CHEWY, INC.
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the consolidated financial
statements and related notes thereto included in this Annual Report on Form 10-K
for fiscal year 2020 ("10-K Report"). This discussion contains forward-looking
statements that involve risks and uncertainties. As a result of many factors,
such as those set forth under the "Risk Factors" and "Cautionary Note Regarding
Forward-Looking Statements" sections herein, our actual results may differ
materially from those anticipated in these forward-looking statements. Unless
the context requires otherwise, references in this Annual Report on Form 10-K to
"Chewy," the "Company," "we," "our," or "us" refer to Chewy, Inc. and its
consolidated subsidiaries.
Overview
We are the largest pure-play pet e-tailer inthe United States , offering virtually every product a pet needs. We launched Chewy in 2011 to bring the best of the neighborhood pet store shopping experience to a larger audience, enhanced by the depth and wide selection of products and around-the-clock convenience that only e-commerce can offer. We believe that we are the preeminent online destination for pet parents as a result of our broad selection of high-quality products, which we offer at great prices and deliver with an exceptional level of care and a personal touch. We are the trusted source for pet parents and continually develop innovative ways for our customers to engage with us. We partner with approximately 2,500 of the best and most trusted brands in the pet industry, and we create and offer our own outstanding proprietary brands. Through our website and mobile applications, we offer our customers more than 70,000 products, compelling merchandising, an easy and enjoyable shopping experience, and exceptional customer service.
COVID-19
The COVID-19 pandemic has been a highly disruptive economic and societal event that has affected our business and has had a significant impact on consumer shopping behavior. To serve our pet parents while also providing for the safety and well-being of our team members, we have adapted aspects of our logistics, transportation, supply chain and purchasing processes accordingly. As reflected in the discussion below, we have seen customers shift more of their total shopping spend to online channels since the COVID-19 outbreak, which has led to increased sales and order activity for our business. While the COVID-19 outbreak has not had a material adverse impact on our operations to date, it is difficult to predict all of the positive or negative impacts the COVID-19 outbreak will ultimately have on our business. As this crisis has unfolded, we have continued to monitor conditions and adapt our operations to meet federal, state and local standards. We have done so to continue meeting the needs of our rapidly growing community of pets and pet parents and to ensure the safety and well-being of our team members. We cannot predict the duration or severity of COVID-19 or its ultimate impact on the broader economy or our operations and liquidity. As such, the situation remains unpredictable and risks still remain. Please refer to the "Cautionary Note Regarding Forward-Looking Statements" in this 10-K Report and in the section titled "Risk Factors" in Item 1A of this 10-K Report.
Fiscal Year End
The Company has a 52 or 53-week fiscal year ending each year on the Sunday that is closest toJanuary 31 of that year. The Company's 2020 fiscal year endedJanuary 31, 2021 and included 52 weeks ("Fiscal Year 2020"). The Company's 2019 fiscal year endedFebruary 2, 2020 and included 52 weeks ("Fiscal Year 2019"). The Company's 2018 fiscal year endedFebruary 3, 2019 and included 53 weeks ("Fiscal Year 2018"). 37 --------------------------------------------------------------------------------
Key Financial and Operating Data
We measure our business using both financial and operating data and use the
following metrics and measures to assess the near-term and long-term performance
of our overall business, including identifying trends, formulating financial
projections, making strategic decisions, assessing operational efficiencies, and
monitoring our business.
Fiscal Year % change
(in thousands, except net sales per
active customer and percentages) 2020 2019 2018 2020 vs. 2019 2019 vs. 2018
Financial and Operating Data
Net sales $ 7,146,264 $ 4,846,743 $ 3,532,837 47.4 % 37.2 %
Net loss (1) $ (92,486) $ (252,370) $ (267,890) 63.4 % 5.8 %
Net margin (1) (1.3) % (5.2) % (7.6) %
Adjusted EBITDA(2) $ 85,157 $ (81,025) $ (228,905) 205.1 % 64.6 %
Adjusted EBITDA margin(2) 1.2 % (1.7) % (6.5) %
Net cash provided by (used in)
operating activities $ 132,755 $ 46,581 $ (13,415) 185.0 % n/m
Free cash flow(2) $ 2,012 $ (2,055) $ (57,575) 197.9 % 96.4 %
Active customers 19,206 13,459 10,585 42.7 % 27.2 %
Net sales per active customer $ 372 $ 360 $ 334 3.3 % 7.8 %
Autoship customer sales $ 4,889,485 $ 3,362,835 $ 2,322,480 45.4 % 44.8 %
Autoship customer sales as a percentage
of net sales 68.4 % 69.4 % 65.7 %
n/m - not meaningful
(1) Includes share-based compensation expense, including related taxes, of
We define net margin as net loss divided by net sales and adjusted EBITDA margin as adjusted EBITDA divided by net sales.
Non-GAAP Financial Measures
Adjusted EBITDA and Adjusted EBITDA Margin
To provide investors with additional information regarding our financial
results, we have disclosed here and elsewhere in this
10-K Report adjusted EBITDA, a non-GAAP financial measure that we calculate as
net loss excluding depreciation and amortization; share-based compensation
expense and related taxes; income tax provision; interest income (expense), net;
management fee expense; transaction related costs; and litigation matters and
other items that we do not consider representative of our underlying operations.
We have provided a reconciliation below of adjusted EBITDA to net loss, the most
directly comparable GAAP financial measure.
We have included adjusted EBITDA in this 10-K Report because it is a key measure
used by our management and board of directors to evaluate our operating
performance, generate future operating plans and make strategic decisions
regarding the allocation of capital. In particular, the exclusion of certain
expenses in calculating adjusted EBITDA facilitates operating performance
comparability across reporting periods by removing the effect of non-cash
expenses and certain variable charges. Accordingly, we believe that adjusted
EBITDA provides useful information to investors and others in understanding and
evaluating our operating results in the same manner as our management and board
of directors.
We believe it is useful to exclude non-cash charges, such as depreciation and
amortization, share-based compensation expense and management fee expense from
our adjusted EBITDA because the amount of such expenses in any specific period
may not directly correlate to the underlying performance of our business
operations. We believe it is useful to exclude income tax provision; interest
income (expense), net; transaction related costs; and litigation matters and
other items which are not components of our core business operations. Adjusted
EBITDA has limitations as a financial measure and you should not consider it in
isolation or as a substitute for analysis of our results as reported under GAAP.
Some of these limitations are:
38
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•although depreciation and amortization are non-cash charges, the assets being
depreciated and amortized may have to be replaced in the future and adjusted
EBITDA does not reflect capital expenditure requirements for such replacements
or for new capital expenditures;
•adjusted EBITDA does not reflect share-based compensation and related taxes.
Share-based compensation has been, and will continue to be for the foreseeable
future, a recurring expense in our business and an important part of our
compensation strategy;
•adjusted EBITDA does not reflect interest income (expense), net; or changes in,
or cash requirements for, our working capital;
•adjusted EBITDA does not reflect transaction related costs (e.g. IPO costs) and
other items which are either not representative of our underlying operations or
are incremental costs that result from an actual or planned transaction and
include litigation matters, integration consulting fees, internal salaries and
wages (to the extent the individuals are assigned full-time to integration and
transformation activities) and certain costs related to integrating and
converging IT systems; and
•other companies, including companies in our industry, may calculate adjusted
EBITDA differently, which reduces its usefulness as a comparative measure.
Because of these limitations, you should consider adjusted EBITDA and adjusted
EBITDA margin alongside other financial performance measures, including various
cash flow metrics, net loss, net margin, and our other GAAP results.
The following table presents a reconciliation of net loss to adjusted EBITDA for each of the periods indicated.
($ in thousands, except percentages) Fiscal Year Reconciliation of Net Loss to Adjusted EBITDA 2020 2019 2018 Net loss$ (92,486) $ (252,370) $ (267,890) Add (deduct): Depreciation and amortization 35,664 30,645 23,210 Share-based compensation expense and related taxes 129,208 136,237 14,351 Interest expense (income), net 2,022 (356) 124 Management fee expense(1) 1,300 1,300 1,300 Transaction related costs 2,369 1,396 - Other 7,080 2,123 - Adjusted EBITDA$ 85,157 $ (81,025) $ (228,905) Net sales$ 7,146,264 $ 4,846,743 $ 3,532,837 Net Margin (1.3) % (5.2) % (7.6) % Adjusted EBITDA margin 1.2 % (1.7) % (6.5) % (1) Management fee expense allocated to us by PetSmart for organizational oversight and certain limited corporate functions provided by its sponsors. Although we are not a party to the agreement governing the management fee, this management fee is reflected as an expense in our consolidated financial statements. Free Cash Flow To provide investors with additional information regarding our financial results, we have also disclosed here and elsewhere in this 10-K Report free cash flow, a non-GAAP financial measure that we calculate as net cash provided by (used in) operating activities less capital expenditures (which consist of purchases of property and equipment, including servers and networking equipment, capitalization of labor related to our website, mobile applications, and software development, and leasehold improvements). We have provided a reconciliation below of free cash flow to net cash provided by (used in) operating activities, the most directly comparable GAAP financial measure. We have included free cash flow in this 10-K Report because it is an important indicator of our liquidity as it measures the amount of cash we generate. Accordingly, we believe that free cash flow provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors. 39 -------------------------------------------------------------------------------- Free cash flow has limitations as a financial measure and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. There are limitations to using non-GAAP financial measures, including that other companies, including companies in our industry, may calculate free cash flow differently. Because of these limitations, you should consider free cash flow alongside other financial performance measures, including net cash provided by (used in) operating activities, capital expenditures and our other GAAP results.
The following table presents a reconciliation of net cash provided by (used in) operating activities to free cash flow for each of the periods indicated.
($ in thousands)
Fiscal Year Reconciliation of Net Cash Provided by (Used in) Operating Activities to Free Cash Flow
2020 2019 2018
Net cash provided by (used in) operating activities
$ 46,581 $ (13,415) Deduct: Capital expenditures (130,743) (48,636) (44,160) Free Cash Flow$ 2,012 $ (2,055) $ (57,575) Free cash flow may be affected in the near to medium term by the timing of capital investments (such as the launch of new fulfillment centers, customer service centers, and corporate offices and purchases of IT and other equipment), fluctuations in our growth and the effect of such fluctuations on working capital, and changes in our cash conversion cycle due to increases or decreases of vendor payment terms as well as inventory turnover.
Key Operating Metrics
Active Customers
As of the last date of each reporting period, we determine our number of active customers by counting the total number of individual customers who have ordered, and for whom an order has shipped, at least once during the preceding 364-day period. The change in active customers in a reporting period captures both the inflow of new customers as well as the outflow of customers who have not made a purchase in the last 364 days. We view the number of active customers as a key indicator of our growth-acquisition and retention of customers-as a result of our marketing efforts and the value we provide to our customers. The number of active customers has grown over time as we acquired new customers and retained previously acquired customers.
Net Sales Per Active Customer
We define net sales per active customer as the aggregate net sales for the preceding four fiscal quarters, divided by the total number of active customers at the end of that period. We view net sales per active customer as a key indicator of our customers' purchasing patterns, including their initial and repeat purchase behavior.
Autoship and Autoship Customer Sales
We define Autoship customers as customers in a given fiscal quarter for whom an
order has shipped through our Autoship subscription program during the preceding
364-day period. We define Autoship as our subscription program, which provides
automatic ordering, payment, and delivery of products to our customers. We view
our Autoship subscription program as a key driver of recurring net sales and
customer retention. For a given fiscal quarter, Autoship customer sales consist
of sales and shipping revenues from all Autoship subscription program purchases
and purchases outside of the Autoship subscription program by Autoship
customers, excluding taxes collected from customers, excluding any refund
allowance, and net of any promotional offers (such as percentage discounts off
current purchases and other similar offers), for that quarter. For a given
fiscal year, Autoship customer sales equal the sum of the Autoship customer
sales for each of the fiscal quarters in that fiscal year.
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Autoship Customer Sales as a Percentage of
We define Autoship customer sales as a percentage of net sales as the Autoship customer sales in a given reporting period divided by the net sales from all orders in that period. We view Autoship customer sales as a percentage of net sales as a key indicator of our recurring sales and customer retention.
Components of Results of Consolidated Operations
We derive net sales primarily from sales of both third-party brand and proprietary brand pet food, pet products, pet medications and other pet health products, and related shipping fees. Sales of third-party brand and proprietary brand pet food, pet products and shipping revenues are recorded when products are shipped, net of promotional discounts and refund allowances. Taxes collected from customers are excluded from net sales. Net sales is primarily driven by growth of new customers and active customers, and the frequency with which customers purchase and subscribe to our Autoship subscription program. We also periodically provide promotional offers, including discount offers, such as percentage discounts off current purchases and other similar offers. These offers are treated as a reduction to the purchase price of the related transaction and are reflected as a net amount in net sales.
Cost of Goods Sold
Cost of goods sold consists of the cost of third-party brand and proprietary brand products sold to customers, inventory freight, shipping supply costs, inventory shrinkage costs, and inventory valuation adjustments, offset by reductions for promotions and percentage or volume rebates offered by our vendors, which may depend on reaching minimum purchase thresholds. Generally, amounts received from vendors are considered a reduction of the carrying value of inventory and are ultimately reflected as a reduction of cost of goods sold.
Selling, General and Administrative
Selling, general and administrative expenses consist of payroll and related expenses for employees involved in general corporate functions, including accounting, finance, tax, legal and human resources; costs associated with use by these functions, such as depreciation expense and rent relating to facilities and equipment; professional fees and other general corporate costs; share-based compensation; and fulfillment costs. Fulfillment costs represent costs incurred in operating and staffing fulfillment and customer service centers, including costs attributable to buying, receiving, inspecting and warehousing inventories, picking, packaging and preparing customer orders for shipment, payment processing and related transaction costs and responding to inquiries from customers. Included within fulfillment costs are merchant processing fees charged by third parties that provide merchant processing services for credit cards.
Advertising and Marketing
Advertising and marketing expenses consist of advertising and payroll related expenses for personnel engaged in marketing, business development and selling activities.
Presentation of Results of Consolidated Operations and Liquidity and Capital Resources
The following discussion and analysis of our Results of Consolidated Operations and Liquidity and Capital Resources includes a comparison of Fiscal Year 2020 to Fiscal Year 2019. A similar discussion and analysis which compares Fiscal Year 2019 to Fiscal Year 2018 may be found in the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our annual report filed with theSecurities and Exchange Commission (the "SEC") pursuant to Section 13 or 15(d) under the Exchange Act onApril 2, 2020 . 41 --------------------------------------------------------------------------------
Results of Consolidated Operations
The following tables set forth our results of operations for the fiscal years
presented and express the relationship of certain line items as a percentage of
net sales for those periods. The period-to-period comparison of financial
results is not necessarily indicative of future results.
Fiscal Year
% change % of net sales
($ in thousands) 2020 2019 2018 2020 vs. 2019 2019 vs. 2018 2020 2019 2018
Consolidated Statements of
Operations
Net sales $ 7,146,264 $ 4,846,743 $ 3,532,837 47.4 % 37.2 % 100.0 % 100.0 % 100.0 %
Costs of goods sold 5,325,457 3,702,683 2,818,032 43.8 % 31.4 % 74.5 % 76.4 % 79.8 %
Gross profit 1,820,807 1,144,060 714,805 59.2 % 60.1 % 25.5 % 23.6 % 20.2 %
Operating expenses:
Selling, general and
administrative 1,397,969 969,890 589,507 44.1 % 64.5 % 19.6 % 20.0 % 16.7 %
Advertising and marketing 513,302 426,896 393,064 20.2 % 8.6 % 7.2 % 8.8 % 11.1 %
Total operating expenses 1,911,271 1,396,786 982,571 36.8 % 42.2 % 26.7 % 28.8 % 27.8 %
Loss from operations (90,464) (252,726) (267,766) 64.2 % 5.6 % (1.3) % (5.2) % (7.6) %
Interest (expense) income,
net (2,022) 356 (124) n/m n/m - % - % - %
Loss before income tax
provision (92,486) (252,370) (267,890) 63.4 % 5.8 % (1.3) % (5.2) % (7.6) %
Income tax provision - - - - % - % - % - % - %
Net loss $ (92,486) $ (252,370) $ (267,890) 63.4 % 5.8 % (1.3) % (5.2) % (7.6) %
n/m - not meaningful
Net Sales
Fiscal Year 2020 vs. 2019 2019 vs. 2018
($ in thousands) 2020 2019 2018(1) $ Change % Change $ Change % Change
Consumables $ 4,967,673 $ 3,596,778 $ 2,708,156 $ 1,370,895 38.1 % $ 888,622 32.8 %
Hardgoods 1,153,639 705,087 551,425 448,552 63.6 % 153,662 27.9 %
Other 1,024,952 544,878 273,256 480,074 88.1 % 271,622 99.4 %
Net sales $ 7,146,264 $ 4,846,743 $ 3,532,837 $ 2,299,521 47.4 % $ 1,313,906 37.2 %
(1) Prior periods have been reclassified to conform with current presentation.
Net sales for Fiscal Year 2020 increased by$2.3 billion , or 47.4%, to$7.1 billion compared to$4.8 billion for Fiscal Year 2019. This increase was primarily due to growth in our customer base, with the number of active customers increasing by 5.7 million, or 42.7% year-over-year. Spending among our active customers increased with net sales per active customer increasing$12 , or 3.3%, to$372 in Fiscal Year 2020 compared to Fiscal Year 2019, driven by catalog expansion and growth across all verticals.
Cost of Goods Sold and Gross Profit
Cost of goods sold for Fiscal Year 2020 increased by$1.6 billion , or 43.8%, to$5.3 billion compared to$3.7 billion in Fiscal Year 2019. This increase was primarily due to a 48.9% increase in orders shipped and associated product costs, outbound freight, and shipping supply costs. The increase in cost of goods sold was lower than the increase in orders on a percentage basis, primarily as a result of realized supply chain efficiencies and change in mix of sales as hardgoods, healthcare, and proprietary brand businesses continue to grow faster than the overall business. 42 -------------------------------------------------------------------------------- Gross profit for Fiscal Year 2020 increased by$676.7 million , or 59.2%, to$1.8 billion compared to$1.1 billion in Fiscal Year 2019. This increase was primarily due to the year-over-year increase in net sales as described above. Gross profit as a percentage of net sales for Fiscal Year 2020 increased by approximately 190 basis points compared to Fiscal Year 2019, primarily due to margin expansion across all verticals including continued growth in our proprietary brands, hardgoods, and healthcare businesses.
Selling, General and Administrative
Selling, general and administrative expenses for Fiscal Year 2020 increased by$428.1 million , or 44.1%, to$1.4 billion compared to$969.9 million in Fiscal Year 2019. This increase was primarily due to an increase of$324.8 million in fulfillment costs largely attributable to increased investments to support overall growth of our business including the opening of new fulfillment centers inArchbald, Pennsylvania ,Salisbury, North Carolina , a limited catalog fulfillment center inKansas City, Missouri , a customer service center inDallas, Texas , annualization of theDayton, Ohio facility we launched during the thirteen weeks endedAugust 4, 2019 , growth of fulfillment and customer service headcount, and temporary incentive wages and bonuses as well as incremental cleaning and sanitation costs attributable to COVID-19. Facilities expenses and other general administrative expenses increased by$132.9 million , primarily due to expanding our corporate offices and increased headcount as a result of business growth as well as an increase in expenses incurred due to IT initiatives and operating as a public company. Partially offsetting these increases, we recognized a reduction in non-income tax based reserves of$15.9 million and a decrease of$13.7 million in non-cash share-based compensation expense due to the continued vesting of share-based awards.
Advertising and Marketing
Advertising and marketing expenses for Fiscal Year 2020 increased by$86.4 million , or 20.2%, to$513.3 million compared to$426.9 million in Fiscal Year 2019. The increase was primarily due to an increase in advertising and marketing spend through existing channels which contributed to an increase in the number of active customers of 5.7 million.
Liquidity and Capital Resources
We finance our operations and capital expenditures primarily through cash flows generated by operations and equity offerings. Our principal sources of liquidity are expected to be our cash and cash equivalents and our revolving credit facility. Cash and cash equivalents consist primarily of cash on deposit with banks and investments in money market funds. Cash and cash equivalents totaled$563.3 million as ofJanuary 31, 2021 , an increase of$351.3 million fromFebruary 2, 2020 . We believe that our cash and cash equivalents and availability under our revolving credit facility will be sufficient to fund our working capital, capital expenditure requirements, and contractual obligations for at least the next twelve months. In addition, we may choose to raise additional funds at any time through equity or debt financing arrangements, which may or may not be needed for additional working capital, capital expenditures or other strategic investments. Our opinions concerning liquidity are based on currently available information. To the extent this information proves to be inaccurate, or if circumstances change, future availability of trade credit or other sources of financing may be reduced and our liquidity could be adversely affected. Our future capital requirements and the adequacy of available funds will depend on many factors, including those described in the section titled "Risk Factors" in Item 1A of this 10-K Report. Depending on the severity and direct impact of these factors on us, we may be unable to secure additional financing to meet our operating requirements on terms favorable to us, or at all.
We have contractual obligations and other commitments that will need to be funded in the future, in addition to our working capital, capital expenditures and other strategic initiatives. Material contractual obligations generally relate to operating and real estate lease obligations.
Operating and real estate lease obligations relate to fulfillment and customer service centers, corporate offices and certain equipment under non-cancelable operating leases, which expire at various dates through 2034. Real estate obligations include legally binding minimum lease payments for operating lease arrangements which have not yet commenced. As ofJanuary 31, 2021 , operating and real estate lease obligations included legally binding minimum lease payments of$770.3 million . For additional information related to real estate and operating leases, see Note 6 - Leases, in the "Notes to Consolidated Financial Statements" included in Part II, Item 8, Financial Statements and Supplementary Data, of this 10-K Report. 43 --------------------------------------------------------------------------------
Initial Public Offering
During Fiscal Year 2019, we closed our initial public offering ("IPO"), in which
we issued and sold 5.6 million shares of our Class A common stock at a public
offering price of $22.00 per share, raising $110.3 million in net proceeds after
deducting underwriting discounts, commissions, and offering costs of $6.2
million . For additional information, see Note 7 - Stockholders' Deficit, in the
"Notes to Consolidated Financial Statements" included in Part II, Item 8,
Financial Statements and Supplementary Data, of this 10-K Report.
2020 Equity Offering
During Fiscal Year 2020, we issued and sold 5,865,000 shares of Class A common stock at a public offering price of$54.40 per share, raising$318.4 million in net proceeds after deducting offering costs of$0.6 million . For additional information, see Note 7 - Stockholders' Deficit, in the "Notes to Consolidated Financial Statements" included in Part II, Item 8, Financial Statements and Supplementary Data, of this 10-K Report. Cash Flows Fiscal Year ($ in thousands) 2020 2019 2018 Net cash provided by (used in) operating activities$ 132,755 $ 46,581 $ (13,415) Net cash (used in) provided by investing activities$ (123,695) $ (49,861) $ 31,838 Net cash provided by financing activities$ 342,197 $ 127,037 $ 1,141 Operating Activities Net cash provided by operating activities was$132.8 million for Fiscal Year 2020, which primarily consisted of$92.5 million of net loss, non-cash adjustments such as depreciation and amortization expense of$35.7 million and share-based compensation expense of$121.3 million , and a cash increase of$56.8 million from the management of working capital. Cash increases from working capital were primarily driven by an increase in fulfillment and payroll liabilities, and partially offset by the increase in inventory purchases exceeding the increase in payables. Net cash provided by operating activities was$46.6 million for Fiscal Year 2019, which primarily consisted of$252.4 million of net loss, non-cash adjustments such as depreciation and amortization expense of$30.6 million and share-based compensation expense of$134.9 million , and a cash increase of$122.2 million from the management of working capital. Cash increases from working capital were primarily driven by an increase in fulfillment liabilities and the increase in payables exceeding the increase in inventory purchases.
Investing Activities
Net cash used in investing activities was$123.7 million for Fiscal Year 2020, primarily consisting of$130.7 million of capital expenditures related to the launch of new fulfillment centers, the expansion of corporate and customer service offices, and additional investments in IT hardware and software, partially offset by$9.0 million of cash reimbursements, net of advances from PetSmart. Net cash used in investing activities was$49.9 million for Fiscal Year 2019, primarily consisting of$48.7 million of capital expenditures related to the launch of new fulfillment centers, the expansion of corporate and customer service offices, and additional investments in IT hardware and software, and$1.2 million of cash advances, net of reimbursements from PetSmart.
Financing activities
Net cash provided by financing activities was$342.2 million for Fiscal Year 2020 primarily consisting of$318.4 million of proceeds from our equity offering inSeptember 2020 , net of offering costs and$23.2 million received pursuant to the tax sharing agreement with PetSmart. Net cash provided by financing activities was$127.0 million for Fiscal Year 2019, primarily consisting of$110.3 million of proceeds from our IPO, net of underwriting discounts, commissions and offering costs and$17.3 million received pursuant to the tax sharing agreement with PetSmart. 44 --------------------------------------------------------------------------------
ABL Credit Facility
OnJune 18, 2019 , we entered into a five-year senior secured asset-backed credit facility (the "ABL Credit Facility") which provides for non-amortizing revolving loans in an aggregate principal amount of up to$300 million , subject to a borrowing base comprised of, among other things, inventory and sales receivables (subject to certain reserves). The ABL Credit Facility provides the right to request incremental commitments and add incremental asset-based revolving loan facilities in an aggregate principal amount of up to$100 million , subject to customary conditions. As ofJanuary 31, 2021 , we had no outstanding borrowings under the ABL Credit Facility. For additional information with respect to our ABL Credit Facility, see Note 5 - Debt in the Notes to Consolidated Financial Statements included in Part II, Item 8, Financial Statements and Supplementary Data, of this 10-K Report.
Critical Accounting Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of our consolidated financial statements and related disclosures requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, net sales, costs and expenses and related 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 and, 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 under different assumptions and conditions. See Note 2 - Summary of Significant Accounting Policies, in the "Notes to Consolidated Financial Statements" included in Part II, Item 8, Financial Statements and Supplementary Data, of this 10-K Report for a description of our significant accounting policies as well as a description of recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted as of the date of this 10-K Report.
Share-Based Compensation
We measure the cost of employee services received in exchange for a grant of a share-based award using the grant-date fair value of the award. For grants of restricted stock units subject to service-based vesting conditions, the fair value is established based on the market price on the date of the grant. The fair value of restricted stock unit grants subject to market-based vesting conditions is determined on the date of grant using aMonte Carlo model to simulate total stockholder return for Chewy and peer companies. The Company accounts for forfeitures as they occur. The Monte Carlo simulation requires the use of several variables to estimate the grant-date fair value of our share-based compensation awards including our stock price and a number of assumptions, including volatility, performance period, risk-free interest rate and expected dividends. The risk-free interest rate utilized is based on a 5-year term-matched zero-couponU.S. Treasury security yield at the time of grant. Expected volatility is based on historical volatility of the stock of our peer firms.
Income Taxes
Estimates of deferred income taxes reflect management's assessment of actual future taxes to be paid on items reflected in the consolidated financial statements, giving consideration to both timing and the probability of realization. Actual income taxes could vary from these estimates due to future changes in income tax law, state income tax apportionment or the outcome of any review of our tax returns by theIRS , as well as actual operating results that may vary significantly from anticipated results. For additional information on deferred tax assets and liabilities, see Item 8 of Part II, "Financial Statements and Supplementary Data", Note 9 - Income Taxes. We also recognize liabilities for uncertain tax positions based on the two-step process prescribed by the accounting guidance for uncertainty in income taxes. We determine whether it is more likely than not that a tax position will be sustained upon examination. The tax benefit of any tax position that meets the more likely than not recognition threshold is calculated as the largest amount that is more than 50% likely of being realized upon resolution of the contingency. This measurement step is inherently difficult and requires subjective estimations of such amounts to determine the probability of various possible outcomes. We consider many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustments and which may not accurately anticipate actual outcomes. 45 --------------------------------------------------------------------------------
Recent Accounting Pronouncements
Information regarding recent accounting pronouncements is included in Item 8 of Part II, "Financial Statements and Supplementary Data", Note 2 in the "Notes to Consolidated Financial Statements" of this 10-K Report.
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