card balance not expected to be redeemed. During 2022, we entered into various
agreements with related parties
27
Table of Contents
under which we agreed to issue$29.0 million (net of promotional discounts) of gift cards, which may result in higher levels of gift card breakage revenue and which may inflate net revenue or mask seasonal trends in future periods. See Note 13 to the consolidated financial statements in this Quarterly Report on Form 10-Q for further discussion. In addition, our net revenue is impacted by our marketing strategies, including the timing and amount of paid advertising and promotional activity. As part of the acceleration of our growth strategy using the proceeds from the 2021 Capital Raise (as defined below) that closed inNovember 2021 , we significantly increased marketing expenses toward the end of the fourth quarter of 2021 and the first half of 2022. Our plan is to have increased marketing expenses throughout the remainder of 2022. However, our ability to grow net revenue and to continue to increase marketing expenses throughout the remainder of 2022, as compared to the equivalent periods in 2021, is dependent upon our ability to close the remaining$70.0 million of the liquidity transactions (as defined below) with related parties or our ability to obtain additional funding. As such, we expect that any potential reductions in marketing investments in the second half of 2022 will impact our net revenue. 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 net 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. As noted above, our business is seasonal in nature and, as a result we anticipate that the third quarter of each year will generally reflect higher levels of cost of goods sold, excluding depreciation and amortization, due to higher packaging and shipping costs due to warmer temperatures. In the near-term we expect that these expenses will be higher because of the various actions taken to increase capacity in our fulfillment centers, as well as due to higher labor costs, including our minimum wage increase for hourly employees in the fourth quarter of 2021, to help recruit and retain fulfillment center employees, higher food costs, due in part to inflationary pressures, higher fuel and logistics costs, and 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. As part of the acceleration of our growth strategy, we increased marketing expenses toward the end of the fourth quarter of 2021 and in the first half of 2022. Our ability to continue to have higher marketing expenses throughout the remainder of 2022, as compared to the equivalent periods in 2021, is dependent upon our ability to close the remaining$70.0 million of the liquidity transactions (as defined below) with related parties or our ability to obtain additional funding. We anticipate that our marketing strategies, including the timing and extent of our marketing investments, will be informed by the sufficiency of our cash resources, our strategic priorities, our ability to
accelerate
28
Table of Contents
our growth strategy, the seasonal trends in our business, our marketing
technology capabilities, 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 also anticipate that our future marketing strategies
and investments may continue to be impacted by macroeconomic and other factors.
For example, as we did in response to the COVID-19 pandemic, we may reduce
marketing expenditures in future periods if we experience heightened demand in a
short period of time to help us manage unforeseen demand to alleviate any future
capacity constraints.
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; carbon offsets; 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 to the extent we scale our business.
Depreciation and Amortization
Depreciation and amortization consists of depreciation expense for our property and equipment and amortization expense for capitalized software development costs.
Gain (Loss) on Extinguishment of Debt
Gain (loss) on extinguishment of debt relates to the extinguishment loss
recorded upon the amendment of the 2020 Term Loan in
Interest Income (Expense), Net
Interest income (expense), net consists primarily of interest expense on our outstanding borrowings, capital lease financings, and build-to-suit lease financings partially offset by interest income on cash and cash equivalents balances.
Other Income (Expense), Net
Other income (expense), net consists of the change in fair value of the Blue Torch warrant obligation upon remeasurement as of each reporting period, as well as the gain recorded upon its derecognition.
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. Our tax provision results from state taxes in a jurisdiction in which net operating losses are not available to offset our tax obligation. We continue to maintain a valuation allowance for all of our deferred tax assets in federal and state tax jurisdictions, as we have concluded it is more likely than not the deferred
tax
assets will not be utilized.
29
Table of Contents
Results of Operations
The following sets forth our consolidated statements of operations data for each
of the periods indicated:
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 2022 2021
(In thousands)
Net revenue $ 124,237 $ 124,010 $ 241,988 $ 253,716
Operating expenses:
Cost of goods sold, excluding
depreciation and amortization 81,158 77,585 160,648 159,177
Marketing 21,776 16,316 49,690 36,256
Product, technology, general and
administrative 38,510 36,802 81,767 73,353
Depreciation and amortization 5,464 5,612 10,868 11,232
Total operating expenses 146,908 136,315 302,973 280,018
Income (loss) from operations (22,671) (12,305) (60,985) (26,302)
Gain (loss) on extinguishment of debt 650 (4,089) 650 (4,089)
Interest income (expense), net (1,435) (2,731) (3,205) (4,439)
Other income (expense), net 387 548 2,033 548
Income (loss) before income taxes (23,069) (18,577) (61,507) (34,282)
Benefit (provision) for income taxes (54) (10) (65) (26)
Net income (loss) $ (23,123) $ (18,587) $ (61,572) $ (34,308) The following table sets forth our consolidated statements of operations data as a percentage of net revenue for each of the periods indicated:
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 2022 2021
Net revenue 100.0 % 100.0 % 100.0 % 100.0 %
Operating expenses:
Cost of goods sold, excluding
depreciation and amortization 65.3 % 62.6 % 66.4 % 62.7 %
Marketing 17.5 % 13.2 % 20.5 % 14.3 %
Product, technology, general and
administrative 31.0 % 29.7 % 33.8 % 28.9 %
Depreciation and amortization 4.4 % 4.5 % 4.5 % 4.4 %
Total operating expenses 118.2 % 109.9 % 125.2 % 110.4 %
Income (loss) from operations (18.2) % (9.9) % (25.2) % (10.4) %
Gain (loss) on extinguishment of debt 0.5 % (3.3) 0.3 % (1.6) %
Interest income (expense), net (1.2) % (2.2) % (1.3) % (1.7) %
Other income (expense), net 0.3 % 0.4 % 0.8 % 0.2 %
Income (loss) before income taxes (18.6) % (15.0) % (25.4) % (13.5) %
Benefit (provision) for income taxes (0.0) % (0.0) % (0.0) % (0.0) %
Net income (loss) (18.6) % (15.0) % (25.4) % (13.5) %
Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021
Net Revenue
Three Months Ended
June 30,
2022 2021 % Change
(In thousands)
Net revenue $ 124,237 $ 124,010 0 %
30
Table of Contents
Net revenue increased by $0.2 million , or 0%, to $124.2 million for the three
months ended June 30, 2022 from $124.0 million for the three months ended June
30, 2021 . The increase in net revenue was primarily due to the $10.0 million of
net revenue from the Feeding America bulk sale recognized during the three
months ended June 30, 2022 , in addition to an increase in Average Order Value
due to pricing increases and the continued execution of our growth strategy. The
increases in net revenue were partially offset by decreases in Customers and
Orders due, in part, to noted increases in travel amongst our customers. In
addition, net revenue for the three months ended June 30, 2021 was positively
impacted by the recognition of the recovery of $2.0 million related to customer
credits issued in the third quarter of 2020, as a result of a voluntary recall
of onions that were supplied to us.
Operating Expenses
Cost of Goods Sold, excluding Depreciation and Amortization
Three Months Ended
June 30,
2022 2021 % Change
(In thousands)
Cost of goods sold, excluding depreciation and
amortization $ 81,158 $ 77,585 5 %
% of net revenue 65.3 % 62.6 %
Cost of goods sold, excluding depreciation and amortization, increased by
$3.6 million , or 5%, to $81.2 million for the three months ended June 30, 2022
from $77.6 million for the three months ended June 30, 2021 . The increase was
primarily due to the reasons set forth below, partially offset by a decrease in
Orders. As a percentage of net revenue, cost of goods sold, excluding
depreciation and amortization, increased to 65.3% for the three months ended
June 30, 2022 from 62.6% for the six months ended June 30, 2021 . The increase in
cost of goods sold, excluding depreciation and amortization, as a percentage of
net revenue, was primarily due to:
an increase of 150 basis points in food and product packaging costs, driven by
? the costs related to new product offerings and enhancements to our existing
product offerings to provide variety, flexibility, and additional choice for
our customers, as well as price increases due to inflationary pressures; and
? an increase of 120 basis points in shipping and fulfillment packaging due to
rate increases and fuel surcharges from shipping carriers.
Marketing
Three Months Ended
June 30,
2022 2021 % Change
(In thousands)
Marketing $ 21,776 $ 16,316 33 %% of net revenue 17.5 % 13.2 %
Marketing expenses increased by$5.5 million , or 33%, to$21.8 million for the three months endedJune 30, 2022 from$16.3 million for the three months endedJune 30, 2021 . The increase was seen across online paid channels and offline paid channels. As a percentage of net revenue, marketing expenses increased to 17.5% for the three months endedJune 30, 2022 from 13.2% for the three months endedJune 30, 2021 . This increase as a percentage of net revenue included an increase of 280 basis points in offline paid channels and an increase of 150 basis points in online paid channels.
The increase in marketing expenses is part of our growth strategy to drive customer acquisition.
Product, Technology, General and Administrative
Three Months Ended
June 30 ,
31
Table of Contents
2022 2021 % Change
(In thousands)Product, technology, general and administrative$ 38,510 $ 36,802 5 % % of net revenue 31.0 % 29.7 % Product, technology, general and administrative expenses increased by$1.7 million , or 5%, to$38.5 million for the three months endedJune 30, 2022 from$36.8 million for the three months endedJune 30, 2021 . This increase was primarily driven by investments to support our business and execute on key business initiatives, including:
? an increase of
in bonuses; offset by
? a decrease of
fulfillment centers, including occupancy and rent.
As a percentage of net revenue, product, technology, general and administrative expenses increased 130 basis points to 31.0% for the three months endedJune 30, 2022 from 29.7% for the three months endedJune 30, 2021 , primarily due to investments to support our business and execute on key business initiatives.
Depreciation and Amortization
Three Months Ended
June 30,
2022 2021 % Change
(In thousands)
Depreciation and amortization
4.4 % 4.5 %
Depreciation and amortization decreased by $0.1 million , or 3%, to $5.5 million
for the three months ended June 30, 2022 from $5.6 million for the three months
ended June 30, 2021 . This decrease was primarily driven by lower investments. As
a percentage of net revenue, depreciation and amortization decreased to 4.4% for
the three months ended June 30, 2022 from 4.5% for the three months ended June
30, 2021 .
Income (Loss) from Operations
Three Months Ended
June 30,
2022 2021 % Change
(In thousands)
Income (loss) from operations
(18.2) % (9.9) %
Income (loss) from operations for the three months ended June 30, 2022 and 2021
was $(22.7) million and $(12.3) million , respectively. This change was due to an
increase in operating expenses of $10.6 million , partially offset by an increase
in net revenue of $0.2 million . As a percentage of net revenue, income (loss)
from operations was (18.2)% and (9.9)% for the three months ended June 30, 2022
and 2021, respectively. This change was primarily driven by increases as a
percentage of net revenue in marketing expenses, cost of goods sold, excluding
depreciation and amortization, and product, technology, general and
administrative expenses, partially offset by a decrease in depreciation and
amortization, for the reasons set forth above.
Gain (Loss) on Extinguishment of Debt
Gain (loss) on extinguishment of debt for the three months endedJune 30, 2022 and 2021 was$0.7 million and$(4.1) million , respectively. This change was due to the extinguishment gain recorded upon the termination of the financing agreement inMay 2022 , as compared to the extinguishment loss recorded upon the amendment of the financing agreement inMay 2021 . 32
Table of Contents
Interest Income (Expense), Net
Interest income (expense), net for the three months endedJune 30, 2022 and 2021 was$(1.4) million and$(2.7) million , respectively. This change was primarily due to the payment of$0.5 million of the closing fee and the derecognition of$0.4 million unamortized debt issuance costs recorded in conjunction with the release of the 2021 Term Loan during the three months endedJune 30, 2021 , as well as decreased interest expense incurred on outstanding borrowings of$0.4 million . Other Income (Expense), net Other income (expense), net for the three months endedJune 30, 2022 and 2021 was$0.4 million and$0.5 million , respectively. This change consists of the change in fair value of the Blue Torch warrant obligation upon remeasurement as of each reporting period, as well as the gain recorded upon its derecognition.
Benefit (Provision) for Income Taxes
The provision for income taxes recorded in the three months endedJune 30, 2022 and 2021 reflects state income taxes in a jurisdiction for which net operating losses were not available to offset our tax obligation.
Six Months Ended
Net Revenue
Six Months Ended
June 30,
2022 2021 % Change
(In thousands)
Net revenue $ 241,988 $ 253,716 (5) %
Net revenue decreased by $11.7 million , or 5%, to $242.0 million for the six
months ended June 30, 2022 from $253.7 million for the six months ended June 30,
2021 . The decrease in net revenue was primarily due to decreases in Customers
and Orders, which were due, in part, to noted increases in travel amongst our
customers. In addition, net revenue for the three months ended June 30, 2021 ,
being positively impacted by the recognition of the recovery of $2.0 million
related to customer credits issued in the third quarter of 2020 as a result of a
voluntary recall of onions supplied to the Company. These decreases were
partially offset by the $10.0 million of Feeding America bulk sale net revenue
recognized during the three months ended June 30, 2022 , and an increase in
Average Order Value due to pricing increases and the execution of our growth
strategy, including through product innovation.
Operating Expenses
Cost of Goods Sold, excluding Depreciation and Amortization
Six Months Ended
June 30,
2022 2021 % Change
(In thousands)
Cost of goods sold, excluding depreciation and
amortization $ 160,648 $ 159,177 1 %
% of net revenue 66.4 % 62.7 %
Cost of goods sold, excluding depreciation and amortization, increased by
$1.4 million , or 1%, to $160.6 million for the six months ended June 30, 2022
from $159.2 million for the six months ended June 30, 2021 . The increase was
primarily due to the reasons set forth below, partially offset by a decrease in
Orders. As a percentage of net revenue, cost of goods sold, excluding
depreciation and amortization, increased to 66.4% for the six months ended
June
33
Table of Contents
30, 2022 from 62.7% for the six months endedJune 30, 2021 . The increase in cost of goods sold, excluding depreciation and amortization, as a percentage of net revenue, was primarily due to:
? an increase of 150 basis points in shipping and fulfillment packaging due to
rate increases and fuel surcharges from shipping carriers;
an increase of 140 basis points in food and product packaging costs, driven by
? the costs related to new product offerings and enhancements to our existing
product offerings to provide variety, flexibility, and additional choice for
our customers, as well as price increases due to inflationary pressures; and
? an increase of 80 basis points in labor costs due to minimum wage increases for
our hourly employees.
Marketing
Six Months Ended
June 30,
2022 2021 % Change
(In thousands)
Marketing $ 49,690 $ 36,256 37 %
% of net revenue 20.5 % 14.3 %
Marketing expenses increased by$13.4 million , or 37%, to$49.7 million for the six months endedJune 30, 2022 from$36.3 million for the six months endedJune 30, 2021 . The increase was seen across online paid channels, offline paid channels, and in our customer referral program. As a percentage of net revenue, marketing expenses increased to 20.5% for the six months endedJune 30, 2022 from 14.3% for the six months endedJune 30, 2021 . This increase as a percentage of net revenue included an increase of 330 basis points in online paid channels, an increase of 280 basis points in offline paid channels, and an increase of 10 basis points in our customer referral program. The significant increase in marketing expenses in the first half of 2022, which began toward the end of the fourth quarter of 2021 following the 2021 Capital Raise (as defined below), is part of the acceleration of our growth strategy to drive customer acquisition.
Product, Technology, General and Administrative
Six Months Ended
June 30,
2022 2021 % Change
(In thousands)Product, technology, general and administrative$ 81,767 $ 73,353 11 % % of net revenue 33.8 % 28.9 % Product, technology, general and administrative expenses increased by$8.4 million , or 11%, to$81.8 million for the six months endedJune 30, 2022 from$73.4 million for the six months endedJune 30, 2021 . This increase was primarily driven by investments to support our business and execute on key business initiatives, including:
? an increase of
in bonuses;
an increase of
? driven by investments in external consultants to support operational
efficiency; and
an increase of
? fulfillment centers, primarily driven by the purchase and subsequent retirement
of carbon offsets during the three months ended
fulfill our commitment to being carbon neutral as of
As a percentage of net revenue, product, technology, general and administrative expenses increased 490 basis points to 33.8% for the six months endedJune 30, 2022 from 28.9% for the six months endedJune 30, 2021 , primarily due to investments to support our business and execute on key business initiatives. 34 Table of Contents
Depreciation and Amortization
Six Months Ended
June 30,
2022 2021 % Change
(In thousands)
Depreciation and amortization
4.5 % 4.4 %
Depreciation and amortization decreased by $0.2 million , or 3%, to $10.9 million
for the six months ended June 30, 2022 from $11.2 million for the six months
ended June 30, 2021 . This decrease was primarily driven by lower investments. As
a percentage of net revenue, depreciation and amortization increased to 4.5% for
the six months ended June 30, 2022 from 4.4% for the six months ended June 30,
2021 .
Income (Loss) from Operations
Six Months Ended
June 30,
2022 2021 % Change
(In thousands)
Income (loss) from operations
(25.2) % (10.4) %
Income (loss) from operations for the six months ended June 30, 2022 and 2021
was $(61.0) million and $(26.3) million , respectively. This change was due to an
increase in operating expenses of $23.0 million , and a decrease in net revenue
of $11.7 million . As a percentage of net revenue, income (loss) from operations
was (25.2)% and (10.4)% for the six months ended June 30, 2022 and 2021,
respectively. This change was primarily driven by increases as a percentage of
net revenue in marketing expenses, product, technology, general and
administrative expenses, cost of goods sold, excluding depreciation and
amortization, and depreciation and amortization, for the reasons set forth
above.
Gain (Loss) on Extinguishment of Debt
Gain (loss) on extinguishment of debt for the six months endedJune 30, 2022 and 2021 was$0.7 million and$(4.1) million , respectively. This change was due to the extinguishment gain recorded upon the termination of the financing agreement inMay 2022 , as compared to the extinguishment loss recorded upon the amendment of the financing agreement inMay 2021 .
Interest Income (Expense), Net
Interest income (expense), net for the six months endedJune 30, 2022 and 2021 was$(3.2) million and$(4.4) million , respectively. This change was primarily due to the payment of$0.5 million of the closing fee and the derecognition of$0.4 million unamortized debt issuance costs recorded in conjunction with the release of the 2021 Term Loan during the three months endedJune 30, 2021 , as well as decreased interest expense incurred on outstanding borrowings of$0.3 million Other Income (Expense), net
Other income (expense), net for the six months endedJune 30, 2022 and 2021 was$2.0 million and$0.5 million , respectively. This change consists of the change in fair value of the Blue Torch warrant obligation upon remeasurement as of each reporting period, as well as the gain recorded upon its derecognition.
Benefit (Provision) for Income Taxes
The provision for income taxes recorded in the six months endedJune 30, 2022 and 2021 reflects state income taxes in a jurisdiction for which net operating losses were not available to offset our tax obligation. 35 Table of Contents Non-GAAP Financial Measures To provide additional information regarding our financial results, we monitor and have presented within this Quarterly Report on Form 10-Q 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. 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, gain (loss) on extinguishment of debt, other income (expense), net, benefit (provision) for income taxes, depreciation and amortization, and share-based compensation expense. We have presented adjusted EBITDA in this Quarterly Report on Form 10-Q 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. 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 gains and losses on extinguishments of debt, as these
primarily represent non-cash accounting adjustments;
? adjusted EBITDA does not reflect interest expense, or the cash requirements
necessary to service interest, which reduces cash available to us;
adjusted EBITDA does not reflect other (income) expense, net as this represents
? changes in the fair value of the Blue Torch warrant obligation as of each
reporting period, which must be settled either in cash, harming our liquidity,
or our Class A common shares, resulting in dilution to our stockholders;
? 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
Quarterly Report on Form 10-Q 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.
36
Table of Contents
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.
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:
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 2022 2021
(In thousands)
Reconciliation of net income (loss) to adjusted
EBITDA
Net income (loss) $ (23,123) $ (18,587) $ (61,572) $ (34,308)
Share-based compensation 1,704 3,146 3,877 5,465Depreciation and amortization 5,464 5,612 10,868 11,232 Loss (gain) on extinguishment of debt (650) 4,089 (650) 4,089 Interest (income) expense, net 1,435 2,731 3,205 4,439 Other (income) expense, net (387) (548) (2,033) (548) Provision (benefit) for income taxes 54 10
65 26
Adjusted EBITDA $ (15,503) $ (3,547) $ (46,240) $ (9,605)
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 2022 2021
(In thousands)
Reconciliation of net cash from (used in)
operating activities to free cash flow
Net cash from (used in) operating activities $ (18,322) $ 1,073 $ (47,120) $ (10,878)
Purchases of property and equipment (1,664) (1,263) (2,985) (3,009) Free cash flow$ (19,986) $ (190) $ (50,105) $ (13,887)
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:
June 30, December 31,
2022 2021
(In thousands)
Cash and cash equivalents $ 54,028 $ 82,160
Accounts receivable, net $ 276 $ 234
Related party receivables $ 10,000 $ -
Restricted cash included in Prepaid expenses and
other assets $ 369 $ 608
Restricted cash included in Other noncurrent assets
829
Working capital (1) $ (34,928) $ (30,399)
37
Table of Contents
We define working capital as the difference between our current assets
(1) (excluding cash and cash equivalents) and current liabilities (excluding the
current portion of long-term debt and the current Blue Torch warrant
obligation).
Our cash requirements are principally for working capital and capital expenditures to support our business, including investments at our fulfillment centers, investments in sustainability efforts, and investment in marketing to support the execution of 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.
Equity Financing Transactions
OnApril 29, 2022 , we entered into a purchase agreement withRJB Partners LLC ("RJB")(the "RJBApril 2022 Purchase Agreement"), an affiliate ofJoseph N. Sanberg , one of our existing stockholders. The RJBApril 2022 Purchase Agreement provided for, among other things, 3,333,333 shares of Class A common stock for an aggregate purchase price of$40.0 million (or$12.00 per share).Long Live Bruce, LLC , an affiliate ofJoseph N. Sanberg , was assigned RJB's rights to 1,666,667 shares of Class A common stock for an aggregate purchase price of$20.0 million under the RJBApril 2022 Purchase Agreement, which was issued and sold concurrently with the execution of the purchase agreement (the "first closing"). The remainder of the Class A common shares under the RJBApril 2022 Private Placement Agreement were to be issued and sold under a second closing, initially expected to close byMay 30, 2022 byMay 30, 2022 or such other date as agreed to by the parties. In addition, onApril 29, 2022 , we entered into a purchase agreement withLinda Findley (the "FindleyApril 2022 Private Placement"), one of our directors and our President and Chief Executive Officer, under which we agreed to issue and sell toMs. Findley in a separate private placement, which closed concurrently with the execution of the first closing, 41,666 shares of Class A common stock for an aggregate purchase price of$0.5 million (or$12.00 per share).
The first closing of the RJB
OnAugust 7, 2022 , we amended the RJBApril 2022 Purchase Agreement, pursuant to which RJB agreed to purchase from us (i) the 1,666,667 shares of Class A common stock under the initial RJBApril 2022 Purchase Agreement at a price of$5.00 per share, instead of$12.00 per share, and (ii) an additional 8,333,333 shares of Class A common stock at a price of$5.00 per share, for an aggregate purchase price of$50.0 million and 10,000,000 shares of Class A common stock in total, as well as agreeing to extend the date of the second closing to on or beforeAugust 31, 2022 . We expect to invest these proceeds in our long-term growth plan, or for general corporate purposes. We may use up to$25.0 million for strategic purposes aimed at enhancing shareholder value, including exploring share buybacks. RJB's obligation to complete the second closing is not subject to closing conditions, and, pursuant to such amendment,Joseph N. Sanberg has agreed to personally guarantee the payment of the aggregate purchase price of$50.0 million .
We are using the net proceeds of the
OnFebruary 14, 2022 , we entered into a purchase agreement with RJB, under which we agreed to issue and sell to RJB units of Class A common stock and warrants to purchase shares of Class A common stock in a private placement (the "February 2022 Private Placement") which closed concurrently with the execution of the purchase agreement for an aggregate purchase price of$5.0 million (or$14.00 per unit). In the aggregate, RJB received (i) 357,143 shares of Class 38
Table of Contents
A common stock, and (ii) warrants to purchase 500,000 shares of Class A common
stock at various exercise prices of
The net proceeds of theFebruary 2022 Private Placement were used for working capital and general corporate purposes, including to continue to execute our growth strategy. 2021 Capital Raise
OnNovember 4, 2021 , we closed a series of transactions referred to as the 2021 Capital Raise, which resulted in the issuance of (i) 7,500,000 shares of Class A common stock, and (ii) warrants to purchase 10,500,000 shares of Class A common stock at exercise prices of$15.00 per share,$18.00 per share, and$20.00 per share, resulting in$70.3 million of proceeds, net of issuance costs. OnSeptember 15, 2021 , we closed the Salzberg Private Placement, as contemplated within the 2021 Capital Raise described above, and which resulted in the issuance of (i) 300,000 shares of Class A common stock, and (ii) warrants to purchase 420,000 shares of Class A common stock at exercise prices of$15.00 per share,$18.00 per share, and$20.00 per share, resulting in$2.8 million of proceeds, net of issuance costs.
The net proceeds of the 2021 Capital Raise were used for general corporate
purposes, primarily consisting of (i) an acceleration and expansion of our
growth strategy, (ii) an acceleration of certain of our environmental and
sustainability initiatives, including the achievement of our goal of carbon
neutrality by
Underwritten public offerings
OnApril 29, 2020 , we filed a universal shelf registration statement (the "2020 Shelf") on Form S-3 with theSecurities and Exchange Commission (the "SEC"), 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 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. OnJune 18, 2021 , we completed an underwritten public offering (the "June 2021 offering") of 5,411,900 shares of our Class A common stock, including the 705,900 shares issuable upon the underwriter's exercise of its option to purchase additional shares, under the 2020 Shelf, resulting in$21.1 million of proceeds, net of underwriting discounts and commissions and offering costs. As ofJune 30, 2022 ,$15.0 million of our Class A common stock, preferred stock, debt securities and/or warrants remain available for issuance under the 2020 Shelf. Debt financing transactions OnOctober 16, 2020 , we entered into a financing agreement which provided for a senior secured term loan in the aggregate principal amount of$35.0 million (the "2020 Term Loan"). The 2020 Term Loan bore interest at a rate equal to LIBOR (subject to a 1.50% floor) plus 8.00% per annum, with the principal amount repayable in equal quarterly installments of$875,000 throughDecember 31, 2022 , and the remaining unpaid principal amount of the 2020 Term Loan due onMarch 31, 2023 . OnMay 5, 2021 (the "closing date"), we amended the financing agreement (the "Amendment"), which modified certain provisions of the financing agreement, such as increasing the interest rate margin on the 2020 Term 39
Table of Contents
Loan by 1.00% per annum, resulting in the 2020 Term Loan bearing interest, from and after the closing date, at a rate equal to LIBOR (subject to a 1.50% floor) plus 9.00% per annum. In addition, the Amendment provided for a$5.0 million term loan (the "2021 Term Loan") that was funded into an escrow account and subsequently released in full from the escrow account to the lenders upon our completion of an underwritten public offering inJune 2021 . OnMay 5, 2022 (the "issue date"), we entered into the Note Purchase and Guarantee Agreement (the "note purchase agreement"), which provides for, among other things, the issuance of$30.0 million in aggregate principal amount of senior secured notes dueMay 5, 2027 (the "senior secured notes") at a purchase price equal to 94.00% thereof. The proceeds of the senior secured notes were used, together with cash on hand, to repay in full the outstanding amount under our 2020 Term Loan and pay fees and expenses in connection with the transactions contemplated by the note purchase agreement. We terminated our financing agreement effective as of the same date. Upon receiving a minimum specified bond rating after the issue date, as specified within the terms of the note purchase agreement, the senior secured notes bear interest at a rate equal to 8.875% per annum, payable in arrears onJune 30 andDecember 31 of each calendar year. The senior secured notes will amortize semi-annually in equal installments of$1.5 million beginning onDecember 31, 2025 , with the remaining unpaid principal amount of the senior secured notes due onMay 5, 2027 .
The note purchase agreement contains two financial maintenance covenants:
? a minimum liquidity covenant of:
i. for any date prior to or ending on
required cash flow forecasts provided to the noteholders,
ii. for any date thereafter, including those within required cash flow forecasts
provided to the noteholders:
?
purchase agreement) is greater than
?
but less than
?
million, or is as of yet uncompleted; and
? a covenant requiring us to maintain a minimum Asset Coverage Ratio (as defined
in the note purchase agreement) of at least 1.25 to 1.00.
As of the date of this Quarterly Report on Form 10-Q, our initial Asset Valuation has not been completed, with the minimum liquidity covenant therefore currently set at$25.0 million . Subsequent to the initial report, the Asset Valuation is required to be provided to the noteholders no later than 30 days afterJune 30 andDecember 31 of each fiscal year. We have also agreed to use commercially reasonable efforts to cause 90% of the packaging for our meal kit boxes to be recyclable, reusable, or compostable (the "ESG KPI Goal"); the failure to achieve the ESG KPI Goal prior to the date on which the senior secured notes are repaid will require us to pay a fee equal to 1% of the principal amount of the senior secured notes. The note purchase agreement contains additional restrictive 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. Total outstanding debt, net of debt issuance costs and issued letters of credit outstanding were$27.7 million and$1.4 million , respectively, as ofJune 30, 2022 , and$29.4 million and$1.4 million , respectively, as ofDecember 31 , 40
Table of Contents
2021. In addition, as of
Known Liquidity Trends
Management considered conditions and events that could raise substantial doubt about our ability to continue as a going concern within twelve months of the issuance date of this Quarterly Report on Form 10-Q, and considered our current financial condition and liquidity sources, including current funds available, forecasted future cash flows, and our conditional and unconditional obligations before such date. We have a history of significant net losses, including$61.6 million and$34.3 million for the six months endedJune 30, 2022 , and 2021, respectively, and operating cash flows of$(47.1) million and$(10.9) million for the six months endedJune 30, 2022 , and 2021, respectively. Our current operating plan indicates we will continue to incur net losses and generate negative cash flows from operating activities. In addition to the financing transactions discussed above, onMay 5, 2022 , we entered into a gift card sponsorship agreement (the "May Sponsorship Gift Cards Agreement") with an affiliate ofJoseph N. Sanberg , pursuant to which such affiliate agreed to pay us a$20.0 million net sponsorship fee to support a marketing program through which we will distribute gift cards, at our sole discretion, in order to support our growth strategy. OnAugust 7, 2022 , we amended the May Sponsorship Gift Cards Agreement to extend the funding date to on or beforeAugust 31, 2022 , and pursuant to which,Joseph N. Sanberg personally guaranteed his affiliate's obligation. Without the liquidity provided by the second closing of the RJBApril 2022 Purchase Agreement and the funding of the May Sponsorship Gift Cards Agreement (collectively, the "liquidity transactions"), our forecast of future cash flows indicates that such cash flows would not be sufficient for us to maintain compliance under our minimum liquidity covenant for a period of twelve months following the issuance date of this Quarterly Report on Form 10-Q, which would result in an event of default under the note purchase agreement. Upon such event of default, the noteholders could declare all outstanding principal and interest be due and payable immediately and foreclose against the assets securing the borrowings. If we would be unable to obtain a waiver or successfully renegotiate the terms of its note purchase agreement, and the noteholders enforced one or more of their rights upon default, we would be unable to meet our current obligations. While management was able to obtain personal guarantees fromJoseph N. Sanberg relating his affiliates' obligations to fund the liquidity transactions via the executed amendments noted above, which upon receipt of such proceeds would alleviate substantial doubt, there is no assurance that the liquidity transactions will be consummated in a timely manner, in amounts that are sufficient to maintain our compliance under our minimum liquidity covenant, or on acceptable terms to us, or at all. Although we have been reviewing a number of potential alternatives regarding maintaining compliant with our minimum liquidity covenant, including cost reduction initiatives, renegotiating the terms of our note purchase agreement, and/or alternative sources for additional financing, such alternatives may not be achievable on favorable conditions, or at all, and these conditions and events in the aggregate raise substantial doubt regarding our ability to continue as a going concern. 41 Table of Contents Cash Flows The following table presents the major components of net cash flows from and used in operating, investing, and financing activities for the periods indicated: Six Months Ended June 30, 2022 2021 (In thousands) Net cash from (used in) operating activities$ (47,120) $
(10,878)
Net cash from (used in) investing activities (2,874)
(1,707)
Net cash from (used in) financing activities 21,863
19,172
Net increase (decrease) in cash, cash equivalents, and restricted cash (28,131)
6,587
Cash, cash equivalents, and restricted cash-beginning of period 83,597
45,842
Cash, cash equivalents, and restricted cash-end of period
Net cash from (used in) operating activities consists of net income (loss) adjusted for primarily non-cash items and changes in operating assets and liabilities.
For the six months endedJune 30, 2022 , net cash from (used in) operating activities was$(47.1) million and consisted of net income (loss) of$(61.6) million , partially offset by non-cash items of$12.9 million and a net change in operating assets and liabilities of$1.6 million . Changes in operating assets and liabilities were primarily driven by increases in accounts payable, the current portion of related party payables, deferred revenue, and related party payables of$27.0 million , partially offset by increases in related party receivables, inventories, other noncurrent assets and liabilities of$21.3 million and a decrease in accrued expenses and other current liabilities of$3.9 million . For the six months endedJune 30, 2021 , net cash from (used in) operating activities was$(10.9) million and consisted of net income (loss) of$(34.3) million , primarily non-cash items of$21.2 million , and a net change in operating assets and liabilities of$2.3 million . Changes in operating assets and liabilities were primarily driven by an increase in accounts payable of$16.5 million and decreases in prepaid expenses and other current assets, other noncurrent assets and liabilities, and accounts receivable of$9.9 million , partially offset by decreases in accrued expenses and other current liabilities and deferred revenue of$19.4 million and an increase in inventories of$4.7 million .
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.
For the six months ended
In the future we expect to incur capital expenditures primarily related to the execution of our growth strategy and to further optimize and drive efficiency in our operations and capitalized software costs. As ofJune 30, 2022 , our projected capital expenditures are expected to amount to approximately$5.0 million to$7.0 million in the aggregate over the next 12 months. 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. 42
Table of Contents
For the six months ended
Net cash from (used in) financing activities primarily relates to our debt and equity financing transactions.
For the six months ended
For the six months endedJune 30, 2021 , net cash from (used in) financing activities was$19.1 million and consisted primarily of$21.1 million of proceeds from the public offering of Class A common stock, net of offering costs and the receipt of funds held in escrow, partially offset by the release of the funds held in escrow, repayments of debt, payments of debt issuance costs, and principal payments on capital lease obligations.
Free Cash Flow
We define free cash flow as net cash from (used in) operating activities less purchases of property and equipment.
Our free cash flow was$(50.1) million and$(13.9) million for the six months endedJune 30, 2022 and 2021, respectively. For the six months endedJune 30, 2022 , free cash flow consisted of$(47.1) million of net cash from (used in) operating activities and$(3.0) million for purchases of property and equipment, of which approximately$(1.7) million relates to capitalized software costs. For the six months endedJune 30, 2021 , free cash flow consisted of$(10.9) million of net cash from (used in) operating activities and$(3.0) million for purchases of property and equipment, of which approximately$(1.2) million relates to 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.
Contractual Obligations
Other than the borrowings disclosed above in the "Debt Financing Transactions" section and changes which occur in the normal course of business, as ofJune 30, 2022 , there were no other significant changes to the contractual obligations reported in our Annual Report on Form 10-K for the year endedDecember 31, 2021 .
Off-Balance Sheet Arrangements
As ofJune 30, 2022 andDecember 31, 2021 , 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.
Related Party Transactions
For information regarding related party transactions, see Note 13, Related Party Transactions, included in Part I, Item 1, Notes to Consolidated Financial Statements, in this Quarterly Report on Form 10-Q.
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. The accounting estimates that require
the most difficult and subjective judgments include revenue recognition,
inventory
43
Table of Contents
valuation, leases, the fair value of share-based awards, the fair value of the Blue Torch warrant obligation, recoverability of long-lived assets, and the recognition and measurement of contingencies. 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 in our Annual Report on Form 10-K for the year endedDecember 31, 2021 for a description of our other accounting policies and information about our critical accounting policies.
Emerging Growth Company Status
We are an "emerging growth company," as defined in the Jumpstart Our Business Startups Act. This classification has allowed us to elect to take advantage of the extended transition period afforded for the implementation of new or revised accounting standards. We expect to lose our emerging growth company status onDecember 31, 2022 , and as a result, we will adopt all accounting pronouncements currently deferred under the emerging growth company election according to public company standards beginning with our Annual Report on Form 10-K for the year endingDecember 31, 2022 , including interim period disclosures within that filing.
Recent Accounting Pronouncements
For information about recent accounting pronouncements, see Note 2, Summary of Significant Accounting Policies, Recently Issued Accounting Pronouncements and Recently Adopted Accounting Pronouncements, included in Part I, Item 1, Notes to Consolidated Financial Statements, in this Quarterly Report on Form 10-Q.
© Edgar Online, source
